Canada: Canada's Split Personality On Art: Donations vs. Export

Last Updated: June 6 2019
Article by Aaron M. Milrad and Gloria Wang

The Heffel Gallery Limited v. Canada (Attorney General), 2018 FC 605 decision (Heffel), rendered by the Federal Court in June 2018 was a historical art law decision that divided the art community. It marked the first time that the "national importance" requirement was judicially considered since the Canadian Property Export and Import Act was enacted in the 1970s. The Heffel decision threatened to completely change the way the Canadian Cultural Property Export Review Board (CPRB) should be evaluating both property for the purposes of an export permit and also cultural property donation tax credit.

The Heffel decision was a result of the CPRB's decision to delay the export permit of the painting, Iris bleus, jardin du Petit Gennevilliers, by French artist Gustave Caillebotte, for six months, on the basis that it was of "outstanding significance and national importance". An export delay gives designated organizations within Canada, such as museums, the opportunity to make an offer and purchase the property before it leaves the country. It also benefits sellers since the sale to a designated organization is exempt from capital gains tax. The Federal Court reviewed the CPRB's decision and found it unreasonable. It was not consistent with Parliament's legislative intent to restrict the scope of interference with property rights. The Court concluded that the requirement of "national importance" was a high standard and should be interpreted narrowly.

The effects of the Heffel decision reverberated through the Canadian art community almost immediately. The Court's narrow interpretation of the "national importance" requirement affected cultural property applying for export permits to leave the country, and property looking to be certified for the cultural property donation tax credit. The same standard of "national importance" inappropriately governs two vastly different objectives. The test for allowing property to leave the country for resale or for gifting should not be the same test used to grant a special donation tax credit to donors looking to donate cultural property to Canadian museums.

On one hand, the narrow interpretation of "national importance" in the Heffel decision makes it more challenging for the CPRB to delay export permits, which increases access to international markets, such as New York and London. In the case of a delayed export permit, if there is an offer to purchase the property during the prescribed delay period, and the seller is unwilling to accept the offer, the CPRB has the right to determine a fair cash offer or purchase price, and mandate the sale. This severely interferes with personal property rights and affects estate planning. The CPRB's authority to determine a price may result in a sale that is contrary to the intention of the property owner, who may have wanted to gift the property to family members living abroad, or to institutions such as their alma mater, instead of selling it to a third party. Heffel lowered the barriers around exporting cultural property, and in turn protected an individual's right to govern their affairs as they see fit. Owners could now export or gift property abroad with a lower risk of interference or delay from the CPRB.

On the other hand, the Heffel decision made it more challenging to qualify for the cultural property donation tax credit, which creates considerable incentive for donors to donate property to designated organizations within Canada. Once the property is certified by the CPRB, the donation, although considered to be a disposition for tax purposes, is exempt from capital gains tax. In addition, the donor receives a special donation tax credit that is based on the fair market value of the property donated, and can be claimed against 100 percent of their net income in the first year. Any unclaimed portions may be carried forward over five years, giving donors ample time to utilize the credit and shelter any future income. If the property is donated without CPRB certification, the tax credit that can be claimed is generally limited to 75 percent of their net income for the year.


The Heffel decision was then appealed to the Federal Court of Appeal (FCA), and a number of art museums and galleries across Canada sought intervener status. Since the Heffel decision was rendered in June 2018, art donations applying to be certified by the CPRB for the purposes of the special donation tax credit have been put on hold until the result of the appeal was released. Donors were losing out on time to fully utilize their special donation tax credit, since the five-year period begins on the date of the donation. Donors risked having unused portions of the tax credit go to waste after the five-year mark due to delays at the CPRB level.

For decades, Canadian museums have relied on donations to build up their collections. The special donation tax credit has been an effective way to incentivize donors to donate pieces to Canadian institutions that they would not have otherwise been able to afford. The stricter interpretation of the "national importance" requirement in Heffel made it harder to qualify for the special donation tax credit, and art institutions around Canada were concerned about the decline in donations as a result.

Before the appeal decision was released, the federal government introduced some changes in the Federal Budget on March 19, 2019. Budget 2019 proposed to remove the national requirement for the purposes of qualifying for the special donation tax credit. If these changes are implemented, it would be a quick fix that would effectively address the concern around declining donations. Since the proposed changes were released, there was considerable uncertainty around the timing of implementation, and pending donations backlogged at the CPRB were still subject to the original Heffel decision, which was under appeal at the time.

Appeal decision

On April 16, 2019, 10 months after Heffel was released, the FCA delivered the long-awaited appeal decision, overturning the lower court. The FCA found that the CPRB's decision to delay the export permit to be reasonable, restoring the broader interpretation of "national importance" pre-Heffel. As a result, the pending donations backlogged at the CPRB will now be subject to the FCA Heffel decision. It is important to note that the FCA Heffel decision may be further appealed for leave to appeal to the Supreme Court of Canada (within 60 days of the appeal decision), and the appeal may take from six months to two years to be heard and decided. The uncertainty might continue on for months or years before the country's highest court settles this matter once and for all.

Regardless of the appeal result, the proposed Budget 2019 changes should be implemented, removing the "national importance" requirement for the purposes of the special donation tax credit. The "national importance" requirement in Canadian law deviates from international standards, and was not mandated by the 1954 Hague Convention that governs the protection of cultural property. Once the Budget 2019 changes are finalized, there will be two standards to harmoniously govern two different areas of art law. One standard with the "national importance" requirement will be applied for the purposes of an export permit, and a different standard will be applied for the purposes of granting the special donation tax credit; namely in the cultural property of "outstanding significance." No longer will the Cultural Property Review Board have to decide on "national importance" for a cultural donation.

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