In what can only be described as a supreme irony a recent pioneering study conducted by the University College London discovered that the same part of the brain that is excited when you fall in love is stimulated when you stare at great works of beauty.
Viewing art triggers a surge of dopamine into the orbito-frontal cortex of the brain, known to be involved in desire and affection, resulting in feelings of intense pleasure.
Here in Australia the Federal Government has now seen fit to prepare draft laws whose primary purpose is to “limit any personal enjoyment” (in the words of the Explanatory Memo) members of self-managed funds may derive from their artwork investments.
It is hard to believe that so much effort has been expended to prosecute the semantic argument that viewing works of art bought by a self-managed super fund somehow defeats the sole purpose of providing for member retirement merely because the artworks provide enjoyment as well.
Instead of addressing the real issue of artwork valuation, the Exposure Draft continues the Cooper Report’s obsession with ensuring that artworks cannot be viewed by the members or related parties, including businesses, of self-managed funds.
It is also clear that these new rules will catch many investors off-guard because of confusion over what a “related party” is. At a talk I gave on the subject at Leonard Joel last year many members of the audience did not seem to understand that their businesses are seen to be related parties to their super funds and it did not matter if a lease arrangement was put in place for the display of their SMSF-owned artworks.
The Exposure Draft has now made this very clear. Section 2 is headed “Asset must not be leased to related party”. Section 3 is headed “Item must not be stored in private residence of related party”. Failure to comply with these requirements would result in the super fund breaching the legislation with dire taxation consequences and fines of $10,000 per offence.
In terms of the decision to store the artworks, it must be made in writing and this written record must then be kept for at least 10 years.
In a further sign of no communication being evident between the Minister for Superannuation and the Minister for the Arts, the definition of “artwork” in these draft laws has been accepted as the one contained in the Taxation Act and not the definition provided by the Resale Royalty Act.
It begs the question of what real purpose the Resale Royalty Act is other than to create a meddlesome bureaucracy. A tailor-made definition of what constitutes an artwork, only enacted in law last year, is ignored for a wider definition from the Income Tax Assessment Act enacted almost 15 years ago.
The bigger question is what real purpose does the Minister for the Arts have for the visual arts industry when it is clear he has had no involvement in the drawing up of this Exposure Draft. At the very least one would expect a media release, even a joint one with the Minister for Superannuation similar to when the ALP ruled out the complete ban on artwork investments by SMSFs on 30 July last year.
It has to be noted that the Federal Senate did pass a motion in February stating that these new draft laws could only be legislated if they “do not act as a disincentive for DIY superannuation funds to invest in Australian art.”
My reading of the Exposure Draft gives grave doubt as to whether that promise can be kept. But this is a government that has yet to find its way to the orbito-frontal cortex of its constituents.
Submissions can still be made to Treasury by June 14:
Manager
Benefits and Regulation Unit
Personal and Retirement Income Division
The Treasury
Langton Crescent
Parkes ACT 2600
Or by email to StrongerSuperSMSFs@treasury.gov.au
