How to consider your tax and superannuation when investing in art with Michael Fox

Michael Fox is the Principal of Michael Fox Arts Accountant & Valuer and the Director of Fox Galleries. He is a certified accountant, fine art valuer and art collector. Michael is a member of the Auctioneers and Valuers Association of Australia (AVAA) and is a Fellow of the Institute of Public Accountants. 

1. How does the purpose behind a purchase impact the relevant tax? For example, if it was bought for investment, business, or personal?

The starting point is art bought for personal reasons, which is how many people first come into the art market. This means the buyer is not seeking a tax concession. If the artwork becomes valuable over time, art bought privately may be donated to a museum and the value of that gift could be deductible under the cultural gifts program. Private purchases under $500 will also be exempt from capital gains tax and over $500, held for more than a year, will qualify for the capital gains discount.

Business purchases are those that are made in connection with operating a business. Since 2020, as a result of the COVID-19 pandemic, most businesses can purchase art and receive a 100% tax deduction, as long as the requirements for display and meetings are met. The concessions for cultural gifts and capital gains, do not apply to art bought for business.

Art bought for investment can be made individually, by a partnership or through a trust, company or superannuation fund. Capital gains concessions do apply to these type of art purchases, however you cannot gift artworks to museums once you classify them as investments.

Joanna Gambotto, ‘Break of Dawn’ 2023, Oil on canvas, 76cm by 50cm

2. What advice would you give collectors considering purchasing artworks for their self-managed superannuation funds?

First, you have to consider whether the custodial issues of owning art through a super fund outweigh the benefits of purchasing artworks privately or for business. It seems that, based on the increased use of super funds for art collecting, that many people have decided that it is worth using this investment vehicle.

In any event, the main factors are storage, insurance and valuation. Storage costs can be reduced if you have a business premise, where the art can be stored. Also important is to have an accountant who is somewhat familiar with the art market (or who won’t discourage you).

3. What factors should a business owner consider if wishing to purchase art for their business?

The legal structure of their business and GST registration are important factors, assuming the requirements for display and client meetings are met. A professional in practice with a marginal tax rate of 47% will receive a rebate of 23.5% from the ATO on top of a GST refund if the artist or gallery are registered for GST, depending on when the art is bought. If the business is operated by a company the tax rebate will reduce to 12.5%.

4. Have you noticed any recent changes to relevant regulations or policies that collectors may be unaware of that could prove beneficial?

The unlimited instant artwork write-off will end on 30 June. To qualify for the write-off, the art must be both bought and installed by the end of the financial year. For 2023/24 year the instant asset write-off will decrease to a cap of $20,000 per item and be restricted to small and medium businesses; however, at the time of writing it is not certain that artworks will qualify for this tax measure.

5. What is one of your top tips you have for a collector, come EOFY?

So far, I have only discussed tax concerns, but my top tip for collectors, including those wanting to buy art before EOFY is to seek advice from professionals in the art market, to guide their purchases.

In the secondary market, specialists at auction houses can tell you the artists for which there is growing demand. You should consider upsides against downsides in pricing, particularly the higher the sale price is.

In the gallery market, you should be looking at artists with consistency of practice, who are winning awards and whose work may be more affordable than at auction. Joanna Gambotto, for example, is a young, fearless painter whose work harks back to the golden age of Australian port-modernism. Her most recent series of paintings, are in fact based on the studio of Margaret Olley, with lively brushstrokes and beautiful hushed tones bringing a vibrancy to the objects depicted. There is very little downside to the pricing of a skilful painter like Gambotto at this stage of her career.

Banner Image: Michael Fox with Al Poulet ‘Untitled (Action)’ 2023 (detail), Acrylic and aerosol on canvas, 200cm by 198cm, in background

May 2023