Three Key Considerations for Donating Art or Collectibles

As a Canadian philanthropist considering donating a piece of art or another collectable, here are three key factors to keep in mind:

  1. Tax Implications:

    • Capital Gains Tax: If you’ve held the item for more than one year and its value has increased, selling it might trigger capital gains tax. Donating it directly to a qualified charity can often avoid this.
    • Charitable Deduction: You may be eligible for a tax deduction based on the fair market value of the item. However, the specific rules and limitations can vary, so it’s essential to consult with a tax professional.

  2. Choosing the Right Charity:

    • Mission Alignment: Ensure the charity’s mission aligns with your philanthropic goals. For example, if the item is a piece of art, consider a museum or art gallery that specializes in the same genre or artist.
    • Acceptance Criteria: Some charities may have specific criteria for accepting donations, such as the item’s value or condition. Research their policies to avoid potential rejection.
    • Maintenance Fees: Ongoing care, restoration, and storage of your artifacts have costs associated with them. As part of your donation of the artifact, many organizations now require a cash donate to cover off the upkeep and storage of the item.

  3. Valuation and Documentation:

    • Professional Appraisal: Obtain a professional appraisal from a qualified appraiser to determine the fair market value of the item. This is crucial for tax purposes and to ensure the charity receives a donation that accurately reflects its worth.
    • Documentation: Keep detailed records of the purchase price, any improvements or repairs, and the appraisal. This documentation will be essential if you need to substantiate your charitable deduction.
    • Canadian Cultural Property Export Review Board (CCPERB)/Heritage Canada: Some artifacts needs to be valued by the Canadian Cultural Property Export Review Board (CCPERB) before they can donated. The institution you are working with should be able to guide you through this process.

Selling v. Donating

Late Barbara Walters in red suit

Art and other items that belonged Barbara Walters, the late American broadcaster, raised $5m for charity this week. Douglas Kirkland, Getty Images

There may be instances where it is in your Estate’s as well as the recipient agency’s best interest for you to sell the item on the open market and then donate the cash directly to the organization you want to support. This can be done in a number of ways:

Your time horizon and that of your inheritors should be taken into consideration. Just like passing down art, setting up a foundation requires ongoing management. It is important to know what those who have to manage your estate think and want so that they are not saddled with managing a collection or a charitable foundation that they are not interested in.

The Conversation – What does legacy look like?

You may know what you want to do with your collectables, but do your kids? Spouse? Administrator? Recipient organization? Starting these conversations while you are healthy and capable is critical. Especially given that donating objects is not as straight forward as transferring cash. To help you we have created a set of Legacy Questions for you to talk through with your loved ones and estate managers.

By carefully considering these factors, you can make an informed decision about donating your art or collectible and maximize its impact while minimizing potential tax consequences. If you are looking for some suggestions, check out our 2024 Charity List.