II. The Cultural Property Export and Import Act

In order to better ensure the preservation in Canada of significant examples of our cultural, historic and scientific heritage, the Government of Canada enacted legislation to prevent the uncontrolled export of such cultural property.

The Cultural Property Export and Import Act (Act) came into force on September 6, 1977. It regulates the import and export of cultural property and provides special tax incentives to encourage Canadians to donate or sell important objects to public institutions in Canada.

The Act contains the following features:

1. Export Control

The export of cultural property is governed by the Canadian Cultural Property Export Control List, which establishes categories of objects, and age and value limits. The departure from Canada of an object falling within the Control List can be postponed if, as the result of an appeal by a person who has had an export permit refused, the Canadian Cultural Property Export Review Board judges that a reasonable delay period should be created. This enables interested public authorities and custodial institutions in Canada to purchase it at a fair market price. If the object is not purchased within the delay period, an export permit is granted. The export control system is administered by Canada Customs, acting on the advice of locally designated expert examiners.

2. The Canadian Cultural Property Export Review Board

The Canadian Cultural Property Export Review Board is an arm's length agency of the Department of Canadian Heritage that was established by section 18 of the Act. Among its various responsibilities, the Board makes determinations with respect to the "outstanding significance and national importance" of objects or collections donated or sold to Canadian museums, art galleries, archives and libraries. On December 17, 1991, retroactive to February 21, 1990, the Cultural Property Export and Import Act and the Income Tax Act were amended so that the added responsibility of determining the fair market value of certified cultural property for income tax purposes was transferred from the Department of National Revenue to the Review Board.

On November 1, 1995, Bill C-65, a Government Organization Act concerning Federal Agencies was proclaimed into force, whereby the number of members sitting on the Review Board was reduced from 13 residents of Canada, including the Chairman. The Act now provides for a 10-member Board that is appointed by Governor-in-Council and is comprised of two members, including the Chairperson, chosen generally from among residents in Canada; up to four members who are or have been officers, members or employees of art galleries, museums, archives, libraries or other similar institutions in Canada; and up to four members who are or have been dealers in or collectors of art, antiques or other objects that form part of the national heritage.

3. Designation

Designation of institutions and public authorities under the Cultural Property Export and Import Act is a means of ensuring that institutions applying for cultural property grants and loans, or for Cultural Property Income Tax Certificates (T871s), meet certain legal, curatorial and environmental requirements. The Review Board may issue T871s only for donations or sales to institutions or public authorities that have received Category 'A' or Category 'B' designation from the Minister of Canadian Heritage.

Category 'A' designation is granted for an indefinite period of time to institutions and public authorities that are well established and meet all of the criteria for designation. Category 'B' status, on the other hand, is granted exclusively in relation to the proposed acquisition of an object or collection to institutions or public authorities that do not meet all of the criteria for designation, but which have demonstrated their capability to effectively preserve the specific property for which certification is desired.

NOTE: Gifts or sales that have been made prior to the effective date of designation may not be certified as cultural property for income tax purposes.

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4. Tax Incentives

The Income Tax Act provides for exemptions from the payment of capital gains tax for cultural property that has been certified by the Canadian Cultural Property Export Review Board and sold or donated by individuals to designated institutions or public authorities in Canada. Gifts of certified cultural property to designated institutions and public authorities are also eligible for a tax credit based on the FMV of the gift up to the total amount of tax still payable, after claiming credits for any other charitable donations and gifts.

1997 Budget: Charitable Tax Receipts vs. Cultural Property Income Tax Receipts

There are two significant differences between the measures proposed in the 1997 Budget with regard to gifts of cultural objects to a charity or to the Crown and the existing tax treatment of donations of certified cultural property to designated institutions:

1. The budget proposal does not exempt the capital gain on a donation of cultural objects from income tax for which a charitable tax receipt or a receipt for a gift to the Crown has been issued. It simply provides that the resulting donation tax credit may be used to offset the capital gain in the year of the donation.

   This can be contrasted with the treatment of certified cultural property under which any capital gain resulting from a donation is exempt from tax. As a result, where a donor makes a gift of certified cultural property, the donation tax credit resulting from any capital gain is fully available to reduce tax on other income. For gifts of uncertified cultural objects to a charity or to the Crown, the donation tax credit resulting from the capital gain is used to offset taxes resulting from the inclusion of the capital gain in the donor's income.

2. A second significant difference between the two regimes is the extent to which the donation tax credit resulting from a gift may be used to reduce a donor's income from other sources. In the case of a donation of certified cultural property, a donor may offset the tax on 100% of net income, and thereby reduce his or her income tax liability to zero. This treatment is available in the year of the donation and in the following five years. In the case of a gift of property under the 1997 budget measures, a donor is only allowed to offset tax based on 75% of net income.
   

Examples which illustrate the difference in tax treatment between gifts made under the proposed budget measures, and donations of certified cultural property can be obtained on request from the Secretariat. They demonstrate that, because of the differences between these two regimes, a donor may be better off choosing certified cultural property treatment when the value of the gift is over $1,000.^* As well, because under the proposed budget measure capital gains are still included in income subject to tax, but can be offset by donation tax credits, overstatements of the value of a donation are of little net benefit to a donor, as they reduce the tax credit that is available to offset tax on other income.

The above comments on the tax consequences of donations are illustrative and for information only and should not be construed as legal or accounting advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

Redeterminations and Appeals

On July 12, 1996, Bill C-93, an Act to amend the Cultural Property Export and Import Act, the Income Tax Act and the Tax Court of Canada Act, was proclaimed into force. These amendments provide for the establishment of a process of appeals of determinations of fair market value made by the Review Board that extend to the Tax Court of Canada (see Chapter IX).

5. Grants and Loans

Funds are available through an annual parliamentary appropriation to assist designated Canadian institutions to purchase significant cultural property threatened by export, and for which the Canadian Cultural Property Export Review Board has created a delay period. Funds are also available to repatriate cultural property related to Canada's heritage that is offered for sale on the international market.

6. International Cooperation

The Cultural Property Export and Import Act contains provisions prohibiting the import into Canada of cultural property illegally exported from foreign states. In 1978, Canada became a signatory to the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property. This Convention, which contains measures to prevent the illicit import, export and transfer of cultural objects, places the onus on each country to develop its own rules for protecting and preserving its cultural heritage. Canada's Act includes procedures for the recovery and return of foreign cultural property which has been illegally exported from its country of origin.

Notes

There is no capital gain or loss on personal use property which costs $1,000 or less if the proceeds of disposition are $1,000 or less (Gifts and Income Tax, Pamphlet P113, Revenue Canada).

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