Claiming art purchases on your tax

Ever wondered whether that artwork in your studio or office could help your tax return? Michael Fox has the answers.
Claiming art purchases on your tax

Victor Rubin, After Glow from the forthcoming exhibition 'Points to View' at Fox Galleries

Many creative professionals in business display artworks in their offices, but they may not know they can also claim the cost of purchasing these artworks as a tax deduction.

Artworks are both investments and depreciating assets according to the Australian Taxation Office (ATO). They are normally subject to a very low rate of depreciation due to their useful life being determined as 100 years, meaning the usual depreciation rate is restricted to 1% per year. This means that normally you could only claim 1% of the cost of an artwork as a tax deduction, not a great incentive to buy art.

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However, the fact that artworks are held to be depreciating assets by the ATO qualifies art for the instant asset write-off measure. During the 2019 financial year it is possible to claim a complete deduction of up to $30,000 for each artwork purchased by a small- or medium-sized business for their premises, subject to four criteria. The artwork must be:

  • Tangible
  • Capable of being moved
  • Purchased with the dominant purpose of display in a business premise; and
  • Not be trading stock.

There is no bar to whether art is bought as a resale or whether the parties involved in the transaction are related to each other. There is no limit to the number of artworks costing less than $30,000 that an eligible business may claim a tax deduction for.

For the 2019 financial year, there are three periods of instant asset write-off with different thresholds:

  • 1 July 2018 to 28 January 2019 – less than $20,000
  • 29 January 2019 to the day of 2 April 2019 – less than $25,000
  • The night of 2 April 2019 to 30 June 2019 – less than $30,000

The good news is that the write-off has been extended to medium-sized businesses, categorised as those with an annual turnover of $10 million or more but less than $50 million. These businesses will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from the night of 2 April to 30 June 2020.

It is possible to transfer ownership of an artwork from a super fund to its members by obtaining a market valuation for that purpose. If the trustee or member is an eligible business they will also obtain a tax deduction equal to the cost of the artwork being transferred.

Where artworks are transferred from super funds to their members, the ATO has released a valuation instruction form where valuations are required for taxation purposes. It is important that any valuation prepared to transfer artworks from a super fund to its trustee or members follow the methodology set out in the instruction form.

Even if you’re not in a position where you have artwork it might be a good time to approach collectors to see if they want to find a tax deduction that supports the arts.

For more expert advice visit: foxmichael.com.au

Michael Fox

Tuesday 25 June, 2019

About the author

Michael Fox is the Principal of Michael Fox Arts Accountant and Valuer, and the Director of Fox Galleries.