How to invest in art

22 November 2021 by National Bank
Photo of a woman looking at paintings in an art gallery.

Investing in art is investing in a rich, diverse and prosperous market. The good news is that you don't have to be a millionaire either. How do you invest in art and ensure a good return? Here are some of our tips.

Learn about the market to invest in art

The art market represents an interesting alternative to traditional financial investments. And for good reason: its average annual return is comparable to that of the main stock market indices. So, if you want to make the right decisions and invest in art, you’ll need to do your homework. "You have to see works of art first, see what's going on in the museums. You must know the history of art and the career of the artist. That's how you start collecting," says Jo-Ann Kane, curator of major collections for corporations, including National Bank, and a member of the board of the Conseil des arts et des lettres du Québec. Museums, galleries, books and magazines on contemporary art will allow you to follow the evolution of artists.

What if you chose to invest in Quebec art?

Choosing to invest in Quebec art is choosing to make a sound financial investment. By acquiring an eligible work of art by a Canadian artist, under certain conditions, a taxpayer - whether an individual, a partnership, a corporation or a trust - can write off 20% of its cost at the federal level and 33.3% at the provincial level.

Good to know: the first year of purchase

The half-rate rule applies: the amortization corresponds to 10% at the federal level and 16.67% at the provincial level.

A freelancer, under certain conditions, can also deduct this expense from their income and recover the taxes if they are registered for GST and QST.

Contemporary, renowned or emerging artists? Focus on the most promising option

To make the best choice, assess if the artist is thriving by considering their:

  • Influence
  • Public recognition in the art market
  • Media recognition

 

“An artist comes with a certain level of recognition from their peers and from a wider circle,” explains Pascal Desjardins, commissioner and co-founder of La petite commission. “The more references an artist has, the lower the risk of investing in their work.”

 

The following points are worth analyzing:

  • Their biography and professional background
  • If their work has been part of a private or corporate collection, and whether it has been acquired by museums
  • If the artist had any solo exhibitions, and with whom they have exhibited

 

A renowned artist will have exhibited in well-known places, such as an artists’ centre or a famous museum, either locally or abroad.

Have you got your eye on a piece by an artist who has exhibited in New York?

“There are many galleries in that city, and some of them are far from being reputable,” warns Kane. “For many people, exhibiting work abroad seems like a good gauge of quality. Quite the contrary—you need to verify the gallery or museum’s importance before acquiring work.”

For a few hundred dollars, you could also get your hands on a painting by a promising emerging artist.

“If you have an interest in collecting, you may already have your eye on some work," says Desjardins. “It's also nice to invest in an artist whose work you like, who hasn't yet acquired recognition yet. You can start to develop an eye for this."

Aesthetic qualities are also taken into consideration when determining if a piece will gain value. “You want to make sure you have their best work, acquired from the artist’s best period,” explains Jo-Ann Kane. “A good understanding of their career is essential.” Collecting based on a name is not a guaranteed good investment.

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Think about the long-term profitability of your acquisitions

For a project to be profitable, it must be considered a long-term investment. You should also consider the physical conditions for the exhibition, preservation and storage of the artwork so you can, quite literally, protect your investment.
“Once a piece of artwork is damaged, it loses at least 30% of its value,” explains Kane. “Even more if it is badly damaged or restored. It should be framed well and handled by specialists.” Artwork should not be displayed near a strong source of light. “You must never hang work on paper near a window. Even when the work is protected, the UV in the paper will continue to damage the material,” she explains.

Donating your works of art, an initiative that pays off

When investing in art, the "aftermath" is also to be considered. Indeed, the donation of one or more of your acquisitions could play in your favour: "By choosing a piece that may interest museums, it is possible you could eventually donate it. At the time of the exchange, 125% of the artwork’s current value is eligible for a non-refundable tax credit. Therefore, if you purchase a $5,000 piece and 15 years later it is worth $30,000, you would be entitled to a tax credit valued at $37,500.” The donation amount of the artwork is increased by 25% if the donation is made to a museum.”

However, Kane explains that “To avoid speculation, the Government of Canada tightened restrictions on acquiring work for the sole purpose of donating it directly. If the government suspects that an acquisition was made only for speculative purposes, the donation could be restricted.”

Note that it is also possible for an individual to offer a work of art to a charity recognized by the Taxation Act. The gesture will then be treated as a cash donation and the donor will benefit from a tax credit. Then, if the acquired work is sold and its market value has increased since the purchase, 50% of the capital gain will be taxable. If applicable, the purchaser will also have to add the recapture of amortization claimed to income.

You wish to invest in art with peace of mind? Speak to an expert

To make a sound financial investment in art, it's best to work with an expert. An expert knows the art market perfectly and will be able to guide you to make the right investments at the right time. Pascal Desjardins advises, “Speak with gallery owners—they are the ones who are most passionate. Go see them, listen to them talk about work they love. Then decide if it makes sense for you.” Kane adds, “Gallery owners can offer good advice, but you have to remember that it’s in their interest to sell. When speaking with an advisor, do your research to find out who they are working with and what collections they have built.”

As you can see, investing in art takes time, patience and the right resources. Before you get started, take the time to think about all these elements to make the right investments at the right time.

If you lack a coherent investment strategy, take the time to discuss it with our team.

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