The Art of Expensing
How businesses can get a deduction for office decor
If you're a business owner who enjoys displaying artwork in your corporate offices, you might be entitled to some tax relief to help subsidize the cost of your art. In a recent technical interpretation letter, Canada Revenue Agency addressed the question of whether taxpayers who purchase or rent works of art, either for their own individual office or for the common areas of their places of business (such as a lobby or hallway), would be permitted to claim a tax deduction for the cost of purchasing or renting the art. Here's what the CRA has determined:
BUYING AWORK OF ART The CRA responded that a taxpayer who acquires a work of art may be able to deduct an amount from the business income provided the artwork was acquired for the purpose of earning income and is not a personal expense. Of course, the CRA goes on to say that the question of whether the artwork was acquired in order to earn income is "a question of fact that can only be determined after a full analysis of all facts related to a given situation." If the artwork was acquired in order to earn income, the purchaser must determine whether the amount paid is a current expense or is capital in nature. This can be done by looking at traditional factors such as the purchaser's intention at the time of acquisition: was it to hold it long term or flip for a quick profit? In most cases, the purchase would likely be considered a capital expense, meaning that the purchaser may be entitled to claim tax depreciation costs when computing business income.
But that's where the rules get tricky. Under the Tax Act, as long as the art costs at least $200, it can be capitalized and depreciated at a rate of 20% per year for tax purposes, provided it was acquired for the purpose of earning income and that the artist was Canadian at the time the work was done. In other words, artwork that has a cost greater than $200 but is not created by a Canadian artist is specifically excluded as property that can be depreciated for tax purposes. According to the CRA, this is because art objects typically do not depreciate in value, but rather appreciate over the long term.
RENTAL OF ARTWORK The CRA was also asked about whether the cost of renting artwork for display in the office was deductible. The CRA confirmed that a taxpayer can deduct the cost of renting the art provided the expense was incurred for the purpose of earning income, which, not surprisingly, is also a question of fact.