The Federal Court of Appeal this week, in a unanimous decision, dismissed
Paul Marechal's appeal of last year's Tax Court of Canada's decision overruling
the fair market value of a piece of art that Mr. Marechal donated to the
Montreal Museum of Fine Arts.
In December, 1999, Mr. Marechal purchased a ceramic sculpture created by
Quebec sculptor Louis Archambault for $1,700. In November, 2000, less than one
year later, he donated it to the museum. At that time, the Canadian Cultural
Property Export Review Board determined that the fair market value of the
sculpture was worth $5,000.
Mr. Marechal, who holds a master's degree in art history and is the curator
of the art collection of Power Corporation, disagreed with the board's valuation
and contended that the fair market value of the sculpture he donated for the
purpose of his donation tax credit should actually be $8,000, based on
appraisals conducted by two other Montreal gallery owners.
The case focused on the meaning of the phrase "fair market value." The Canada
Revenue Agency has traditionally defined fair market value as being "the highest
price obtainable in an open and unrestricted market between informed and prudent
parties, acting at arm's length, under no compulsion to act, expressed in terms
of money, or money's worth."
Mr. Marechal had argued that since there are a variety of valuations to
choose from ($1,700, $5,000 and $8,000) the highest value should be chosen. The
Tax Court judge disagreed, saying that where the court "has the obligation of
determining the fair market value of a property and is faced with several
different figures, it does not fulfill that obligation by picking the
highest...its obligation is to do the best it can to arrive at a true value,
difficult as this may be."
The judge settled on the board's value of $5,000, which was upheld this week
by the Federal Court of Appeal. The Appeal court concurred with the lower
court's conclusion that the best indicator of the correct commercial value of
the art donated by Mr. Marechal was the price he paid, increased by an
approximate multiple of three, which, while somewhat arbitrary, accounts for the
"fluctuation factor of the open market."