On 3 February, 2009 a range of one-off measures were announced by the Federal Government to provide a stimulus to the economy in light of the global financial downturn. Called The Nation Building and Jobs Plan, it contained a measure known as the Small Business and General Business Tax Break. The Federal Budget delivered on May 12 increased this investment allowance to 50% in certain circumstances.
The amount of the allowance is determined according to the turnover of the entity claiming the allowance:
- Small Business Entities – turnover less than $2 million – are able to claim an additional tax deduction of 50% of the cost of eligible new tangible depreciating assets where they commit to purchasing the asset on or before 31 December 2010. The asset must cost at least $1,000.
- Other business entities – turnover $2 million or more – are able to claim an additional tax deduction of either 10% or 30% of the cost of new tangible depreciating assets depending on when they commit to buy and install the asset as per the timeframes above. The asset must cost at least $10,000.
How does this relate to the visual arts sector?
Taxation Ruling TR2007/3 provided guidelines as to the estimated life of depreciating assets. Artworks are given the longest effective lifetimes under this schedule at 100 years.
Some months ago, we sought clarification from the Australian Taxation Office, whether they concurred with our interpretation that artworks qualified as a “new tangible depreciating asset.”
Consequently, the purchase of “new artwork” used for “business purposes” would qualify for the Small Business and General Business Tax Break, thus providing immediate benefit to artists and their galleries.
Factors to consider before making these claims
To date, we have not received any definitive answer from the Australian Taxation Office [possibly because they themselves do not know – they have asked us to identify the types of businesses who would buy artworks!]. In order that there is some clarity to the issue, we consider the following criteria necessary for a claim to be made:
1. The artwork is to be new and acquired from the artist or their dealers and not works from the secondary market.
2. The artworks are to be created by professional artists, registered with an ABN (or sales tax registration in rare cases of sales being made from deceased estates).
3. The purpose of the acquisition is for business use i.e., for decoration of the office or business premises and not for private or domestic purposes.
4. Artworks bought as trading stock do not qualify.
5. Artworks should be held for at least a year.
In summary, until a test case is made to the ATO on behalf of one of our clients, we advise that each claim should be looked at on its merits according to the guidelines above. It would also appear that to comply with the allowance any capital gains concessions would be forfeited as the artwork would thereafter be a depreciable asset.
We will update our website with developments on this issue as they come to hand. We strongly advise that our counsel be sought on this issue before making such a claim.
