If I was Sebastian I would be making an urgent submission to the Minister for Financial Services and Superannuation, Bill Shorten, not to have to enter into such a lease arrangement. Why? The above paragraph is nothing more than a broken election promise.
In his media release of February 1 Mr Shorten declared that the draft legislation “delivers on an election commitment by allowing people with self-managed super funds to continue to invest in art and other personal use assets.”
The Save Super Art campaign forced the election commitment from the government in the week of the disastrous Sotheby’s Aboriginal Art sale in late July and just prior to the Melbourne Art Fair. In fact by making this promise the government was spared a protest rally planned by Save Super Art on the last day of the Melbourne Art Fair that was to feature an Aboriginal funereal dance. This was not made public at the time.
A cursory glance at the explanatory memo, however, shows the effect of the planned legislation will result in substantial numbers of SMSFs having to de-accession their collections within a five year period contrary to their understanding of the election commitment.
What was that election commitment? I quote from the ALP Campaign Media Release issued on 30 July last year:
A re-elected Gillard Labor Government will ensure that from 1 July 2011 collectables and personal use assets owned by self-managed super funds (SMSFs) must be stored (my emphasis) according to new rules to prevent them from giving rise to a personal benefit.
So how does an election commitment to allow SMSFs to store artworks transform itself into an explanatory memo to draft legislation which requires a lease arrangement? This subtle turn of phrase will have far-reaching consequences if enacted.
Businesses with artworks on their premises held by their SMSFs will have less than 5 months (as the commencement date will be 1 July 2011) to remove the artworks and enter into suitable lease arrangements. Storing the artworks would cause their SMSF to be in breach of the regulations with serious implications for all of their retirement savings and not just the art. But more to the point a lease arrangement could make the decision to hold artworks in a SMSF uneconomic.
This is because there is an enormous difference between the two sets of requirements.
First, incidental costs are increased because a lease agreement is a legal document and it will not be entered into just once – each time a new work is purchased a new or amended agreement will have to be made and of course the more works involved the greater the expense of maintaining these arrangements.
Second, the risk of maintaining the artwork rises because it has to be held by an “art gallery” whose physical premises you have no control over. Remember Ron Cole?
Third, a lease arrangement implies that rental income must be derived in order for a SMSF to hold artwork which is contrary to the way that most art professionals would advise their clients to maximise returns on this particular asset class. That is, artwork gains are typically made on capital account.
Mr Shorten has provided a little more than a week from the date of writing for submissions to be made to what is described on his media release as a “consultation process”. For those interested in making such a submission they may be lodged electronically or by post by 15 February to:
Manager
Benefits and Regulation Unit
Personal and Retirement Income Division
The Treasury
Langton Crescent
Parkes ACT 2600
Email: strongersuper@treasury.gov.au
The above discussion concerns artworks only, however from reading the explanatory memo it would appear that other SMSFs investing in other classes of “collectables” will be in an even worse position because they simply will not be able to comply with the requirement to lease and not store.
To quote from the explanatory memo:
It is extremely difficult for the ATO to determine the true purpose for which an investment in a collectable or personal use asset is made, particularly where the asset is stored (my emphasis) in premises owned by the SMSF trustee.
It might not just be the arts industry wishing to bring back the death ceremony.
