Artists are often solicited to make a donation of one or more of their artworks. These requests may come from charities, museums, or other organizations.
Artists have the right to refuse to make a donation, just like any other citizen, and no one should view this decision negatively. After all, for most artists, the creation of artworks is their living and not a hobby.
Artists may consider such a donation a contribution to a charitable cause, a business opportunity, and an opportunity to exhibit their artworks. Artists may also make a donation in return for product or service received.
The Canada Revenue Agency has established certain rules for processing tax receipts for the donation of artwork. To draw the best possible economic and social benefits from their donations, artists should always find out about the impact of these donations on their taxes.
This document summarizes the rights and responsibilities of artist donors and of donees, especially organizers of art auctions as fund-raising tools. It also discusses general donations of artworks.
ETHICAL PRINCIPLES UNDERLYING THE USE
OF ARTWORKS FOR FUNDRAISING ACTIVITIES
1 DONATIONS OF ARTWORKS
Whatever the reason for the donation, the transfer of property concerns only the artwork itself and not the attached copyright. The artist retains all copyright unless he or she decides otherwise.
As for any transaction in which there is a transfer of property, it is important to write a contract. In general, this may be a sale contract form in which the value of the artwork and the form of the compensation, if applicable, are indicated. For more information, please see References section.
It is not ethical to harass anyone to obtain a donation from him or her, and it is the same for artists. An artist who refuses to donate artwork should never be harangued by people making solicitations or have his or her reputation impugned.
If an artist refuses to contribute to a charity auction, it may be because he or she has already given one or more works to similar events during the year. In addition, and despite their goodwill, artists do not necessarily have the means to make a donation, as the average artist’s annual income is less than $14,000.
In general, aside from personal gifts or a cause to which an artist is particularly committed, an artist does not donate works without some compensation. This compensation may consist of a product or service received. The donation is thus in reality a barter, an equal exchange made on a voluntary basis.
2 DONATIONS OF ARTWORKS TO CHARITIES
Aside from the fact that production of artworks is how artists make their living, the donation of artworks may have an impact on their career, and each artist must assess the value of this impact.
If the artist is represented by a gallery, he or she should discuss the donation with the gallery owner in order to make an enlightened decision.
An artist who wants to donate artwork in order to contribute to the community should first find out about the rules applied by the Canada Revenue Agency with regard to charitable donations of artworks.
The artist’s relationship with the organizers of a fundraising activity, or with people who ask him or her to make a donation, should be professional. An artist should not donate his or her time or artworks due to any form of pressure.
The artist may feel that a proposed opportunity counterbalances all of the less fair aspects of the plan. In the end, the artist must decide what is in his or her best interests.
3 DONATIONS OF ARTWORKS AND THE CANADA REVENUE AGENCY
The rules of the Canada Revenue Agency (CRA) apply when an artist who has donated artwork presents the tax receipt that has been issued to him or her by a charitable organization (recognized by the CRA or not), a government body, or a museum.
When an artist creates a work of art with the intention of selling it but instead donates it, the donation is considered to be a disposition of property from the artist’s inventory. Disposition of property by the artist from inventory – the value of the work as described in a charitable donation receipt – must be treated as income by the artist. It is in the artist’s best interest to carefully consider the value chosen.
Therefore, from a taxation point of view, donation may not be in the artist’s best interest. A simple cash donation is sometimes preferable. The artist also has the option of archiving the receipt and not including it in his or her tax return.
The only exception concerns donations of artworks to museums or heritage agencies recognized by the CRA, for these artworks are then submitted to the Canadian Cultural Property Export Review Board. If this body approves the donation, a tax credit for the total value of the artwork is issued to the donor.
None of the information given in the above section constitutes tax advice.
For all questions concerning taxes, an expert should be consulted.
4 PROCEDURE FOR DONATING ARTWORK
When artwork is donated to a registered charity or any other organization, its value must be established. The amount should be neither above the fair market value of the artwork nor below the cost of producing it. In tax terms, it is the “proceeds of disposition for the purpose of determining the donor’s capital gain or income.”
The fair market value of artwork is determined by the history of the artist’s sales, those made by the artist or by his or her gallery on his or her behalf.
If there have been few sales in the past, determination of fair market value is more problematic. It may be made by adding up the value of the materials used and the number of hours it took to produce the artwork. But this method is imprecise and the artist must exert his or her own judgment to find the amount that might correspond to what the eventual purchasers are willing to pay. The artist may also compare his or her production with that of other artists felt to be of similar calibre and set his or her prices as a consequence.
Registered charities may produce official receipts for donations of artworks. Such a receipt must reflect the fair market value of the donated artwork. The CRA manages this type of donation like all other charitable donations, based on information contained in the General Income Tax Guide.
5 DONATIONS OF ARTWORKS AND COPYRIGHT
A donation of artwork involves only the physical artwork and not the attached copyright.
The artist retains all copyright unless he or she decides otherwise. This is not recommended, since copyright is a source of income that endures throughout the artist’s life and up to fifty years after his or her death.
The donee might ask the artist for a licence allowing it to use the artwork in various ways. Such a licence may be granted in return for payment of copyright royalties applying to each type of use. A licence contract may then be negotiated.
6 SUMS PAID TO ARTISTS
Artworks sold for fund-raising purposes should not be sold at a price below market value.
The organization must always respect the reserve price established by the artist and/or the artist’s gallery owner. In doing this, the organization helps to maintain the artist’s “stock” that is, the value that the market assigns to his or her artworks.
In the context of a charity auction, the artist may make a complete donation of the artwork in exchange for a tax receipt for the amount obtained for its sale or for its fair market value, whichever amount is lower. If the work is not sold, it must be returned to the artist unless a different decision is made.
The artist may also decide to donate only part of the final price obtained for the artwork during the auction. In this case, the artist may decide on the percentage of the sale price that he or she wishes to keep and the percentage that will be donated to the organization. A 50-50 division of the sale price may be considered fair. The artist may ask for a receipt in exchange for the value of the donation made to the organization.
The artist and his or her gallery owner should negotiate in advance any commission to be received by the gallery following sales of works for charitable purposes. The gallery may also agree to donate its commission to the artist or the organization.
7 THE ARTIST’S RESPONSIBILITIES
The artist should supply the organization with all information required on the artwork, including its fair market value for insurance and the reserve price.
The artist should warrant the origin and originality of his or her artwork.
The artist should also declare that he or she is the owner of the artwork and therefore is able to put it on sale or donate it.
8 THE ORGANIZERS’ RESPONSIBILITIES
The organizers are responsible for insuring the artwork for its full value declared by the artist as long as the artwork is in the organization’s possession.
The organizers should also take all necessary measures to protect the artist’s copyright and inform the acquirers that the purchase of an artwork does not mean acquisition of the copyright.
Following an auction, the organizers should return to the artist the unsold artwork or a receipt, as applicable. They should also provide a sale report specifying the price paid for the work, the name and contact information of the purchaser, and a copy of all promotional documents produced for the event.
In the information materials used to solicit donations of artworks by artists, the organizers should include all conditions for participation in the auction; give the names of the members of the selection committee, if there was one; determine who is responsible for framing; and give a date for returning the work or the payment to the artist. The prospectus should also indicate whether the organizers will issue tax receipts.
The organizers bear the cost of organizing the event, including insurance, advertising, and production of financial reports.
The organizers should never accept payment in the form of a personal cheque, since this is a means frequently used by defrauders. Payments should be made in cash or by debit or credit card.
9 DELIVERY AND INSPECTION OF ARTWORKS
The organizer should inspect the artworks when they arrive and keep a report on their state. A copy of the report, signed by both parties, should be given to the artist.
If an artwork is seen to be damaged when it is delivered, the artist, if he or she has not made the delivery himself or herself, must be notified immediately. If the crate containing the artwork is damaged, everything should be returned to the artist, prepaid, so that the artist may make a claim with his or her insurer.
The organizer may also, with permission from the shipper, remove the contents from the damaged crate; under these circumstances, no claim may be made against the organizer in the case of damage during unpacking.
The organizers should conserve the artwork in the state in which they received it.
The unsold work should be returned to the artist in packaging equivalent to that used during its initial shipping.
10 EXHIBITION OF ARTWORKS
The artworks offered for sale should be exhibited in a professional manner.
The artist or the organizer should not withdraw an artwork from an exhibition or auction without the written consent of the other party.
© RAAV 2012: all rights reserved. This document was written based on Industry Standards/Best Practices, produced by CARFAC Saskatchewan. This document can be viewed at www.bestpracticestandards.ca The CARFAC Saskatchewan document took as its reference The Code of Practice for the Australian Visual Arts and Craft Sector, 2nd ed., developed, commissioned, and published by the National Association for the Visual Arts. RAAV wishes to thank VANL-CARFAC for their contribution to this document.