Letters to the Editor
The Machinations of the Art Market: Regarding
"Contemporary Art as an Investment, Part II: speculation, artifice
or magic" (Sept. 24/96)
A Walk on Thin Ice, Re: "Canadian Heritage
Collection, using art as a tax shelter" (see News
for this article) (Aug. 20/96)
Enough about the Horne Collection: Brent J. Luebke,
Lando Fine Art, Edmonton (Aug. 7/96).
Sale of the Horne Collection: Stephen P. Sweeting
Appraisal Associates, Toronto (July 2/96).
The Machinations of the Art Market: Regarding
"Contemporary Art as an Investment, Part II: speculation, artifice
or magic" (Features Section): Stephen P. Sweeting, Partner, Appraisal
Associates, Toronto (Sept. 24/96).
In reply to Ms. Hendeles's passionate and slightly strange defence of the
machinations of the contemporary art market, I quote directly from a letter
I sent to the Globe and Mail Letters to the Editor department. The letter
was published on Saturday, September 7th, one of a number of letters stimulated
by Robert Fulford's perceptive column on the art market.
"Ydessa Hendeles' assertion that it is irrelevant and even dangerous
to criticize the mechanisms of the contemporary art market hinges on the
cardinal error of confusing fine art with its vehicle in the marketplace.
While art can and should be compared with romantic love, passion and the
other higher values of humankind, the art market is about something far
less ethereal -- the exchange of money for property and the quest for profit.
Although it is important for the art-buying public to believe in the value
of exchanging money for art, attempting to insulate this form of commerce
from criticism is highly questionable. Ultimately, it does little more
than fall headlong into the artifice of "myth, manipulation and showmanship"
identified by Ms. Hendeles as the realities of the art market. In my experience,
when these devices cluster around commercial activity, blind faith simply
is not enough."
Although several of my collegues and business acquaintances agreed with
the comments made by Ms. Hendeles, the vast majority thought she was way
off base.
A Walk on Thin Ice -- Regarding the Canadian
Heritage Collection, using art as a tax shelter: Stephen P. Sweeting, Partner,
Appraisal Associates, Toronto. (Aug. 20/96)
The recent column on the Capital Vision venture correctly suggests that
taxpayers should be cautious about schemes of this nature. As a partner
in an art valuation firm, I run into these donation scenarios with amazing
frequency. We make a point of avoiding them and concur with the growing
number of accountants, financial advisors and lawyers who suggest that participation
virtually invites Revenue Canada to re-assess a tax return.
From my perspective, the linchpin of the schemes is the valuation approach
used to estimate fair market value. (Appraisals are usually provided to
the "donors".) As Bruce Cohen pointed out in his April Financial
Post article, the fair market value estimates in the Capital Vision scenario
were based upon 477 high level sales through Eaton's, American Express and
Ducks Unlimited. With sales statistics like this, the market hardly seems
fractional. But look again. These 477 sales represent less than 10% of the
total collection. And most importantly, approximately 1000 prints sold for
only $300 early in 1996 (as part of the venture). Apparently the front end
of the donation market is the most common market for these prints.
The loophole being used here is a pivotal Canadian tax court case which
states that the purchase price of an article does not necessarily indicate
fair market value (Friedburg v. The Queen). The Cultural Property Export
Review Board has grappled with the ramifications of this case for some time
now and deals with it by insisting that purchases executed within two years
of donation date must be reported in the application for certification.
They have noted in their guidelines that although purchase price is not
necessarily an indication of fair market value, it can be an important factor
in certain instances.
In a convoluted way the Board's approach acknowledges the presence of the
donation market as a bona-fide marketplace that must be considered in an
estimate of fair market value for taxation purposes. Unfortunately, however,
this thriving market is often shrouded within the various ongoing schemes.
A more direct approach for both Revenue Canada and the Review Board would
be to follow the example of American tax authorities. A number of years
ago the Americans shut down print donation scams by focusing on the technical
deficiencies of valuations which failed to address relevant market (i.e.
the most common market for sales activity). This approach recognized that
fair market value is not predicated on the highest possible prices achieved
in a fractional number of sales. Rather, it is based on the market level
evidencing the highest frequency and aggregate number of sales to the ultimate
consumer (who can in fact be a donor), and the most consistency of price.
All this aside, scenarios such as Capital Vision are sure to be examined
closely by our tax authorities. Although they may not be illegal, they certainly
fly in the face of generally recognized principles of valuation--a body
of knowledge well known to the professionally trained review valuators within
the ranks of Revenue Canada.
More on the Horne Collection: Brent J. Luebke,
Private Fine Art Dealer, Lando Fine Art, Edmonton, Alberta (Aug. 7/96)
The attention given to the Horne Collection sell-off is getting to be a
little much. Does anyone, but those people directly affected, really care?
Should the general art buying public be concerned? I say no; allow me to
explain.
FACT A collector is forced to sell off their collection by their creditors.
POINT Happens daily.
FACT The creditor is concerned with disposing of the collection ASAP; they
want their money.
POINT Most often an art dealer who is familiar with such affairs is not
contracted to manage the disposition.
FACT Some are surprised the collection is sold for a song.
POINT Why? Poor marketing and possibly too many non-arms-length transactions.
Allowing the dealer's who originally sold the works to re-sell them on consignment
from the creditor would be one solution.
FACT Some are concerned about what this sell-off will do to the Canadian
Art Market.
POINT The values of the various artist's works are not affected, only the
price.
The Canadian Art Market will survive, expand and prosper despite the sell-off
of another major collector's collection.
Let's get onto more important national art issues. Please.
Sale of the Chris Horne Collection: Stephen
P. Sweeting, Partner, Appraisal Assoc., Toronto (July2)
In your coverage of the Horne collection liquidation [Newsroom section],
you quoted appraiser Chris Varley's comment that "ultimately something
is worth what you can get for it." In my opinion, this rather flip
comment demonstrates a very cursory understanding of the value concept -
especially when it pertains to a marketplace as imperfect as the art market.
Mr. Varley's comment suggests that a liquidation scenario is a property's
real test of value. It isn't.
Orderly liquidations such as the Horne scenario are highly restricted sales
with little in common with most marketplace activity. Time constraints are
in effect, creditors are demanding quick payment, and the receiver has a
responsibility to get through it all as inexpensively as possile. In reality,
prices associated with forced circumstances define nothing more than liquidation
value. To state that art -- or any other type of tangible property -- is
worth only "what you can get for it" is just too reductive.
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