Hudson’s Bay Artifacts May Have Tax Benefits

Evelyn Jacks

Hudson's Bay has received a judge’s permission to auction off 4,400 artifacts and art pieces which includes the 355-year-old royal charter that launched the company.  Did you know that the buyer may qualify for a little-known donation tax credit if that property is subsequently donated to an institution of public authority designated by the Minister of Canadian Heritage?  This opportunity in fact should be incorporated as part of the high value professional discussions astute tax and financial pros can have with their clients in possession of such treasures. 

The Tax Rules.  Canadian tax filers do not have to report a capital gain when certified Canadian Cultural property (also known as national treasures).

How to get the Certification.   The Canadian Cultural Property Export Review Board certifies the property as cultural property and will give you a certificate for tax purposes.  In fact, the rules have recently been relaxed. 

What qualifies.  Cultural property can include paintings, sculptures, books, manuscripts, or other objects. For donations of cultural property on or after March 19, 2019, the property does not even have to be of "national importance" to qualify for the enhanced tax incentives.  In the case of the Hudson’s Bay artifacts, however, they are clearly of national importance.

How to Apply for Certification. The  Canadian Cultural Property Export Review Board (CCPERB) certifies cultural property of outstanding significance for tax purposes. The certification process encourages the transfer of outstanding examples of Canada's artistic, historic, and scientific heritage from private hands to public collections.  The application process requires that reasons the property’s close association with Canadian history or national life, its aesthetic qualities, or its value in the study of the arts or sciences is described. There are also deadlines to observe.

The government site embellishes on the requirements for each of these benchmarks.  For property that has a close association with Canadian history, for example:  “Your discussion may consider, among others, the object’s close association with a place or event; a person or group; a formative aspect of Canadian history; or a significant historical discovery, development, innovation, or movement. In concluding, explain why the object’s close association with Canadian history is outstanding.”

It would appear that the royal charter that launched Hudson’s Bay should qualify. 

Value.  The eligible amount of your gift is calculated based on the fair market value ( FMV ) of the property, as determined by the Canadian Cultural Property Export Review Board (CCPERB). The FMV of the donated property, as determined or redetermined by the CCPERB, will apply for a 24-month period after the last determination or redetermination. If you gift the property within that 24-month period, use the last determined or redetermined FMV to calculate the eligible amount of the gift, whether you claim the gift as a gift of cultural property or as an ordinary charitable gift.

Tax Tips.  The key tax benefit is that this donation would not be subject to the net income limitation; which is normally 75% except in the year of death when it increases to 100% for the terminal year return and the prior year return. This means you can offset all income of the year, particularly important in the year you sell a major asset.

Tax Traps.  Donations of certified cultural property to a designated institution, may not always work in a taxpayer’s favour, however, depending on the value of the certification.  It is possible to have a capital loss at the time of transfer. In that case, the tax treatment depends on what type of property sold or donated. If it is listed personal property, for example, there are special rules. 

In some cases, there may also be AMT considerations – Alternative Minimum Tax.

Bottom Line:  All tax and financial advisors should be mentioning this special opportunity as part of estate planning discussions, or any time they hear of people downsizing.  It can be very lucrative, from a tax point of view.