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.
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:
- 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