Update: For the latest information on the new guidelines for artwork and other collectibles held within SMSFs see article SMSF investment: Stricter rules for artwork and other collectibles.
Self-managed super fund
I explain the background to the Cooper Review’s ban in the article SMSF Investment: Art for Art’s sake and the specifics of the recommendation in the article Cooper review: Top 10 recommendations from the report.
Outlined below are the official comments made by the two major parties, and the Greens.
What the ALP has to say:
A re-elected Gillard Labor Government will ensure that from 1 July 2011 collectables and personal use assets owned by self managed superannuation funds (SMSFs) must be stored according to new rules to prevent them from giving rise to a personal benefit.
SMSFs can continue to invest in personal use and collectable assets provided they are held according to these new legislative standards that will ensure the assets do not give rise to a personal benefit and are held for the purposes of providing retirement bene?ts. Existing assets that cannot meet these rules must be sold within five years.
Federal Labor recognises that collectables like artworks can be a legitimate asset class, providing investment opportunities for self managed retirees as well as important commercial benefits to Australia’s artists.
However, Labor acknowledges concerns over such assets attracting superannuation’s concessional tax treatment while being available for ‘personal benefit’ (for example, being displayed in the home of a super fund member).
There are currently no enforceable guidelines around how these assets can be held to prevent them from giving rise to such personal benefits.
The Government acknowledges the concern and uncertainty that arose in the self managed fund and art and collectables community following the publication of the Super System (Cooper) Review report. The Review recommended that SMSFs that are not APRA regulated funds be prohibited from investing in such assets, and that a five year transition period should be applied to existing SMSFs, during which SMSFs would be required to convert to a small APRA fund or dispose of existing collectable and personal use assets (Recommendation 8.14).
That is why it was important that the Gillard Labor Government thoroughly consider and outline its detailed response on this issue as quickly as possible.
Labor’s approach is broadly in line with the best practice artwork investing guidelines that were recently released by the Self Managed Super Funds Professionals Association of Australia (SPAA) and the Australian Artists Association (AAA).
A re-elected Gillard Labor Government will consult with industry and community groups on the details of legislation to implement these new standards.
This announcement will have no cost to the budget.
Source: 30 July 2010 Joint Media Release from Chris Bowen’s office and Peter Garrett’s office
What the Liberal/Coalition parties say:
“The Rudd/Gillard Government must immediately rule out any changes to superannuation which will run a dagger through the heart of Australia’s art sector, says Shadow Minister for the Arts Steven Ciobo.
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“Why else would institutional investors, such as Cbus, invest so substantially in art as an asset class?
“It would be completely wrong to restrict self-managed super funds from accessing the same investment opportunities available to institutional investors.”
Mr Ciobo said the recommendation within the Rudd/Gillard Government-commissioned Cooper Review to exclude “collectables and personal use assets” from self-managed funds would be a killer blow to the nation’s artists.
“If adopted this would deal a huge blow to Australia’s artists, most of whom eke out a living as it is.
“The last thing a struggling arts sector needs is further discouragement from buying artworks.”
Source: 6 July 2010 Media Release, Liberal Party website
What the Greens have to say:
The Australian Greens believe that art works and other collectibles must continue to be legitimate investments for self-managed superannuation funds… Superannuation investments are worth almost $100 million per year to the art industry, according to the Save Super Art Campaign. The recommendation by the Cooper Review to dispose of currently owned art and the cessation of future investments means that the art industry will face potential instability and the income opportunities for artists will be put at risk.
The Indigenous art market would be greatly impacted by the Cooper Review amendments. There is a significant global market for Indigenous art, making it attractive to SMSF and therefore creating an incentive for buyers, with around 60% of Indigenous art being bought through SMSF.
The Greens believe that the benefits of the current system far outweigh the negative consequences created by the recommended changes. The amendments would ultimately result in the harm of the art industry by eliminating the incentives to buy art works and therefore decreasing the amount of art bought…
Reasons for continuing to allow collectables in self-managed superannuation funds:
• An investment can provide for both retirement savings and current-day benefits. Collectables and personal assets, such as art works, produce profitable outcomes while being enjoyed in everyday living.
• There are many advisors in the superannuation industry whose services inform trustees of obligations and regulations in the super sector. They can inform trustees of any changes that arise, and help in the understanding and management of such responsibilities.
• There are greater costs for members of SAF [small APRA fund] than SMSF. The trustee in a SAF is required to be licensed and APRA approved, and therefore receives remuneration The existing services dedicated to the education and aid of investors making the need [for a] licensed trustee redundant.
Source: “The Greens will save super art” fact sheet
