Art cast into the dark by superannuation laws?
Investing in art has become a legitimate way for collectors to contribute to their superannuation funds. Indeed Self Managed Super Funds (SMSF), which may be a choice for art collectors, have grown substantially and attract numbers that contribute over 30% of monies/assets held in all superannuation funds.
There are laws, however, that must be adhered to, the most significant being that the benefits of these funds can only be accessed at retirement. This of course applies to all superannuation funds with rules that, for example, label monetary investments, usually deducted from incomes, as preserved and therefore untouchable. Somehow this is a logical and comprehensible edict when applied to financial contributions but when applied to art, whilst the logic is sustainable in financial terms, is less so when one thinks of beautiful art works ‘cast into the dark’ in storage places. And this is a requirement for those investing in art works as part of their self-managed superannuation fund.
Criss Cannings’ Banksia and Wild Flowers is a good test case. Resplendent in its hues of the Australian bush, these flowers exude a dynamic contrast in their golds, greens, reds, pinks and greens. This still life set against an intense white light is necessarily all about the external world of nature and one cannot help being perturbed at the thought of it being put away into storage.
To actually hang an artwork on the wall to be enjoyed and claimed as a personal asset is a breach of superannuation law. Instead, it is the case that some of Australia’s finest art for the present generation of art lovers cannot be seen – though of course the collector can visit the storage space and look at it when the need occurs. This furtive lurking in dark places to view extraordinary works of colour and design is perhaps yet another anomaly of the commodification of art that is so much a part of capitalism and its investment strategies.
The new rules for artwork held at 30 June 2011 grant a five-year transitional period for funds to comply. They include the requirement that artworks purchased after this date cannot be stored in the private residence of the members or related parties. ‘Private residence’ includes the land used for private residence and other buildings on that land such as a garage or a shed. Lurking in the back shed to see one’s art collection has been made redundant.
Does this make sense? Is there a way that this might be changed and in turn benefit the art industry, in particular, young artists attempting to survive financially? Or is there a way for art investors, despite the superannuation laws, to ensure these paintings can be seen?
Investment in art has grown substantially given that this investment can be linked to superannuation funds. Tax concessions offered along with predictions that these artworks will increase in value at a higher rate than investment in shares and property has buoyed the industry, whether the investors are owners of commercial galleries, workers in the art world such as curators, art hangers, administrative staff et al, or even, and perhaps most significantly, the artists themselves. This increased investment has also provided means by which new professions have developed within the art industry, not the least being post-graduate degrees in art curatorship, art history, conservation, the role of art as cultural capital, and general knowledge. If art is conceived as a canny form of investment, people who buy art need advice from people trained in the area, whether formally or by experience in the art world, who have been shown to provide professional advice that has ensured a sound return on investment.
Non-compliance with superannuation laws that insist that the art works be placed in storage has heavy penalties: tax benefits are withdrawn and art collectors would therefore be expected to pay 45% tax on the perceived value of the collection and forced to sell the works within five years heavily reducing the anticipated value of the works if retained for a longer period.
Although the current law no longer allows 5% of a collection owned by a fund (since 30 June 2011) to be on show in one’s home, funds that held artworks at 30 June 2011 have five years (to 30 June 2016) to comply with the new rules. For artworks purchased by a fund after 1 July 2011 it is an offence if the members of the fund or any related parties have any use of these pieces.
However this story has many possible happy endings for the art collector. Art must not be cast into the dark. There are other possibilities open to the art lover who wishes to indulge in his/her passion, accumulate superannuation funds and simultaneously enjoy continual public access to their artwork. The advantages need to be seen in terms of the expenses incurred. Superannuation rules have now added costs to the art investor in demanding annual evaluations by experts in the field. There is now also a requirement for artwork purchased after 1 July 2011 to be insured in the name of the fund within seven days of acquisition. And of course it has always been the case that art when sold from the fund required a market valuation.
On the other hand there is also the possibility of renting out the art in public buildings or allowing the artworks to be exhibited in public in other circumstances. It becomes therefore a choice for art collectors to either hide them away or bring them into the light.
Whether it can be claimed that investing in art is necessarily more profitable than investment in shares and property is problematic. Certainly there are many examples where this is the case. Investment by its nature is risky and is affected by the unknowable elements of global economics and levels of inflation, not to mention the question of the enduring popularity and/or acclaim for the works of particular artists or genre. There are careless investors in this area as there are in others, which is why choosing the right advisors is of paramount importance.
Collectors of art who choose to have Self Managed Super Funds do have choices, and it is to be hoped that one of these is not to ignore the loophole that allows precious artifacts to be seen either in public galleries as a community service, or as rentals which receive 6%-8% value of the art annually.