CRA’s document “Gifts and Income Tax” (P113(E) Rev. 09) is helpful for Canadian charities and taxpayers understanding what is a “gift” that can be receipted.  The document is located at http://www.cra-arc.gc.ca/E/pub/tg/p113/p113-e.html Here is an excerpt dealing with donations by artists (or art dealers) of art to Canadian registered charities or other qualified donees.

“Are you an artist?

If you are an artist, we usually consider any works you create and own as inventory, not capital property. When an artist creates a work of art intending to sell it but instead donates it to a qualified donee, we consider the gift to be a disposition of property from the artist’s inventory.

As an artist, if you donate a gift from your inventory and if the gift’s fair market value (FMV) is more than its cost amount, you can designate any amount for the value of the donated property as long as it is:
• not greater than the FMV; and
• not less than the greater of:
o the amount of any advantage in respect of the gift; and
o the cost amount.

Use the amount you choose for the value of the gift as proceeds of disposition to determine your income. This amount will also be used to calculate the eligible amount of the gift, which you need to calculate the tax credit.

If, at the time you made the donation, the FMV is less than the cost amount, the proceeds of disposition must equal the FMV of the donated property. This amount will also be used to calculate the eligible amount of the gift, which you use to calculate the tax credit.

As an artist, you may donate a work of cultural property you created, from your inventory, to a designated institution or public authority. If you do this, and the Canadian Cultural Property Export Review Board (CCPERB) certifies the gift, we consider that you received proceeds of disposition equal to the greater of the cost amount of your gift and the amount of any advantage in respect of the gift. The amount that qualifies for the tax credit on certified cultural property will be based on the eligible amount of the gift, provided you meet all other requirements outlined in the section “Gifts of certified cultural property”.

Note
An artistic endeavour occurs when you are in the business of creating paintings, murals, original prints, drawings, sculptures, or similar works of art. An artistic endeavour does not include reproducing works of art.

When you calculate your income from an artistic endeavour, you can choose to value your ending inventory at nil. If you do this, we consider the cost amount of your gift to be nil. Your choice stays in effect for each following year, unless we allow you to change it. For more information, see Interpretation Bulletin IT-504, Visual Artists and Writers.

Are you an art or antiques dealer?

If you buy and sell art, antiques, rare books, or other cultural property as a business, and you donate one of these objects, we consider the objects as part of your inventory, not capital property or personal-use property. Therefore, we consider the proceeds to be business income based on the fair market value of the donated property at the time you donated it. You can claim a tax credit based on the eligible amount of the gift if it otherwise qualifies.

If your gift is from a private collection that you maintain apart from those works we consider to be your business inventory, the usual rules for donating capital property or personal-use property apply.”