$65 million taxes for art donations may have to be repaid.

OTTAWA -- More than 660 Canadians who participated "buy-low/donate-high" art scheme in the late 1990s may have to repay $65 million in tax breaks, following a ruling by federal tax court Associate Chief Justice D.G.H. Bowman. Toronto brokerage executive Frank Klotz claimed that 250 original prints he purchased through a dealer in the U.S. for about $75,000 in 1989, increased in value by 300 per cent 48 hours later when he made a charitable donation of the prints to Florida State University in Tallahassee. Klotz claimed a market value of about $260,000 and provided a professionals assement to support the valuation. The purchase and transfer of the art was conducted through a dealer in the U.S. who specializes in such art-donation schemes. Tax officials denied the claim and found the art work to be worth the purchase price ($300 each) at most. An earlier ruling by federal tax officials had denied him his "fair-market-value" claim of about $260,000 and penalized Klotz.

Justice Bowman ruled that Klotz, should not pay a penalty because he relied, on the opinions of a trusted financial adviser as well as those of a certified appraiser and two law firms.

Since 1997 about 660 Canadians purchased approximately 65,000 fine-art prints, for which they obtained charitable gifts credits based on appraisals that were much higher than the purchase price. These were donated to 25 U.S. institutions and one Israeli university.

In December last year, Canada Customs and Revenue eliminated the art for education tax shelter, saying that henceforth, purchase price would be considered for donations being made for tax purposes.