Former ASIC chairman Jeremy Cooper stated that "whichever way we look at it, SMSFs are here to stay, but we want them to focus more on investing for retirement savings, rather than related party transactions, collectables and leverage."
He concluded by saying "we think this will be treated as good news in the SMSF sector." Maybe so but I can’t imagine the visual arts industry sharing these sentiments.
Purchasing artworks through self-managed superannuation has long been problematic because the Australian Taxation Office regards art as a "personal use asset" and it is classified in the "other" column in terms of its investment description in the superannuation tax return.
This has lead to the farcical situation where auditors will not qualify their audits if SMSFs can prove that none of their members actually enjoyed the paintings bought on their behalf! In other words if the artwork is stored away from their home the member can say it is not an asset that is providing benefits to them (because superannuation is only supposed to provide benefits after retirement) but I have always thought this to be a fatuous argument. The benefit derived from artwork is not financial after all and you can’t exactly eat a sculpture.
It has been my opinion (now backed up by this latest development) that the government may very well prohibit the purchase of artworks by super funds unless it could be demonstrated that in some circumstances art should be considered as an investment class. The only way I believe you could demonstrate this is by reference to resales.
The recently introduced resale royalty legislation may be an opportunity to demonstrate this. Over time, a history of resales will be created that will be far more comprehensive than current databases because it will capture art gallery sales and transfers of ownership made by gifting and inheritance. This should provide greater certainty to valuations of artworks.
If the proposal to ban SMSFs purchasing artworks is enacted it will remove this form of liquidity to the market. It is not known how much SMSFs spend on the art market each year but to replace this source of finance would require taxpayers to spend the equivalent amount in after-tax dollars. This would be yet another financial disincentive to invest in art.
It is too late to make a formal submission to the Cooper review, and it is due to deliver its final report on 30 June. It is possible, however to make comment on the recommendations. If ever there was a time for the commercial art galleries and auction houses to make such comment it is now.
