A recent Court decision and the response to the decision by the Canadian Cultural Property Export Review Board (“CCPERB”) have significantly impacted the criteria that certain donations have to meet in order to qualify as cultural gifts within the meaning of the definition in subsection 118.1(1) of the Income Tax Act (“ITA”).
In mid-June, the Federal Court of Justice issued its decision in Heffel Gallery Limited v. The Attorney General of Canada, 2018 FC 605 (“Heffel”) commenting on the meaning of “outstanding significance” and “national importance” in the Cultural Property Export and Import Act (“CCPERB Act”) – also key terms in the definition of “total cultural gifts” in the ITA. The decision involves a judicial review of a decision by CCPERB to delay the issue of an export permit for a French painting sold by Heffel to a U.K. buyer, on the basis that the painting was of “national importance”. The painting, Iris bleus, jardin du Petit Gennevilliers (1892) by French painter Gustave Caillebotte, had been in a private Canadian collection for 50 years.
The Court held that CCPERB’s interpretation of “national importance” under the CCPERB Act was overly broad and unreasonable. The Court also found that “[t]here was no reasonable basis for the Board to have concluded that the Painting was of such a degree of national importance that its loss to Canada would significantly diminish the national heritage. The artist and subject matter were not Canadian and the Painting has no connection to the Canadian public or Canadian Impressionism.” Accordingly, the Court quashed the CCPERB decision and remitted it for a new hearing. This decision has been appealed by the Attorney General to the Federal Court of Appeal.
However, in the interim, the CCPERB has issued a Practice notice: Determination of national importance pursuant to paragraph 11(1)(b) following the Federal Court of Canada decision in Heffel Gallery Limited v. The Attorney General of Canada, 2018 FC 605 . In the Practice Notice, the CCPERB indicates that it remains bound by the interpretation of the national importance requirement adopted by the Court, which is now applicable to its decision-making in both requests for review of applications for export permits and applications for certification of cultural property. Applicants for certification of cultural property are being provided with the option to either:
a) demonstrate that the object that is the subject of the application meets the test for national importance established by the Court in the Heffel Decision;
or
b) request the Review Board defer rendering its decision in the application until after the Federal Court of Appeal renders its decision in the appeal of the Heffel Decision.
An applicant who elects the first option is being required to address, in its statement of outstanding significance and national importance included as part of its application for certification, how the object that is the subject of the application has a direct connection with the cultural heritage that is particular to Canada.
In determining whether an object meets the test for national importance established by the Court in the Heffel decision, the Practice Notice indicates that the factors that CCPERB will consider include:
a) the extent to which the object has a connection to Canada or to Canadian heritage;
b) the extent to which the object had an influence on the Canadian public, the practices of Canadian creators or Canadians working in a particular field of work or study; and
c) the extent to which the object’s connection to the cultural heritage is particular to Canada.
As previously indicated, the criteria under paragraphs 11(1)(a) and (b) of the CCPERB Act is the same criteria required to meet the definition of “total cultural gifts” under subsection 118.1(1) of the ITA. This means, as CCPERB indicates, that these criteria will also be applied when determining whether a gift of a particular property (art, archives, video, sculpture, etc.) qualifies for the enhanced tax benefits of a gift of cultural property. The Court decision and CCPERB’s Practice Notice, if maintained, will likely negatively impact the quantity and quality of donations made to Canadian cultural institutions, particularly with respect to major works that have a tenuous connection to Canada, and will likely decrease transfer of cultural property from private to public collections (contrary to the original intent of the provision).