It's often said that a picture is worth a thousand words. But, for tax
considerations, it would be more relevant to ask: is it also worth $1,000? Or
$5,000? Or $8,000? A tax case decided last month provides a glimpse into the art
of such valuations.
In December, 1999, Paul Marechal paid $1,700 for a ceramic sculpture created
by Quebec artist Louis Archambault. In November, 2000, less than one year later,
he donated it to the Montreal Museum of Fine Arts. At that time, the Canadian
Cultural Property Export Review Board determined that the fair market value of
the sculpture was $5,000.
The review board is an independent tribunal of the Department of Canadian
Heritage, which consists of various art gallery and museum employees, as well as
dealers and collectors of art. The board's responsibility is to certify whether
artwork is of "outstanding significance and national importance" and to
determine the fair market value of various objects or collections donated or
sold to Canadian museums, art galleries, archives and libraries.
Mr. Marechal, who holds a master's degree in art history and is the curator
of the art collection of Power Corp., disagreed with the board's valuation and
contended that the fair market value of the sculpture he donated should actually
be $8,000, for the purpose of his donation tax credit.
He based this higher valuation on an appraisal conducted in September, 2000,
by Eric Devlin, a Montreal art dealer and gallery owner. This appraisal was
supported in December, 2000, by Simon Blais, another Montreal gallery owner.
So, what is the sculpture's "true" fair market value? The Canada Revenue
Agency has traditionally defined fair market value as "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."
Accordingly, Mr. Marechal 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 judge disagreed, saying "where the board or this 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.
It is not bound by any valuation and is not obliged to pick any one. Its
obligation is to do the best it can to arrive at a true value, difficult as this
may be. This may involve rejecting all valuations, or taking material from some
or all of them and arriving at a conclusion that differs from all of the
In its submissions, the CRA set out a number of factors that should be taken
into account in valuing a work of art, including: the artist's education,
exhibition record and reputation; his or her sales and auction records; specific
market demand; the medium, size, production date, quality and subject matter of
the work; and comparable prices with similar work by the same artist as well as
comparable prices with similar work by other artists with similar experience.
The CRA concluded, however, that often the best evidence of true fair market
value is the price the donor paid for the work plus some potential market value
appreciation over time. According to the CRA, "this removes the problem of
'artificially inflated evaluations' that are in excess of the price at which the
work was actually bought."
After a detailed examination of evidence from both sides, including a
thorough review of what goes into valuing a piece of art, the judge settled on
the board's value of $5,000, but not before acknowledging that valuing a work of
art can be difficult. As the judge wrote, "it is not like valuing a piece of
commercial property, or a house, or shares in a corporation ... There are many
variables and subjective elements that can result in differences in estimates of
value that may vary within a range of indeterminate magnitude."
Unfortunately for Mr. Marechal, the $8,000 valuation was beyond the range
acceptable to the court.
GRAPHIC: Black & White Photo: CanWest News Service; Sculptor Louis Archambault
with some of his work in 1963. A collector who donated an Archambault piece to a
museum said it was worth $8,000, but the Canada Revenue Agency's estimate of
$5,000 was upheld.