Tolley v. The Queen

Tolley v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2004-09-24
Neutral citation
2004 TCC 650
File numbers
2002-3719(IT)G
Judges and Taxing Officers
Ronald D. Bell
Subjects
Income Tax Act
Decision Content
Docket: 2002-3719(IT)G
BETWEEN:
SUSAN TOLLEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
The appeals of Barbara Quinn (2002-3718(IT)G), Susan Tolley (2002-3719(IT)G), and CaedmonNash (2002-3720(IT)G) were heard together on July 5, 2004 at Toronto, Ontario
By: The Honourable Justice R.D. Bell
Appearances:
Counsel for the Appellant:
Clifford L. Rand and
David C. Muha
Counsel for the Respondent:
Arnold Bornstein, Sointula Kirkpatrick and Michael Appavoo
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 1998 taxation year is allowed, with costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that:
(1) the fair market value of the Prints, being reproductions of art work by Lynn Donahue, Adrienne Veninger and Pamela Stagg, donated by the Appellant to Fresno Pacific College on December 3, 1998 was $23,690;
(2) the Prints were "personal-use property" as defined in section 54 of the Income Tax Act to which the provisions of subsection 46(1) of that Act applied with the result that no gain or loss was realized on disposition by donation by the Appellant; and
(3) the Respondent conceded that the penalties be deleted.
Signed at Ottawa, Canada this 24th day of September, 2004.
"R.D. Bell"
Bell, J.
Citation: 2004TCC650
Date: 20040924
Docket: 2002-3719(IT)G
BETWEEN:
SUSAN TOLLEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
REASONS FOR JUDGMENT
Bell, J.
ISSUES:
1. In respect of her 1998 taxation year, what was the fair market value of the 99 signed and numbered limited edition Prints (each "Print" and, collectively, the "Prints") donated by the Appellant ("Donation") to Fresno Pacific College ("Fresno") on December 3, 1998, the date of Donation. That amount will determine the Appellant's Donation tax credit amount deductible under subsection 118.1(3) of the Income Tax Act ("Act") in respect of such Donation.
2. If the amount on which the Appellant's Donation tax credit was calculated was higher than the Appellant's purchase price of the Prints, were the Prints "personal-use property" as defined in section 54 of the Act to which the provisions of subsection 46(1) of the Act applied? If they were "personal-use property", the Appellant's adjusted cost base of each of those Prints will be deemed to be $1,000 and no gain or loss will have been realized on disposition by the Donation.
FACTS:
[1] The Appellant, pursuant to a purchase agreement with CVIAM dated June 8, 1988 acquired, as a result of conversations with her financial planner, 99 Prints, being reproductions of art work by artists Lynn Donahue, Adriene Veninger and Pamela Stagg from CVIAM for a total purchase price of $8,025. This was evidenced by a cheque for $8,025 dated June 10, 1998. In late 1998, the Appellant donated ("Donation") the Prints to Fresno, a university located in Fresno, California, it being a prescribed university within the meaning of paragraph (f) of the definition of "total charitable gifts" in subsection 118.1(1) of the Act. Fresno issued to the Appellant a Donation receipt for $28,325 dated February 23, 1999. In computing her total charitable gifts and total gifts for the 1998 taxation year the Appellant included that sum of $28,325 in respect of the Donation. The Appellant kept one of the Prints for her own enjoyment.
[2] The Minister of National Revenue ("Minister") reassessed the Appellant in respect of her 1998 taxation year allowing only her cost of the Prints, namely $8,025, as the value of the Donation. The Minister also assessed penalties in the amount of $4,397 pursuant to subsection 163(2) of the Act and subsection 38(1) of the Income Tax Act of British Columbia. At the hearing, counsel for the Respondent informed the Court that the penalties would be deleted.
EXPERT WITNESS ROLLAND FORD
[3] Rolland Ford ("Ford") was qualified as an expert in the limited edition art print industry. His credentials are very impressive. A summary of his education and experience follows:
EXPERIENCE:
4/2002 - Present Mill Pond Press Venice, FL
VP/Sales & Marketing
Manage all sales and marketing efforts to national accounts and international distributors. Oversee all marketing decisions. Participate in decision making for; new artists, art published, edition sizes, pricing and distribution strategy. Responsible for continued development of new distribution channels. Responsible for maintaining Company's awareness level of all industry news including competitor product changes. Developed and conducted a Regional Sales Training program for entire dealer network via 14 Regional Seminars. Management of in-house sales department. Developed outside sales rep program. Spearheaded improved dealer communication via website and e-mail.
11/2000 - 3/2002 Light of the Future Galleries Naperville, IL
Director of Operations
Manage sales & marketing efforts for three art galleries. Responsible for inventory control, buying decisions and product evaluation. Hired and trained all sales staff. Developed and implemented training programs and sales strategies. Set schedules and goals to meet Company growth plans. Plan and manage all major events. Final decision making for all product pricing, including secondary market pieces.
2/1996 - 11/2000 Media Arts Group, Inc. Naperville, IL
Regional Sales Manager
Developed territory from 1.3m to 5.1m in 3 years! Top RSM 3 of 4 years. Primary focus was developing franchise prospects into owners of multiple stores. Oversee all franchise steps from original business plan to grand opening and beyond. Focused on building trust and respect with top accounts. Worked diligently to improve established low volume accounts. Developed a regional training program that was later used by entire company. Meetings with business owners to review P & L's, identify opportunities, manage inventory and plan growth. Conducted on-site recruiting and training.
1/1992 - 1/1996 Home Cable Concepts Cincinnati, OH
District Manager
Built a professional team of 25 salespeople, generating monthly revenue over $200k. Took over office ranked 46th of 47 in nation and developed it to #1. Hired for all departments, including service and administration. Developed and rolled out new sales program used nationally for new product line.
2/1985 - 1/1992 Entre Computer Centers Stamford, CT
Sales Manager/Training Manager
Developed a new computer software training department. Spearheaded sales efforts to local companies, including fortune 500's. Managed all aspects of retail sales.
EDUCATION:
NYU (CED) US-NY-New York
Vocational
- Computer Science certificate
Andover Inst. of Business US-ME-Portland
Associate Degree
- Business Administration
[4] Additional comments on Ford's experience are taken from the report prepared by him. He stated that he had been in the business of selling limited edition art work since 1996 and that he had been mainly employed by two different publishers of limited edition art and that he managed three Chicago area art galleries that sold limited edition art. In that role he purchased art from publishers and artists and sold it to retail consumers. He also collected, prior to 1996, more than a dozen limited edition prints. He stated that, currently being the vice president of sales and marketing at Mill Pond Press, a publisher of limited edition art prints, he was required to maintain a very high level of knowledge "of the limited edition print industry, the players, the product, and the wholesale and retail markets."
[5] His report said that the subject matter of limited edition prints encompasses a varied group of genre including wild life, modern, inspirational, native, landscape, floral, nostalgia, figurative, sports, western, aviation, and a variety of others. Referring to an article in the July, 2002 edition of Art Business News magazine, he said that the most popular subject matter of limited edition prints is landscapes, the second most popular is flowers and the third most popular is wild life.
[6] He stated that art print reproductions fall into two categories, open edition prints and limited edition prints. An open edition print is never numbered and may be produced in unlimited quantity. In the case of limited edition prints the artist and publisher have committed to produce only a certain number of prints called the "edition size". Because of the limited number of pieces personalized by the artist, limited editions, according to Ford, are, by their nature, desirable, collectible and exclusive. He stated that limited edition prints, when "sold out" in the primary market (retail outlets) will often trade in the secondary market and that open edition prints do not generally trade in the secondary market. His report said that limited edition prints are almost always numbered with a fraction that indicates the number of prints in the edition and the number of the particular print, being the numerator in the fraction.
[7] Ford testified further that within an edition of limited edition prints there are often special prints designated as "proofs", the most common of those designations being the "artists proof". They are generally limited to a percentage of the total print run (generally less than 25 percent) and are labelled "AP" in the margin of the print. Traditionally these were the first prints that were produced through the printing process. He said that the artist would scrutinize them and would refine the printing medium by making colour adjustments, et cetera, being the prints that the artist would "proof" before the other prints were run through the printing press. They were generally considered more desirable and to have more value.
[8] Ford then stated that an artist would, in some cases, add a small original work of art in the margin or on the back of a print or would embellish the print with hand-painted brush strokes. A print on which the artist has added an original drawing or painting is often referred to as a "remarque". He stated that these special prints would generally comprise a very small portion of the total edition of prints and would often sell, at both wholesale and retail market levels, for several times the value of the "standard" signed and numbered prints. He said that these remarques tend to increase in value, at a higher rate in a secondary market.
[9] He further stated that limited editions are printed on top quality paper using expensive, long-lasting inks and are often run through a press multiple times using touch plates to print small corrections on each print, being, usually a minor colour correction. He explained that open edition prints use lower quality paper and inks that do not last.
[10] He then explained offset lithography, being the most common printing method used in the reproduction of limited edition art. He explained the process stating that a modern offset printing press is a motor-driven machine with a computer brain that can cost several million dollars. That process is called "offset" lithography because the paper never actually touches the printing press. Ford stated that in the press, the image is transferred to a roller which then prints the image onto the paper and hence the image is "offset" before printing.
[11] He also explained serigraphy using the silk-screen process. That involves placing a stencil that is made of tightly stretched silk or other fabric over the substrate (most often paper). The stencil blocks the areas where paint is not to be applied to the substrate. After describing the rest of the process, Ford said that due to the labour and skill necessary to create a serigraph, they typically sell for significantly more than offset lithographs. He attached a book entitled The Complete Guide to Limited Edition Art Prints by J. Brown that describes the offset lithography and serigraphy processes in detail.
[12] He referred to other types of processes pursuant to which limited edition prints are produced, one of them being an "etching", where an image is etched onto a stone or other medium and the print is created by covering the medium with ink and impressing the medium onto the substrate. He said that offset lithographs are generally not considered to be "fine art".
[13] Ford spoke of the edition sizes for limited edition art prints saying that they varied widely. He stated that offset lithographs range from 195 to 1950 in typical editions. He then said that some artists will release prints of an image on more than one substrate (e.g. on canvas and on paper) and in different sizes, each type of print forming its own edition. He gave different examples of how prices in different print editions could vary substantially in price.
[14] He then said that on a regular basis he is directly involved in the process of pricing limited edition prints. He said that the retail pricing of a print is usually a product of the cost of producing it, the cost of bringing it to market and the market demand for it. He spoke of the factors determining cost, the selection of print size and the edition size and the establishment of wholesale price which must be sufficiently high so that the publisher can recoup its costs and make a profit. He said that other factors that influence the pricing decision include competitor pricing for similar prints, popularity of the artist, the subject matter and the success that the artist has had selling previous prints, et cetera. He said:
Generally, only small variances occur due to those factors. For example, a print of equal size and type by a very famous artist, say, Robert Bateman, would not be priced significantly higher than a print produced by a less-known regional artist. Generally, however, the more famous artists tend to release prints in larger edition sizes.
He said that the publisher generally sells prints directly to dealers at a wholesale price that is around 50 percent of the retail price, the dealers being the retail outlets where the prints are sold such as galleries and gift shops, et cetera. He said that a publisher would not, under any circumstances, sell at wholesale prices other than to "bricks and mortar" galleries at the prices set out in the price lists. He said that if a publisher learned that a retailer was selling prints at a significant discount to the retail sales price, the publisher very well might terminate its relationship with the retailer.
[15] Ford stated that most limited edition lithographs retail for somewhere between $170 and $340 Canadian. He said that publishers of limited edition prints consider the North American market to be one market, it being very common for American print artists to retail their prints in Canada and vice versa. He opined that wholesale and retail prices are consistent for similar prints in Canada and the United States.
[16] He testified that there are millions of buyers of limited edition prints in North America and more in the international market. He referred to an article in the August 2003 edition of Art Business News which reported that the total market for art and wall décor was estimated to be over 35 billion dollars U.S. for 2002 and that approximately 10 percent of that would be comprised of limited edition art prints. He stated that Mill Pond Press has a retail network of approximately 2000 retailers, about 200 of whom are located in Canada. He said that the limited edition print market was extremely strong in the early to mid 1990s, was moderately strong in the late 1990s "and has been soft in the early 2000s". He added that tourist galleries were hit extremely hard by the tragic events of "9/11" and its negative effects on the tourism industry.
[17] Ford then said:
The limited edition print market has not, to my knowledge, been affected by large donations of prints made in either Canada or the United States. Before I was retained to testify in this case, I had never heard of a syndicated art donation program, and had never heard of a company called CVI Art Management Inc.
[18] The concluding part of his report relates to the Prints donated by the three Appellants whose appeals were heard together. It is set out as follows:
E. The Prints donated by Caedmon Nash, Barbara Quinn and Susan Tolley
On May 26 and May 27, 2004, I viewed a number of prints that I was advised were identical to those donated to charities by the individuals that are the subject of these cases in the Tax Court. In particular, I viewed a large number of prints from three collections entitled "A Distant Thunder", "The Barry Barnett Collection" and "Nature & Wildlife". I also reviewed an appraisal of the Barnett prints prepared by Cynthia Duval and appraisals of the other prints prepared by Robert Parks.
A Distant Thunder
The prints I viewed were by artists Carl Beam, Richard Bedwash, Russel Noganosh and Brian Marion. They were high quality serigraphs from an edition of 300 (345 including artist's proofs). The images were desirable and saleable. In my opinion, the values set out in the Robert Parks appraisal are lower than the prices paid for similar types of prints that were sold at the retail level in North America at the end of 1999.
Barry Barnett Collection
The prints I viewed were signed and numbered prints, artist's proofs and remarques by American artist Barry Barnett. Each of the remarques had a hand-drawn picture in the margin that related to the subject matter of the image. I also viewed a sample "Certificate of Authenticity" (I assumed a similar certificate accompanied each print). They are quality lithographs. The images were desirable and saleable. In my opinion, the values set out in the appraisal are equal to the prices that similar quality prints would have sold for in 1997 in retail galleries across North America.
Nature & Wildlife
The prints I viewed were stamped and numbered prints, each from an edition of 155, by artists Lynn Donoghue, Adriene Veninger and Pamela Stagg. They were quality lithographs. The images were desirable and saleable. In my opinion, the values set out in the appraisal were approximately equal to the prices paid for similar prints in 1998 in retail galleries across North America.
He signed his report after making the statement that he had prepared it and believed its contents to be accurate and complete to the best of his knowledge. This report was dated June 2, 2004.
[19] Ford testified that the majority of limited edition prints would be priced somewhere between $125 U.S. and $250 U.S. He then stated that his company, Mill Pond Press does not publish many serigraphs and that they generally range from $300 U.S. to $1,500 U.S. He said that he had been in many galleries and had seen a lot of serigraphs produced by other print publishers or artists who are self-published and:
... that combined with the serigraphs that have been published by Mill Pond that is the price range.
[20] Ford's experience, according to his oral testimony, was that he was part of the selection process at Mill Pond as to what original art works would become limited edition prints. He testified that he was a member of the selection committee because he is the person who "gets the most feedback from the dealers on what is selling". He testified that "almost anybody" is a customer for limited edition prints. Specifically, he said:
It's the masses. It's most. It's probably 75 percent of the buying public, the same folks that go to Lazy Boy to buy a recliner and the same folks that go to all the other stores and buy regular stuff.
He also said that there was a large market for the purchase of limited edition prints by offices, with or without the assistance of interior designers. He stated that Mill Pond Press publishes over one million prints each year at an average retail price of $200 U.S. per print and that there are hundreds of other publishers in the U.S.A., about 30 to 40 of which are "significant players". He also said that there are millions of limited edition prints sold each year in North America.
[21] Appellant's counsel posed the following question to Ford:
Q. Then you wrote in the first full paragraph on page 11:
"The limited edition print market has not, to my knowledge, been affected by large donations of prints made in either Canada or the United States. "
You say:
"Before I was retained to testify in this case, I had never heard of a syndicated art donation program and had never heard of a company called "C.V.I. Art Management Inc.".
Why would the market, in your opinion, not have been affected by syndicated donation programs?
A. Well, sheer numbers and marketing power probably. We have our art dealer network. We send hundreds of thousands of prints out every year and for the most part they are sold through and we are only one of many significant players in that business. We have the muscle of the advertising and the reputation and whatever number of prints you are talking about, whether it be 1,000 or 10,000 or whatever.
The best example I can think of is if you put 5,000 prints into a market like Ann Arbour, Michigan you could give one to every 200 people that just attended a football game and they would all be gone and I doubt if I would ever, in my role as Mill Pond's Vice-President, I doubt if I would ever get a call from any of my retailers in Michigan complaining that they had lost a sale because someone else had some edition prints there.
Q. Haven't you just flooded the market in Ann Arbour by doing that, for example?
A. One print for every 200 people? No.
Q. Why is that? Doesn't that diminish the demand for prints in Ann Arbour?
A. Not in my opinion.
Q. Why is that?
A. It's just that you are talking about again maybe a town of, I have no idea, maybe its 300,000 people. So if one out of five are going to buy a limited edition print some time in the next couple of years you are not going to significantly affect that market because one out of 200 people at a football game got one of those prints.
[22] The following exchange then took place:
Q. ... For A Distant Thunder the amounts indicated on the Robert Parks' appraisal was CDN $350. You say here in your report that in your opinion that amount set out in the Robert Parks' appraisal is lower than the prices paid for similar types of prints, that CDN $350 is lower for similar types of prints sold at the retail level in North America in 1999. Can you give us an idea of what those kinds of prints, similar kinds of prints, would have been sold at that that time?
A. Definitely. Either at or a little bit higher I guess would be the way I would describe it for multiple reasons. One is they are serigraphs, which again is a very labour intensive process and very accepted in multiple markets, so whether it be the mass market, slightly higher end or even the fine art market. Before I even wrote this actually I did just a little bit of checking because I had not heard of Carl Dean and it appeared from what I could dig up on the internet he is a very saleable artist, has a certain amount of fame and notoriety, and that is important. So yes, I looked at him. There were pluses and minuses throughout the collection but when you added the pluses and minuses they came up to be pretty much consistent with the average serigraph type prices that I would bring similar pieces to the market at.
Q. With respect to the Barry Barnett collection, Ms Duvall is the appraiser there and she had appraised them at U.S. $200 for the prints, U.S. $400 for the artists proofs and U.S. $900 for the remarques and these are in each of these cases. You say in your opinion that those values were equal to the prices that similar quality prints would have sold for in 1997 in retail galleries across North America. Is that correct?
A. That is exactly correct.
Q. For Susan Tolley's prints, the Nature & Wildlife Collection, they were appraised by Mr. Parks for their value in 1998. There were different artists there. These were the floral artists.
A. Yes.
Q. Some were at $280 Cdn, some were at $285 Cdn, some were at $290 Cdn. Are those approximately equal to the prices that would have been paid for similar prints in 1998 in retail galleries across North America?
A. Yes, approximately, and certainly considering the small edition size again they would have to be brought to market and priced around that amount. They were quality lithographs in the sense they were printed on good stock. They appear to have used good inks. Again there were some pluses and minuses but I think when you added it all up it was darn close to that.
Q. Did as a matter of fact the syndicated donation programs that you have now learned about have an impact on the market, on the industry, your industry, in 1997, 1998 or 1999?
A. Not to my knowledge. I had never heard of it. I am involved in associations in the limited edition print industry, the National Association of Limited Edition Dealers is one. We get together, we talk on the phone and not only had I never heard of it but the subject had never come up in any of my conversations with anybody in our industry.
[23] On cross-examination Ford said that none of the artists whose work is the subject matter of the donations had ever been in Mill Pond Press' inventory. He also said that one of the collections did not have a certificate of authenticity and that Mill Pond Press would probably not have published prints in that way. He said that there were no signatures on some prints, simply stamping the initial of the artist. He then said that Mill Pond Press would not have published prints without the signature. Ford also said that when a print was simply stamped as opposed to being signed by the artist one could not tell whether the artist had approved the print.
[24] Respondent's counsel then asked Ford a number of questions to each of which he responded "no". Those questions dealt with whether he had checked the impact of CVIAM on the market for Barry Barnett's Prints, whether he had checked it in respect of A Distant Thunder Collection, whether he had done it for any of the artists in the Nature & Wildlife Collection, et cetera.
EXPERT REPORT OF SANDRA J. TROPPER, ASA
[25] Sandra J. Tropper ("Tropper") was qualified as an expert appraiser of personal property including limited edition art prints. Tropper has what appear to be outstanding credentials in the area of her expert qualification. They read as follows:
APPRAISER'S CREDENTIALS
Sandra Tropper, owner of Artemis, Inc., has been an art dealer, consultant, and appraiser in the Washington, D.C. area for over twenty years. As a private dealer she assists in the purchase of original artwork including Limited edition prints, paintings, sculpture and contemporary crafts. Her clients include corporate entities (including major accounting firms, law firms, trade associations, etc.), private collectors and government agencies.
She received a B.A. in Art History and Political Economy from Sweet Briar College in Sweet Briar, Virginia in 1973. She received her Master of Arts in Art History from the George Washington University in 1986, Washington, D.C. She also has a Master of Arts in International Studies from The John Hopkins University Paul Nitze School of Advanced International Studies, Bologna, Italy and Washington, D.C., received in 1975.
In addition to her academic background as an art historian, Ms. Tropper has also taken practical classes in the fine arts at the Corcoran School of Art, the Smithsonian Institution, Pyramid Atlantic, and the Maryland College of Art and Design.
Ms. Tropper is an accredited senior appraiser (ASA) with the American Society of Appraisers, an international multi-disciplinary certifying and accrediting organization. the American Society of Appraisers has a mandatory recertification program for all its senior members and Ms. Tropper is in compliance with that program. She is currently an officer of the national Personal Property Committee of the ASA and a member of the Board of Examiners. Currently Ms. Tropper serves as an ASA representative to the Terminology, Applications and Concepts task force of the Centre for Advanced Property Economics for reinterpreting appraisal definitions in the Uniform Standards of Professional Appraisal Practice. She is an instructor for ASA Personal Property Valuation courses including Personal Property 203: Report Writing; and Personal Property 204: The Legal and Commercial Environment.
Ms. Tropper has completed courses in appraisal practice and theory including Principles of Valuation (Personal Property Appraising); Research and Analysis in Appraising Personal Property; Personal Property Appraisal Report Writing (Master Class); Personal Property Appraisers in Practice (Standards and Obligations); and the Uniform Standards of Professional Appraisers Practice (2001). In addition she has attended numerous courses and seminars including Personal Property Valuation (Appraising Fine and Decorative Arts); Asian Decorative Arts; Japanese Woodblock Prints; Victorian Painting; Appraising Photography; Williamstown Art Conservation Center's Summer Institute on the Conservation, Analysis and the Interpretation of Works of Art; Beyond Warp and Weft (Understanding Textile Connoisseurship, Conservation & Valuation); Cultural Property (Due Diligence and Provenance, Legal and Ethical Issues) and American Folk Art.
She is a member of both ArtTable, a national organization of women in the arts, and Charter 100, a national organization of professional women.
[26] Tropper's letter of transmittal of her report to Mr. Cliff Rand, counsel for the Appellants reads as follows:
Dear Mr. Rand:
In accordance with your request for the preparation of a valuation report for Fair Market Value for 233 prints by various artists (Barry Barnett, Lynn Donoghue, Pamela Stagg, Adriene Veninger, Carl Beam, Russel Noganosh, Richard Bedwash and Brian Marion), I inspected comparable properties at your offices on May 16, and 17, 2004 at my office in Bethesda, Maryland on May 24, and June 2, 2004 or at the Crowne Plaza Hotel in Arlington, Virginia on May 30, 2004. I understand that the prints that I inspected are from the same editions but are not the exact ones that are included in these donations. I have assumed that the prints included in these donations are comparable in all features, including condition.
Based on my inspection of the property and subsequent research, including analysis of the artists' markets and the sale of comparable properties, I have reached the conclusion that, as of the dates of donation, the Fair Market Values for the properties are as follows:
Barry Barnett: Fair Market Value for 48 prints as of October 15, 1997: $24,384
Lynn Donoghue: Fair Market Value for 44 prints as of December 3, 1998: $10,560
Pamela Stagg: Fair Market Value for 35 prints as of December 3, 1998: $8,750
Adriene Veninger: Fair Market Value for 21 prints as of December 3, 1998: $4,620
(Total Fair Market Value for prints from Nature and Wildlife: $23,930)
Carl Beam: Fair Market Value for 25 prints as of December 31, 1999: $10,625
Russel Noganosh: Fair Market Value for 17 prints as of December 31, 1999: $5,525
Richard Bedwash: Fair Market Value for 25 prints as of December 31, 1999: $8,775
Brian Marion: Fair Market Value for 18 prints as of December 31, 1999: $5,332
(Total Fair Market Value for prints from A Distant Thunder: $30,257)
Please note that the conclusions presented here are for the artwork's Fair Market Value for charitable donation. For all intents and purposes within this document, Fair Market refers to the definition from the judgment of Cattanach, J. in Henderson v. Minister of National Revenue, 1973 Carswell Nat 189, [1973] C.T.C. 636, 73 D.T.C. 5471. Per this judgment, Fair Market Value is defined as the highest price an asset might reasonably be expected to bring in if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm's length and under no compulsion to buy or sell.
In the preparation of this report I have observed the Code of Ethics of the American Society of Appraisers and have conformed to the standards promulgated in the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation, an organization representing major appraisal organizations nationwide. In addition, I have no past, current or future interest in the properties contained within this report.
Thank you for allowing me to be of service to you in this matter.
Yours truly,
Sandra Tropper, ASA
American Society of Appraisers
[27] Tropper also included a page of definitions of appraisal terms as follows:
DEFINITIONS OF APPRAISAL TERMS
A Personal Property Appraisal
An appraisal is an informed opinion as to the value, quality, condition and authenticity of an article of personal property. That opinion is backed by education, appraiser training, market experience, and research. A personal property appraisal must be used in its entirety including the Limiting Conditions as described on pages 104-5.
Purpose and Function of this Appraisal
The purpose of this appraisal is to conclude the Fair Market Value of artwork. The function of this appraisal is to apply these values to substantiate a charitable donation to non-profit organizations.
Fair Market Value
Fair Market Value is defined as the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the set in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm's length and under no compulsion to buy or sell. (Cattanach, J. in Henderson v. Minister of National Revenue, 1973 Carswell Nat 189, [1973] C.T.C. 636, 73 D.T.C. 5471)
Approach to Value
Personal Property is valued using a Market Comparison Approach, a Cost Approach or the Income- or Revenue-Producing Approach. For the artwork included here, the Market Approach was used. The other approaches were deemed inappropriate after consideration.
Market Data Comparison Approach
The Market Data Comparison Approach entails examination and comparison of transactions of like or comparable properties that have taken place in the appropriate marketplace in order to arrive at an apposite market value. As there are comparable properties in the marketplace, this approach was chosen for valuation of properties included here.
Cost Approach
The Cost Approach provides a concluded cost of replacing the depreciated property with reproduction, or new, substitute property. It can also include the cost of repairs to return property to its original condition. As comparable properties exist in the marketplace, using this approach is not appropriate.
Income Approach
The Income Approach to value is used when an object will be used to generate income at a future date. (Generally this is used when the subject property is being either leased or rented; depreciation must be accounted for as this may reduce the life span of the object due to handling and use over time.) Except for their sale, the properties being considered in this report are not able to generate income and this approach was not chosen.
Condition/Quality
Condition and quality are ranked from top to bottom by the terms:
Excellent, Good, Average, Fair and Poor.
[28] Tropper's report continues with a Narrative of 26 pages, followed by a very detailed Description of Artwork describing each of the 233 Prints involved in this appeal, identifying the type of print, the material used, the size, the number, the fact of signature, a very comprehensive description, and the fair market value of each such piece.
[29] Obviously, a reproduction of all of this material is not practicable. A summary of the Narrative is that Tropper inspected the three groups of Prints including 48 by Barry Barnett, 100 Prints grouped under the title "Nature & Wildlife" and 85 Prints grouped under the title "A Distant Thunder". She arrived at her statement of the fair market value of each print for the appropriate Donation date being:
Barry Barnett Prints - October 15, 1997
Nature & Wildlife - December 3, 1998
A Distant Thunder - December 31, 1999
She provided a description of the artists' background, a general description of the art work and a review of the artists' market. For the groups and the artists, she discussed the market in which these prints are regularly traded "in the ordinary course of business". For the groupings, she discussed each artist's background and market separately, noting similarities as well.
[30] She stated that she sought the fair market value for calculating the amount of the charitable Donation on those dates according to the definition of "fair market value" from the judgment of Cattanach, J, in Henderson v. Minister of National Revenue, 73 D.T.C. 5471. Her narrative recites that:
...this judgment, Fair Market Value is defined as the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm's length and under no compulsion to buy or sell.
[31] She set out the conversion rates for calculating the conversion of U.S. dollars into Canadian dollars on the appropriate date. She further stated that she approached each work as a separate property and that each work would command a price in the market place. She reviewed the open markets which were described as "not subject to undue" stresses and where no one has a compulsion to buy or sell for any reason other than to purchase art work as an investment, as decoration or as an addition to a collection.
[32] Tropper said that the Appellants purchased the Prints at a reduced price based on an opportunity provided by CVIAM. She added that they were not purchased in the open market, a requirement for concluding the fair market value of the works. She added further that the Prints were not purchased by the donors in the market where property of that sort would normally be sold in the ordinary course of business. She stated that there are various market layers in the many levels of galleries and dealers in the art world. She then said that the market layer that determines fair market value for individual works of art:
...is the open common retail market, where an asset is reasonably expected to bring the highest price to a seller from a buyer and is the market in which such property is sold "in the normal method" in the "ordinary course of business."
[33] Tropper described the three separate markets that were to be considered. The first is the offset lithograph market of wildlife imagery (for Barry Barnett). The second market is the offset lithograph market for general subject matter (for the Nature & Wildlife Prints). The third market is for native North American art work overlapping the print market where hand pulled art work is sold (for A Distant Thunder Prints). She then described the nature of those markets, concluding with the statement that prices vary a great deal in all such markets depending on many factors including size of the print, number of Prints in an edition, marketability of the image (which includes colour and the ability of the artist), reputation of the artist, quality of paper and quality of printing.
[34] Tropper described the internet market and the effect it had upon prices, affecting, in part, prices in 1997, 1998 and 1999. She explained that th