Gifts of Cultural Property – Undoing Heffel
By: Karen Cooper
As part of a package of measures intended to increase support for Canadian artists and cultural events, Budget 2019 included aimed at ending any lingering uncertainty around gifts of cultural property arising from the Federal Court of Justice’s decision in Heffel Gallery Limited v. The Attorney General of Canada, 2018 FC 605 (“Heffel”). An appeal of this decision was heard recently by the Federal Court of Appeal, but a decision has not yet been issued.
In Heffel, the Court commented 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 Income Tax Act (“ITA”) – restricting the application of “national importance” to works with “such a degree of national importance that its loss to Canada would significantly diminish the national heritage.” As a result, in a recently issued Practice Note, the Canadian Cultural Property Export Review Board (“CCPERB”) required applications for certification of cultural property to demonstrate a direct connection with the cultural heritage that is particular to Canada, including 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. See our previous article available at https://drache.ca/articles/charities-current-articles/changes-to-criteria-for-gifts-of-cultural-property/ for a detailed discussion of the decision and Practice Note.
In our view, the Court decision and CCPERB’s Practice Notice caused uncertainty in the cultural community and, if the decision were upheld by the Federal Court of Appeal, would 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 would have decreased transfer of cultural property from private to public collections (contrary to the original intent of the provision). IT would seem that the Department of Finance and others believed similarly.
Budget 2019 proposes amendments to the ITA and CCPERB Act to remove the requirement that property be of “national importance” in order to qualify for the enhanced tax incentives for donations of cultural property. Effectively, gifts of cultural property for the purposes of the ITA will only have to meet the criteria in paragraph 29(3)(b) of the CCPERB Act: be a work of outstanding significance because of its close association with Canadian history or national life, its aesthetic qualities, or its value in the study of the arts or sciences. The means that works with little direct connection to Canada may nonetheless qualify as a gift of cultural property. These measures will apply in respect of donations made on or after March 19, 2019. It is important to note that paragraph 29(3)(c) related to “national importance” and the end result in Heffel will continue to apply to exports of cultural property.