[Recorded by Electronic Apparatus]

Thursday, October 5, 1995

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[English]

The Chair: Order.

This will not be a long meeting, but I feel that we need to put a couple of things on the record.

It's going to be a short meeting because under the rules of this House, rules that were adopted at its organizing committee meeting on February 8, 1994, in order to hear witnesses at least one member from the opposition parties has to be present.

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This meeting was scheduled to start at 11 o'clock. It's now 11:45 a.m. We've waited 45 minutes for an opposition member. No one has arrived, and I think that out of courtesy to the witnesses, we can't ask them to wait for much longer.

I want to put that on the record. It is the height of discourtesy to the witnesses not to come to a meeting, regardless of what particular grievance or beef you might have.

The notice of this meeting was given two days ago. Everyone who is responsible knew about it. As I said earlier, it's most discourteous to witnesses to ask them to take their busy time and devote it to us for a few minutes so that we can do the business on behalf of the people of Canada...

On behalf of the committee, I want to express my deepest apologies to the witnesses who are in the room. We wanted to hear from you, but we aren't going to be able to because of the non-appearance of the opposition members. I suspect they're playing some kind of a game here, and I'm sure we will hear about it at the next meeting, or perhaps through the media later today.

However, out of courtesy to the witnesses, we can't let this meeting go on and on.

I think Mr. Peric wants to say something.

Mr. Peric (Cambridge): I too feel really disappointed at seeing that the opposition is irresponsible. We are spending taxpayers' money sitting and waiting for opposition, and witnesses are coming here and spending their own money. At the same time, the opposition is very loud in the House in expressing their concern about how they care about people's money, which is a false statement.

I too would like to apologize to the witnesses. Hopefully we'll see them in the near future.

The Chair: Thank you, Mr. Peric. Those are my thoughts and you've put them very well.

Well, here comes a member from the Reform Party. Is it the wish to abort our intentions and have the meeting after all? I guess we should.

Mr. Hanrahan is a member of the committee, so we will be able to start the meeting.

Thank you for coming, Mr. Hanrahan.

Mr. Hanrahan (Edmonton - Strathcona): As I explained to you last night, Mr. Chairman, I was caught on another committee for the electoral boundaries, which we did out of consideration for not only the boundaries committee but also the whole functioning of the process. I made you aware of the fact that I would not be able to be here.

I think Mr. Solberg also indicated to you that he was going to be unable to be here.

While I apologize for my lateness, I think the reasons were clear when we began.

The Chair: I understand your conflict, Mr. Hanrahan, but as you well know, parties have the right of substitution. Our whip's office spoke to your whip before 10 o'clock this morning when we realized that perhaps the two regular members from your party would not be able to come to today's meeting. I was told that your whip had given a commitment that there would be a substitute.

I know how busy you people are, Mr. Hanrahan, but under the rules all you need to do is to come for just 30 seconds for the sake of establishing a quorum. You can leave right now and we can have our meeting.

Where there is a will, Mr. Hanrahan, there is a way.

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Mr. Hanrahan: Yes. Perhaps, Mr. Chairman, the way could have been indicated to me last night in our discussion, rather than at this point in time. It would have saved us all a lot of time.

The Chair: If you will recall, I spoke to you about the possibility of this meeting on Tuesday, just before the vote.

The other thing is that there was formal notification. The clerk, the staff, sent around the notices. So all of the rules have been met insofar as all of us being notified is concerned.

We're all busy, but you'll have noticed that other people have come for the meeting. I know it's tough around here at times, but we have these responsibilities and they have to be met.

Anyway, let's go on with the meeting. I again offer my apologies to the witnesses for having to wait for so long.

Given that this is our first real working session, on behalf of the members of the committee I want to welcome back our researchers, René Lemieux and Susan Alter. These are people with a lot of experience. They're very important to us, and I sometimes wonder how we would ever get along if we didn't have their help.

Of course I want to welcome Danielle Bélisle, who is our new clerk. I had the pleasure of working with Mrs. Bélisle when I was chairman of government operations. She is thorough and professional, and I look forward to my continuing relationship with her here at the heritage committee.

Now that we can get down to work, of course we're talking about Bill C-93. This is our first examination of it. As you know, it's an act to amend the Cultural Property Export and Import Act, the Income Tax Act, and the Tax Court of Canada Act.

Our witnesses are David Walden, director of movable cultural property, Department of Canadian Heritage, and secretary to the Canadian Cultural Property Export Review Board; and a lawyer, Mario Lepage.

Mr. Walden, I understand you will have a few brief remarks as a sort of overview as to why this bill is coming to us or the rationale for the bill. I'm sure you'll be in a position to take questions afterward.

Mr. David Walden (Director, Movable Cultural Property, and Secretary to the Canadian Cultural Property Export Review Board, Department of Canadian Heritage): Thank you very much, Mr. Chairman.

What I would like to do is provide a brief introduction to the legislation, describe generally what has transpired that has got us to the particular juncture where we now have this bill, provide a bit of background to that, and, obviously, answer any questions you may have.

As was said in the introduction, I function both as the director of the movable cultural property program and the secretary to the review board inasmuch as the legislation divides responsibilities between the minister and the review board, which is an arm's length agency of the Department of Canadian Heritage.

The Cultural Property Export and Import Act was passed into law in 1977 with the purpose of retaining in Canada significant examples of our heritage and movable cultural property. It does that through two processes.

One is through a regulatory program whereby export permits are required for cultural property that's more than 50 years old and made by a person who's no longer living, and the other is through tax incentives for donations. The tax incentives were put in place to offset any perceived negative impact through the regulations that affected the disposition of people's personal property by controlling the export.

It's important to understand from the outset that cultural property is many things. There is a tendency to think of cultural property as being exclusively fine art, paintings, drawings, etc. However, it also includes a wide variety of material, virtually everything you'll find in all types of museums - human history museums, natural science museums - and art galleries, archives, and libraries. So it includes such diverse things as paleontological specimens or mineral specimens right through fine art, antique furniture, manuscripts, sound recordings, films - the whole range of what defines Canada's culture.

From 1977 to 1991 the Canadian Cultural Property Export Review Board, which was created by this legislation, had as its mandate the hearing of appeals when export permits had been denied and determining whether cultural property being donated to institutions met the criteria in the legislation of outstanding significance and national importance.

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Fair market value of that cultural property had been a concern particularly to Revenue Canada from 1977 to 1991, and the review board had played a role, albeit an informal advisory role to Revenue Canada, during that period. In 1991 the decision was made to transfer the responsibility for determining fair market value of cultural property being donated to these institutions from Revenue Canada to the review board.

The first announcement was made in the 1990 federal budget. The legislation came into law in December 1991. During that process the right of appeal of an assessment, which had existed under the Income Tax Act, was lost through the inadvertent mistake of not transferring that right of appeal. So any gift made after 1991 and to the present is not subject to appeal beyond the review board's decision.

There has been concern from custodial institutions, from donors, and from other people involved in the process that this lack of recourse has put them at a disadvantage in the making of donations and there was a very strong sentiment that the restoration of the right of appeal was required to return fairness to the process and to re-establish natural justice. It's as a result of the concerns that have been expressed, the fact that the right had existed previously and was lost through oversight, not through intention, that we're at the stage now of having the bill.

The bill, as you will have seen from the briefing documents, establishes two processes. The first is to create what's called a ``redetermination'', whereby a donor can request that the review board reconsider a decision if the board has changed the value of a gift. The second is the right of appeal to the Tax Court. In many ways this mirrors the process one would have gone through at Revenue Canada, where you would have appealed to the assessment branch and gone through adjudication with Revenue Canada. If you still weren't happy with that decision, you could then have gone on to the Tax Court.

So what it does, at least we hope, is to keep disputes about the value amongst the experts, those sitting on the review board and the people who had provided appraisals suggesting a value that might have been different from the board's opinion. Ultimately, and only if absolutely necessary, obviously, it would allow the taxpayer their day in court by being able to appeal to the Tax Court of Canada.

The Chair: Thank you, Mr. Walden. So it's a two-stage appeal process?

Mr. Walden: Yes, it is. In order to avoid confusion in what is taking place, the board makes a ``determination'', in the words of the act, initially. So a request for a subsequent review by the board is referred to as a ``redetermination'', which is the first level. The second step is a formal appeal to the Tax Court of Canada.

The Chair: And there wasn't an appeal process before 1991? Was it just one stage before 1991?

Mr. Walden: There was no appeal involving decisions of the review board at the time of assessment, when one files one's tax return. Revenue would have assessed perhaps differently and you would have followed the procedures prescribed by the Income Tax Act.

The Chair: There are just a couple more things before I go to Mrs. Gaffney. Under the review process, do the very same people who made the fair market valuation in the first place hear the appeal, or are different people involved?

Mr. Walden: The procedures have not been established yet. There is no provision in the legislation for a partial.... It says ``the board''. So as it stands now, subcommittees do not exist. It is anticipated the board will work with a subcommittee system for any appeals. Probably three members, which is the requirement for a quorum, one representing each of the three different interests on the board, would study in depth any requests for redetermination and then report back to the committee of the whole. But yes, it would potentially involve people who were involved at both stages.

The Chair: I guess what I'm getting at is that in the first valuation you would have a smaller number of people, and then if there is an appeal in the next round or in the first appeal, a larger number of persons would be involved.

Mr. Walden: It could work either way, yes. As I say, the sense is that greater attention and study would be spent on redetermination. It might also involve consultation with outside experts, the commissioning of additional arm's length appraisals, using any number of people who could provide insight or shed light on the value - on the whole question.

The Chair: Mrs. Gaffney.

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Mrs. Gaffney (Nepean): I too offer my apologies to you two gentlemen for keeping you waiting. But we all had to wait.

I am a new member of this committee, so I've got a lot of catching up to do in terms of heritage and cultural property and those kinds of things.

Tax incentives for cultural properties have always been slightly controversial in the country. There are people who think that is a perk or something that's important to those who are wealthy in the country, since we would assume that they are the ones who have things to donate to a museum.

Do you have any idea of how much tax incentives cost the Government of Canada? How does it compare with other federal tax incentives?

Mr. Walden: The face value of certificates issued on an annual basis has been on average, running for the last several years, approximately $60 million. Given that it is a tax incentive as opposed to a straight compensation or reimbursement, the amount of forgone revenue for that is, from our best estimates, between $25 million and $30 million.

The only other country that has a similar mechanism is the United States. They are looking at hundreds of millions on an annual basis.

It's my understanding that Canada's $25 million to $30 million, when compared to other incentives or tax programs, is really minuscule. The other tax program incentives are, in many cases, at a magnitude of ten times that.

Mrs. Gaffney: What kinds of tax implications are there for the donor who donates this cultural property?

Mr. Walden: Once it is certified by the review board, they are entitled to a tax credit of 29% of the value plus an exemption from capital gains tax, which, when the two are combined, results in a monetary return to the individual of approximately 50% of the appraised value.

Mr. Hanrahan: I am not as familiar with this as I should be either. Just for my own clarity, could you give me a concrete example? If I wanted to donate something that I felt was worth $1 million to the Canadian heritage, exactly what process would I go through and what would I get out of it in the end?

Mr. Walden: First, let me clarify that I am not a tax expert. I am not an accountant.

Any number of factors that might affect the amount any one individual would get could come into play.

The normal process is that if you had something you wanted to donate, then first you would have to find an institution that is designated under the act. The designation process requires that institutions meet professional and legal requirements in terms of their incorporation. They have to be registered non-profit organizations and have a professional staff and the ability to preserve cultural property. Currently, only approximately 300 such institutions in all of Canada have met that qualifying process.

You would then approach the institution and see if they were prepared to accept the gift. If they were, then they would apply, either on your behalf or in conjunction with you, to the review board to have it certified, as it is known, as cultural property.

The application to the review board involves documentation attesting to the significance of the piece, its authenticity, and appraisals for the fair market value. The appraisals have to be obtained at arm's length from both the institution and the donor.

That information is then sent in the form of an application to the board. It would be vetted at the secretariat level. If we perceived that additional information was required, then we would request it when it was ready to go to the board. The board would review all of that information. If the members, because of their expertise, felt that additional information was required, then they might request it.

The ultimate effect, if it was approved, is that we would issue a cultural property income tax certificate stating that the donation had been made to the institution, that the board had determined that the object was of outstanding significance and national importance, and that its fair market value for income tax was, in the case of your example, $1 million.

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You would then take our certificate, along with the receipt you would receive from the designated institution, and file that when you filed your income tax return for that year, claiming the tax credit on the same line as you claimed other tax credits for donations to the Crown. So you would not be required to fill out the capital gains tax schedule once you had that certificate, and as I say, you would apply the standard formula that's used for all tax credits, 17% of the first $200, which would clearly not be relevant in this case, and 29% of the remainder.

But it is a tax credit. It's not a deduction - corporations still get deductions, individuals get credits - and it is obviously against tax payable. So if you're not paying tax, it's of no use to you.

Mr. Hanrahan: Thank you very much. That's excellent.

The Chair: Mr. Peric.

Mr. Peric: Mr. Walden, since we have noted that time is a very important factor, what is the time period for appeal and the review process?

Mr. Walden: By statute, the board must consider an application it receives within four months from the date of receipt ``unless circumstances warrant otherwise'', in the words of the act. But normally it would be within four months. The board makes a determination. If you wish to request a redetermination, you may do so within twelve months. You have up to twelve months to request a redetermination.

Following the redetermination, and again the four months...following the receipt of a request for redetermination, the board is to deal with it within four months. So it could obviously be within that twelve-month period, but it could extend longer. From the date of the redetermination there is a period of ninety days during which you have the right to appeal to the Tax Court.

Mr. Peric: So they would qualify in the tax period or year when they donated or received it?

Mr. Walden: Yes, the tax credit is valid for the year in which the donation is made, plus up to an additional five years, which is the standard for donations to registered charities as well. But the process obviously could go more quickly, depending on at what point you came into the application process and how quickly you requested the redetermination and how quickly that went. All of that could be done quite quickly.

Mr. Peric: Are all 300 institutions in Canada charitable institutions?

Mr. Walden: They would be charitable or Crown, either in right of Canada or in right of a province, yes.

The Chair: This board, Mr. Walden, has to carry out the determinations in the first place to set market value, and then if there are any appeals, the board has to deal with the appeals. Are there enough board members to do all that?

Mr. Walden: There are currently ten board members, including the chairman. The size of the board was reduced in conjunction with the reduction in the size of government boards generally.

I would say yes, for two reasons. First, there is a wide range of expertise on the board. Secondly, there is a provision to call on anyone with the required professional or technical expertise. The board has put in place a structure of what are called ``honorary advisers'', who are former board members or people knowledgeable in the area and who provide advice to the board gratis. So there is an extension; there's a network beyond those ten members.

The Chair: Just one more thing from me. I can understand a donor wanting to trigger an appeal, but under the bill you also give the review board the right to trigger an appeal on its own initiative, on its own volition. Why would an appeal board or a review board want to trigger an appeal all on its own if nobody else is interested?

Mr. Walden: Perhaps the easiest way to illustrate that is by an example. There was a case recently where the board had made a determination on value and significance and was subsequently informed by the recipient museum that they had changed the attribution on the painting and it was no longer by the artist they had thought it was. In essence, from their point of view, the work was a...I hesitate to say the word ``fake'', but it certainly was not what it had been purported to be at the time of certification. In consultation with Revenue Canada it was determined that the board could not change that value by itself, it could do so only if the donor provided them with that information, and it was clear it was not in his advantage to do so.

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So it's a power to enable them to reopen a file if they receive information that suggests that something was wrong with the original determination where no one else is going to request that they do so.

The legislation also requires, however, that they inform the donor that they are doing so. So if that took place, I assume the donor would be an active participant in any discussions about the redetermination.

The Chair: I can understand that, and that sounds like a good example to me, but surely Revenue Canada would have powers of its own to get some kind of re-evaluation so it would get some of its money back.

If someone got a $1 million credit based on a fake, then surely Revenue Canada wouldn't be held hostage to the work of the review board, would it?

Mr. Walden: The board has the legislated mandate to make determinations of fair market value for income tax purposes, and that particular section of the legislation cross-references the Income Tax Act. I am told by my colleagues at Revenue Canada that after a three-year period a person's income tax return is what they refer to as statute barred, that they cannot reopen a file after three years unless there's fraud.

Again, it's my understanding that you have to demonstrate that there was an intentional fraud. If the person had made a gift in good faith at the time but circumstances worked against him, then that would not have been an intentional act of fraud.

The Chair: I didn't know it was fake.

Mr. Loney (Edmonton North): Does the appeal panel initiate a new appraisal?

Mr. Walden: That is one way in which it could be done.

Mr. Loney: Otherwise, if you have pretty well the same membership, rather than initiating an independent appraisal they would be asking the panel to reconsider their original decision. I don't think they're going to reverse that original decision.

Mr. Walden: There is a provision in the legislation as it is now written that says that the board can make a redetermination if in the opinion of the review board additional information becomes available. The requirement for additional information has been dropped in order to open the circumstances under which a request for redetermination may be made.

I would assume logically that people would request a redetermination for a specific reason other than the fact that they did not like the determination, and certainly, if there was a request for a redetermination that was not supported by anything other than ``We don't like your initial determination'', that there would be work both at the secretariat level and perhaps a consultant or an external appraiser to provide additional information for that. I agree with you that it would seem silly just to say, ``Please change your mind''.

The Chair: It seems to me that if it's desirable in an appeal to bring, say, at least one fresh mind to the issue, then perhaps what we should do as a committee is remove any doubt and specify that in any appeal some fresh minds would be brought to bear.

Do you have a problem with that, Mr. Walden, or a thought on it?

Mr. Walden: I would say that from practice that is being done. It's not in the act, but that has been the process that has been taken. Since 1991, through the secretariat, the board has commissioned a great number of independent appraisals where that has become an issue.

Whenever a value has been challenged, the argument has not remained static with the original material that was in the application but has gone on with both sides presenting additional opinions and additional information to try to reach some resolution.

The Chair: I've had the experience. About a year ago I appeared before the Electoral Boundaries Commission. This is by way of an example. I didn't like their first decision, so in effect I made an appeal. I appeared before the very same people who had made the decision in the first place. They create their own prejudice, as it were. I can tell you that I didn't get anywhere with them.

Mrs. Gaffney: To go back to my original point about persons using charitable donations more for the purpose of tax avoidance than for philanthropic reasons, I understand that in March of this year the museums commission or association alerted their board members to this, that they were most concerned that people were dashing out wherever and purchasing items at a low cost and then donating them to the museum and expecting a high rate of tax return from the museums commission.

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What are you doing to discourage these types of donations, which are motivated simply by tax avoidance rather than by philanthropic reasons? Is there any legislation to guard against that?

Mr. Walden: Since that particular problem was identified - and I may say the problem was identified by the review board, given the large number of applications that were coming before it for specific artists, all bearing a similar stamp - we have been working very closely with both the Canadian Museums Association and a parallel organization called the Canadian Art Museum Directors' Organization, to educate, from our perspective, the museum community about some of the transactions and the questionable nature of them. We have also been working very closely with the tax avoidance people at Revenue Canada. It's my understanding - I received a copy of a letter written by the Minister of National Revenue - that the Montreal district office of Revenue Canada is disallowing the claims of any individuals who are involved with these particular organizations, on the basis that there was no intention to make a gift.

In many cases the review board has reduced the proposed fair market values of those donations, some by up to 60%. As I say, it's my understanding that even with this greatly reduced fair market value, when the person submits that with their income tax return, Revenue Canada is disallowing it completely.

So I think there is actually a very strong mechanism to work against this, perhaps stronger than there is in other areas, because all those applications, all that information, is coming through the same group of people. The review board is small. The staff working with the review board is small. There is a daily exchange of information. It's not a big department like Revenue Canada, which is spread from coast to coast. The patterns become evident very quickly.

The Chair: Mr. Peric is next; and then we should be moving on so we can make room for Mr. McAvity, from the Museums Association.

Mr. Peric: Mr. Walden, I have a question just for clarification. Let's say I'm a donor and I donate a piece of art to a gallery. Can another gallery use that same piece of art for exhibit purposes in Canada and abroad?

My second question is this. Is there a time limit when that particular gallery can resell that art, say sixty years or one hundred years from now?

Mr. Walden: There's no restriction on the use of the work once it has been donated to the gallery, even if it's certified by the board. It becomes the property of the gallery, so they would treat it as they would treat any other work in their permanent collection.

Under the terms of the Income Tax Act, an institution is required to retain certified cultural property for five years unless they dispose of it to another designated institution. If they dispose of it within that five-year period to other than another designated institution, they are liable to the payment of a tax of 30% at the time of disposition. But that is an income tax requirement, not a board requirement.

The Chair: If there are no more questions, we're going to allow you to take your leave, Mr. Walden. Thank you for coming.

Thank you also, Mr. Lepage. We didn't work you too hard, but there's always another time.

I'll now invite Mr. McAvity, from the Canadian Museums Association, to come to the table. Mr. McAvity is the executive director of the association. He is accompanied by Janet Brooke, who is an independent curator - or is it pronounced in the old British way? Being an old CBC type, I'm familiar with both.

Mr. McAvity, I understand you'll be giving us some brief remarks and then you'll open yourself to strenuous interrogation. Welcome, and go ahead.

Mr. John McAvity (Executive Director, Canadian Museums Association): We hope we're up to the challenge, Mr. Chairman.

The Chair: I'm sure you are.

Mr. McAvity: Good afternoon, ladies and gentlemen. We're very pleased to be here.

By way of a bit of background, I'd like to tell you I've worked in the museum community since 1968, in a variety of different positions, in curatorial positions in the Maritimes, in development commissions and advisory capacities. Today I'm the executive director of the national association.

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Today I am joined by Janet Brooke, who is not only a member of the CMA board of directors but also a senior museum curator in Canada. I'll allow her to introduce herself briefly.

Ms Janet Brooke (Independent Curator, Canadian Museums Association): I'm delighted by the opportunity to be here. I would like to trace for you a little bit, without wanting to bore you too much, my professional qualifications, because I would not like it to be said that one senses a bit of professional bias in the comments that will follow.

I am a curator, trained at three Canadian universities in European art history. From 1975 to 1989-90 I was a curator of European art at the Montreal Museum of Fine Arts, and from 1990-94 at the Art Gallery of Ontario. I am a signing expert examiner, or was until I became an independent curator this year, for the Canadian Culture Property Export Review Board.

I am a specialist in collecting history, which of course gives me a great interest in the kinds of things that go on in the Canadian cultural property world.

I have prepared numerous applications for board certification of gifts of works of art, and many of them are at the high end of market appraisal. Several of these, including some impressionist paintings, are quite well known to the Canadian museum-going public, and some of them have been the subject of some contention with the review board and are in part, I think, behind the history that has led us to the drafting of the amendments that bring us together today.

Mr. McAvity: The organization we represent is the national voice of the museum and art gallery community in Canada. There are about 2,000 not-for-profit museums in Canada, which represent our membership. Included in our membership are large metropolitan art galleries and museums such as the Winnipeg Art Gallery, the Museé du Québec, and the Art Gallery of Ontario, ranging to small community and very dynamic institutions on the other end of the budgetary scale.

We are very pleased to be here today in support of these amendments. The museum community has been patiently waiting for these amendments for several years. They were first promised by the previous government in June 1993, but were never introduced. We very much applaud the Minister of Canadian Heritage, the Hon. Michel Dupuy, for bringing them forward at this time.

These amendments are largely of a technical nature and are intended to restore a natural right that existed until 1991. At that time changes to the act were made without consultation to our community that resulted in the loss of a mechanism of appeal to the courts.

We are very pleased with the amendments that the ministers brought forward to you today, because two avenues of appeal are in fact offered: firstly, to the board, through a redetermination process, and then secondly, to the court system.

The cultural property review program is an extremely important one, not just to museums and related cultural institutions but also to the nation as a whole. It encourages donations of our significant patrimony to the people of Canada for the benefit of forever. Forever may be a difficult concept, but these donations are for all of us and for all generations. They have been made freely by Canadians of all backgrounds, who could have sold the artifacts for profit but instead have generously given them to all of us forever.

Museums have suffered very drastic cuts in funding and have virtually no funds left for the purchase of art works. Consequently, we must rely on the generosity of Canadians to make donations. As government grants decrease - and I want to point out to you that the principal funding program of the federal government, the museum assistance program, has been reduced by some 56% from its intended level - we need to encourage greater private support of museums, now more than ever before. The cultural property program is a vital instrument for the building of the national patrimony.

Ms Brooke: It's time for the second half of this show.

The legislation enacted in 1977 was meant to promote private donation of gifts in kind that meet strictly defined criteria to designated Canadian museums through creation of a tax credit for donors as a means of indirect government support of these institutions, whose acquisition funds could not be adequately sustained by the nation.

This legislation was universally applauded by Canadian museums, as it brought our community in line with those of many other western nations whose governments had been supporting the enrichment of public collections through similar legislation for years.

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I have no wish to belabour the merits of this legislation or to elaborate uselessly on the urgent need it met in 1977, but I will say as a specialist in Canadian collecting history that until that year the absence of any form of disincentive to place works of art that had been in Canada for generations on the open market meant that important pieces that make up the complex mosiac of our nation's heritage have been irrevocably lost to the Canadian public and now grace the walls of public museums and private collections around the world.

The spirit and intent of the cultural property legislation, which has had immeasurable positive direct and indirect effects on the health of our museum community, is not at issue here. Our collective purpose today is to evaluate amendments to the legislation that are essentially concerned with the process of redefining decision-making means to determine the fair market value of certified works of art that contain checks and balances that are equitable to donors, to government, and to recipient institutions.

The history that brings us to these amendments is worth reviewing. Mr. Walden has given you the details on it extensively.

From 1977 to 1991 the review board's role consisted of making a determination on the application by designated Canadian institutions for certification of gifted works of art, whereas the determination of fair market value, based on appraisals obtained at arm's length, resided with Revenue Canada. In 1991 the responsibility for determining fair market value and issuing tax credit certificates was transferred to the board, no doubt in recognition of the fact that its knowledge of the art market as it applied to any given gift could be assumed to be superior to that of Revenue Canada's. The theory was laudable, but in practice the right of any citizen under the Income Tax Act to appeal the decision was thus eliminated.

Since that time, and for a variety of reasons, a number of applications of donated works of art for board certification and determination of fair market value have simply been stalled in a bureaucratic limbo that serves the interests of neither the donor, the recipient institution, nor the Canadian public, for whom this legislation was originally created. I have close professional knowledge of several of these applications and can state that the negative impact on future donor goodwill, on the efficient use of the very limited human resources available within our museum community, and on relations between the museums and the review board, has been substantial. The amendments currently under discussion will help ensure the legislation's means do not stand in the way of its ends.

As a curator concerned with European works of art that are sometimes worth several million dollars, I know there is a vague perception out there that all of this has to do with a few rich people cashing in on their dead daddy's Rembrandts at the expense of the average Canadian and his hard-earned money. First of all, let me say that curators generally turn down as many donations as they accept. Second, my curatorial experience over almost twenty years with applications for certification under the legislation shows me that many donations come from ordinary Canadians who for any number of reasons own objects that are meaningful to the national heritage and who otherwise simply could not afford to donate them to museums. Let me also say that museum workers are average Canadians, who incidentally have been disproportionately affected by a shrinking job market in tough economic times that increasingly look at cultural industries as an unaffordable luxury.

Thus we do not speak on behalf of ``the rich'', however one may choose to define that term. We speak on behalf of museums, which exist for the public; and we choose to define that term as the farmer in Saskatchewan, the school child in St. John's, the senior citizen in Rivière-du-Loup, and, yes, the stockbroker in Toronto.

High-end collecting is inevitably tied up with wealth, and has been since the day when Pope Julius II hired Michelangelo to decorate the ceiling of the Sistine Chapel, or Francis I bought the Mona Lisa. Our society acknowledged something that popes and kings in the 16th century did not, and that is that Michelangelos and Leonardo da Vincis should be available to more than just the fortunate few and that access to visual culture is an integral and essential part of a civilized and democratic society that seeks to educate and enrich the lives of all its citizens. Our museums, from the smallest local historical association to our national collections, are the product of that collective belief, and the cultural property legislation exists to help ensure their health and their future.

On behalf of the Canadian Museums Association, Mr. McAvity and I are here today to voice our wholehearted endorsement of the amendments to the cultural property legislation because we believe these amendments rectify an inequity that has inadvertently arisen during the process of applying the legislation over the past eighteen years of its existence. As a working curator in this country, I have an additional plea: for an understanding of the critical importance of ensuring the smooth operation of legislation that serves the cultural interests of Canadians through public access to works of art that help define us as a people.

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The Chair: Thank you.

There you have it, colleagues. Just think: if you say or do something of historical or lasting value, then you might be considered a collectible and Ms Brooke might want to interview you.

I'm interested, Mr. McAvity, in what I guess you'd call trends in museum attendance, especially in relation to exhibitions of major art work donations. These are of course subsidized by the taxpayer. Is it a real pay-off in terms of attendance, or do some of these things just wind up on the shelf, unseen?

Mr. McAvity: According to Statistics Canada, currently 60 million visitors visit museums in Canada. That figure is up from about 45 million a number of years ago. There has been a steady increase in attendance at museums.

Many museums of course have offered blockbuster exhibitions. Normally these are exhibitions that are brought in on loan from other museums or other countries, so we may not in fact own those collections per se. The very nature of the exposure through blockbusters and other high-profile activities helps to encourage Canadians to give works of art, which may or may not be certified, or to think of giving money and funds to institutions, which we are very much looking towards as funds from the public sector are being reduced.

The Chair: A subsidy isn't all cost. Obviously there's a spin-off in generating greater attendance. When that happens, more money is -

Mr. McAvity: It seems to me as if it has been changing quite a bit. Once upon a time we depended about 80% on government funding. That trend of course is, in some cases, involuntarily declining. However, the museum community has been taking a much more entrepreneurial approach.

I never would have thought it, but now we're selling T-shirts and postcards. My organization has a mail-order service. We are going out and doing things that ten years ago we never would have thought we would be doing some day.

The community used to depend a great deal on government for support and leadership. What has happened is that the museum community is now looking internally and it is taking responsibility, seeking new forms of support the likes of which were quite unthinkable ten or twenty years ago.

Mr. Hanrahan: Thank you for your presentation. Your entrepreneurial spirit is admired.

I have some quick technical questions.

You say that the museums have lost 57% from government grants over the last number of years. Was that directly as a result of the change in the appeal process, or just cutbacks in government?

Mr. McAvity: I was referring to the museum assistance program. It provides grants for special projects and undertakings that museums would have. It is not the same as this particular program. It is a parallel program. It helps to pay for the heat, light, and many of the overhead costs that museums incur.

Mr. Hanrahan: Have you any idea of what the dollar value of that would be?

Mr. McAvity: Yes. It was scheduled. It should have had a dollar value of $18 million this year, but it's down to $7.9 million.

These are grants that are also tied to matching funds, usually from the province or the private sector, so in fact you could triple the impact of that cut.

Mr. Hanrahan: You're relying more on the private sector, you suggest. How is this manifested? Is this the $25 million that was spoken of by the earlier witness?

Mr. McAvity: I've been referring largely to operating grants. The Cultural Property Review Board is a mechanism that permits donations of capital - that is, works of art - to the institution, so we sort of segregate that separately. The comments I've been making have been purely on the operating side, looking for the funds to pay salaries and to keep the doors open.

Mr. Hanrahan: Ms Brooke, you mentioned that the 1991 change in the appeal process had a substantial effect on donations. Can you put something more concrete on ``substantial''?

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Ms Brooke: Yes. I'm not referring to a dollar figure. What I'm referring to is that if you consider that there are three players in this process - there's the government as represented by its review board, there's the donor, and there's the institution - it exists in a kind of triangular relationship. Collectors who are currently involved in making donations to museums, collectors who in the future may or may not consider going that route as opposed to putting a work on an open market, are naturally, shall we say, extremely discouraged when they see their offers to donate works of art have been tied up in the process in some cases now two to three years because the changes to the process in 1991 basically created a gigantic stalling situation, potentially, in any given dossier.

So when I say the effect on donor goodwill has been substantial, I know it has been substantial. As a curator working institutionally at that time, I know to what degree people I would have expected in any given year or at any given time to be looking at donating a certain work were saying, listen, I don't want to get involved in this process; it's too messy; I don't want to be stuck for three years trying to figure out what's going to happen with it; I don't want to be in some kind of pitched battle where I don't have a formal recourse in discussing what the ultimate fair market value of this work should be, etc.

The collecting community in this country is like any other community, I suppose: people tend to know each other. It's a small community, as you can well imagine, for people who are systematically collecting, as opposed to an ordinary citizen who may have inherited a portrait of his grandmother that turns out to be of value to the national heritage because his grandmother was whoever. The collecting community itself is a handful of people. The evolving situation within institutions, at the review board, etc., is well known to them.

I think the amendments that are being discussed today are extremely important in patching a situation that has frankly become to nobody's benefit right now. Right now nothing's happening, except everyone's wasting a lot of time.

Mr. Hanrahan: I have one final question. What percentage of the donations that are received by museums - and I appreciate you are a small community, but you may not have an exact figure. What percentage of donations of art are on display or in storage?

Ms Brooke: I can only speak for the museums I worked at, which are the Montreal Museum of Fine Arts and the Art Gallery of Ontario, and there I can only speak for the curatorial areas for which I was responsible, which were European painting and sculpture pre-20th century. I can certainly say there has never been a donation that was certified under cultural property, that passed through my collections, and that barring closure of a gallery for renovation or whatever was not on display. They all are, for me. European painting and sculpture are high end, and they are the fancy part of any museum. It's certainly true that's not always the case. It's not because no one really bothers - once they have it, they stick it in the basement - it's because museums have very limited space, museums are always rotating their collections, etc.

But the kind of benchmark most curators use.... I can't speak for everyone; I can only speak for myself. But when someone comes to me or picks up the phone and says, I have this painting at home, or, I have this archive at home, or whatever, and I would like to donate it, and I'd like to donate it subject to certification by Cultural Property, can we do this, the first thing I do, obviously, is evaluate whether my institution is interested in having that work of art - before we even get to the criteria established by Cultural Property, whether it meets a certain standard, whether it meets my criteria.

My criteria are these. If it doesn't hit what I establish in my mind - and it's a complex calculation, as it were; it's not a fixed value - as the above-middle-line of quality in my collection, I suggest the individual go see someone else, because I feel, as a general rule, if it doesn't represent an upgrade, then what are we doing? Even if, for example, I had twenty Renoirs in a collection - and God help us that any collection in this country should have twenty Renoirs...it might happen -

The Chair: I'll take one.

Ms Brooke: Yes, actually I did, back in 1989.

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The point is that we don't acquire these things to put them in the basement. Definitely not. It does happen that they go in the basement, but most of the time it's because of circumstances that have nothing to do with the work.

Mr. Hanrahan: What would your opinion be on that situation in terms of the percent of donations that are received, those that are displayed, and those that are in storage?

Mr. McAvity: It's a parallel view. In fact, we do not encourage museums to leave their objects on permanent display. Most museums rotate their collections frequently, simply in order to encourage repeat visitors. People don't want to come to see the same painting on the wall all the time. So we encourage that kind of rotation.

I would like to go back to another point, which you raised a bit earlier, about the impact of the uncertainty caused by the lack of an appeal process. In fact, there have been several well-published cases where donors were scared off from making major donations. In several cases these works of art were exported to the United States and sold, some of them at record prices.

As an example, I have a newspaper clipping here about four Tissots that were exported to the United States and in fact fetched world auction prices. We, as a society, have lost those. They had been in Canada for quite some time, but because of the donor uncertainty at the time, the donor elected to sell them and pocket the money rather than to give them to us freely.

The Chair: Rotation makes a lot of sense, Mr. McAvity. I assume that rotation to another museum would happen more often than, say, rotation into storage.

Mr. McAvity: It's difficult to say. We encourage travelling exhibitions. There are a number of travelling exhibitions across the country. However, I must be realistic in that the current climate of cutbacks has been very severe and has put severe limitations on the number of travelling exhibitions.

In the recent federal budget that was just tabled we have lost an insurance program that provided federal insurance on works of art. I regret to say that we've also lost the shipping service that has gone across the country.

The Chair: I shouldn't have asked the question.

Mr. McAvity: If you can help to keep those programs in place, then we can help to get more works of art out. The museum community is very interested in having more exhibitions and sharing its work. That's the business we're in.

Mrs. Gaffney: My question is about exhibition or loaning of art works.

I have seen a man's collection of Leonardo da Vinci in London, Ontario. It's in his private home. In fact, his home was built around his collection. He has manuscripts. What he has there is incredible. He has a climate-controlled room.

He has agreed to loan his collection to the London Art Gallery for showing.

What protection does this man, whose collection is invaluable, have in order to put it out to a gallery? It will happen next year. You talked about insurance. Does he receive some sort of insurance protection?

In a showing of this type, do you recommend against one showing at one gallery? Should it be a travelling show? What should he do?

Mr. McAvity: In the first place, we would encourage him to donate the works of art -

Mrs. Gaffney: I'm sure you would.

Mr. McAvity: - particularly if they are Leonardos. But I'll allow my colleague to answer from the point of view of the handling of a loan.

Ms Brooke: When any collector lends a work of art, be it an institutional collector or a private collector, to another institution for exhibition, the borrower, not the lender, pays when it comes to insurance and all related costs.

As to the nature of the exhibition or the wisdom of sending it on the road, there are a lot of imponderables there, such as that the existence of works on paper, for example, severely limits the amount of time during which they can be exposed to light. I'm aware of the collection in question, so I speak with a little bit of knowledge of what's in there. There are certain works made of terracotta and wax, which should travel as little as possible in order to maximize their lifetimes. They're highly fragile, dating from the 16th century and all, etc.

So the answer to that question is that I don't know; it all depends. But I'll tell you one thing: certainly there is no cost to the lender when an institution requests a work or a collection of works of art.

Mrs. Gaffney: Is it risky for him to have a showing?

Ms Brooke: In what terms? Do you mean in terms of theft, damage, or vandalism?

Mrs. Gaffney: Yes, exactly.

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Ms Brooke: The question was put to Mr. McAvity earlier. Let's make the assumption that the ideal scenario is that works travel all the time. Every time you take a painting and hold it by its frame and take it off the wall and move it, potentially you are incurring a risk. When you put an exhibition on the road, you incur a risk. When you take a collection out of its original context, you incur a risk. Those risks, of course, are counterbalanced by technical abilities, various structures that are put into place to minimize the possibility of that risk.

But the short answer to your question is yes, there is a risk. There's always a risk. There's a risk that when I get out and walk through that door something might fall on my head. The risk is slight, but it is a risk. It depends on the professional skill of the institutional borrower. It depends on the terms that are hammered out between them as to what will or will not be done.

If you put a show on the road in twenty venues across the world, from here to Japan and back, you obviously are creating a greater risk than if you send it to three national institutions in, say, France, England, and Canada. If you send it to shopping malls, you are incurring an even greater risk.

Mrs. Gaffney: About local museums, we all have little museums in our ridings, which we cherish and have a great deal of affection for. Do you people cover donations to a little local museum? Is there a tax credit for a donation to that museum?

Mr. McAvity: Virtually all the museums, as Mr. Walden said, are registered charities. They're all working in the public good. So they would be able to issue tax receipts for donations regardless of whether or not they were significant cultural property.

I think one point that's very important to make about this legislation is that we're talking about donations that are of national historical or artistic significance. It certainly covers only a limited number of donations. That is assessed by the board itself, as well as by the local museum that may be receiving a donation. So we're not talking about every single donation in this bill.

But, Mrs. Gaffney, to your question, yes, the museums depend a great deal on donations. In fact, most of those small institutions are in fact all-volunteer-run institutions.

The Chair: Would you care to comment on the Laing collection at the National Gallery? I assume that's been of great significance for the gallery.

Mr. McAvity: It certainly has been. It's certainly a major donation, and a great donation to the people of Canada, with the Morrices and other works of art that are in that collection.

The Chair: And because of what it has done for the gallery, there's a great payback for the country and for the taxpayers, who in effect supported that donation.

Mr. McAvity: I would concur.

The Chair: Thank you, Mr. McAvity, and thank you, Ms Brooke. We appreciate your comments.

It's a little unclear, members, whether we will be having more witnesses.

Mr. Hanrahan, if you thought it necessary to have another witness, for whatever reason, I would be more than happy to invite that submission from you. My inclination is that we would call a meeting for the Tuesday after the break. If there are no suggestions for further witnesses, then I think we would just go clause-by-clause. I can't see any other reason why we would do anything else. I think we got fairly good explanations from our witnesses today. It seems pretty straightforward. But I am certainly open to another idea, if that's forthcoming.

I would just invite you, Mr. Hanrahan, to make a suggestion, and certainly some time next week before -

Mr. Hanrahan: Yes.

The Chair: I am thinking of the Tuesday we come back. If there's going to be some wrangling over time, let's have it out at the next meeting.

Mr. Hanrahan: What time do you plan to have the meeting on Tuesday, Mr. Chairman? I am caught in the same bind again.

The Chair: At 11 a.m.

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I can tell you right now, Mr. Hanrahan, today was the first time I have had any concerns raised about the 11 a.m. slot. Those concerns come only from the opposition. As a result of these concerns raised by Mr. Solberg, and by Madam Tremblay of the Bloc, I talked to the government members. None has a problem with 11 a.m. except for Mr. DeVillers, who happens to have another committee at the very same time.

So if you define a consensus as something beyond 50%, there certainly is a consensus to leave well enough alone and have our meetings at 11 a.m. But if you want to talk about it at the next meeting, be my guest.

Mr. Hanrahan: This situation that developed today I thought I had clarified with you last night.

The Chair: You did.

Mr. Hanrahan: I think it is a matter of communication that messed us up, more than anything else. As I say, I couldn't be in two places at the once, and I was trying to satisfy both committees.

The Chair: I understand that, Mr. Hanrahan. Thank you.

So wait for the official notice, but it would be my intention to have the next meeting at 11 a.m. on the Tuesday after the break.

This meeting is adjourned.