Michael Levitt argues reforming Self Managed Super Fund legilsation, particularly as applies to art, to remove the "excessive and intrusive Governmental regulation, a nanny state mentality, absurd economics, selective discrimination against the art industry and Mao-style cultural censorship":
I strongly support the Government’s right to encourage investment for the purposes of retirement by offering tax concessions for legitimate superannuation investments. Yet, despite creating these tax concessions, the Government remains uncomfortable about providing them. They seem to regret the loss of tax revenue, especially where an SMSF director also uses the investment for immediate and pragmatic benefit.
In order to eliminate inappropriate access to tax concessions for non-investment, immediate-use items, the Government has relied upon a definition of legitimate superannuation investment referred to as “The Sole Purpose Test”. According to this standard, a legitimate SMSF investment must be demonstrably for the purpose of delivering income in retirement. By irrational extension, they have also determined that anything that also provides immediate benefit must be inherently unable to provide income upon retirement.
Art as an SMSF investment represents an awkward problem for the Government. Art can be an excellent long term investment but there is widespread ignorance and scepticism about what makes any particular piece of art likely to appreciate in value over time. To the unfamiliar, art investment can seem random and illogical. Meanwhile, hanging a piece of art delivers an undeniable immediate benefit. Doubtless, many pieces of art that have been acquired by SMSFs in Australia over the last 20 years or more were, from the start, unlikely long term investment prospects; indeed, many of these will have been purchased primarily for decorative purposes while still attracting a tax concession.
Specifically to discourage SMSFS investment in art and collectables, the Government has imposed additional regulations on their acquisition by SMSFs. These regulations pertain only to art and collectables. They prohibit SMSF directors from hanging the art at home or at work (or in the homes or workplaces of relatives and friends); they mandate the storage of these items in an independent, commercial storage facility; and they mandate the insurance of these items at current market value. These costly and intrusive regulations have effectively ended the ongoing acquisition of art by SMSFs. In turn, this has led to a dramatic downturn in the Australian art market at all levels; the indigenous art market has suffered more than any other area.
This should come as no surprise – whenever sales of any product in any area of commerce are forcibly diminished, whenever demand for a product is substantially reduced, cash flow in that area will suffer and incomes for the people dependent upon those sales will fall. It is surprising that the Coalition Government cannot seem to grasp this unremarkable fact of economic life as it applies to the art industry. That this diminution is Australian art sales and this damage to the Australian art industry has been at the hands of the Australian Government should be cause for serious contemplation and reconsideration.
Every Australian citizen has the right to set up their own (fully compliant) SMSF.
Every Australian citizen has the right to invest as they see fit, in their own best interests.
It is unquestionably wrong for any Government to discriminate against one investment vehicle to the advantage of any other; this impacts directly upon the individual’s right to invest as he or she sees fit.
It is totally wrong for any Government to penalise an entire industry, in this case the art industry, to the benefit of other industries.
It is equally wrong for the Government to justify its opposition to SMSF investment in art on the grounds that art is a risky investment. There are risks attached to every investment vehicle and professional advice is required in every area of investment. Moreover, the Government has made no attempt to establish the appropriateness of SMSF investments in, say, stocks and shares; highly speculative “start-ups” attract precisely the same tax concessions as do “blue-chip” shares. The Government’s discrimination against art is exposed by the complete lack of regulation applied to SMSF investments in vehicles other than art and collectables.
The decision to invest wisely or unwisely in whichever way they might choose remains the right of every Australian citizen. Art acquired in the name of investment that fails to appreciate in value in the long term represents a problem for the investor, not for the Government. The Coalition’s much proclaimed rejection of the Labor Party’s nanny state mentality is shown to be both a lie (because they claim that their concerns about art investment, which they regard as risky, are for our own good) and hypocritical (because they express no such concern for investors buying overtly unsuitable stocks and shares). Honesty and consistency are evidently lacking in the Coalition’s approach to SMSF investments.
The serious impact that the regulations regarding art in SMSFs is having upon the livelihoods of artists and their art dealers is being ignored by politicians of all stripes. It is scandalous that, for little or no discernible benefit to the country, a small but important industry is being damaged. Government distaste for the provision of tax concessions to SMSF art investors has overridden both common sense and the reasonable interests of Australian artists and their dealers.
A major disincentive to potential SMSF art investors is the Government’s insistence upon storage (rather than display) of SMSF art. Such storage is inordinately expensive and, much worse, defies the very purpose of art, namely that it should be seen and appreciated. While the immediate benefit of looking at investment quality art is undeniable, it is plainly ridiculous to assert that the value of a piece of art is adversely affected by its display. Politicians cannot expect to be taken seriously while they choose not to acknowledge the unambiguous fact that art can continue to appreciate in value even while it is being displayed and appreciated.
The display of art simply does not detract in any way from its long term investment potential. This makes the Government’s regulations relating to the storage of SMSF art nothing more than a cynical mechanism to discourage the acquisition of art by SMSFs. This is censorship of art as an instrument of Government policy, an odious and utterly inappropriate tactic for any Government let alone the Government of a liberal democracy such as Australia. It is ridiculous and shameful that, in Australia, the Government has decreed that Australian art owned by Australian investors must be hidden from view for fear of them obtaining the benefit of looking at it.
There is a way out of this ludicrous situation. The starting point must be the enunciation of an overarching Governmental approach to the art industry in this country. Although it might seem a statement of the obvious, it needs to be made clear that it should be the conscious intention of the Australian Government to support its national art industry by encouraging the production, acquisition and proud display of Australian art.
This does not mean that art should be offered encouragement over and above other industries; all Australian industries should be the object of Governmental, in-principle support. But acceptance of this simple intention should immediately free the way to remove the discriminatory disincentives to art investment that are contained in the selective regulations pertaining to art and collectables in SMSFs.
Allowing art to be acquired and displayed by SMSFs exactly as SMSFs are currently allowed to acquire stocks and shares or real estate, will inevitably greatly boost art sales and restore confidence in the marketplace for art in this country.
Sure, allowing art to be acquired and displayed by SMSFs (exactly as SMSFs are currently allowed to acquire stocks and shares or real estate), will also result in the acquisition of some poor investment quality art by individuals prepared to risk a small percentage of their SMSF contributions in this manner. This surely is their right. And, in any event, it cannot be claimed that all current SMSF acquisitions of stocks and shares or real estate are of sound investment quality. Many are not.
Allowing art to be acquired and displayed by SMSFs will not increase the total pool of superannuation contributions but will simply (fractionally) redistribute that pool in favour of art and away from stocks and shares or real estate.
There will be no change in the total tax concession applied by Government to SMSFs, just a minimal re-distribution of those tax concessions towards art.
No investment vehicle will be accorded special status; but, even more importantly, no investment vehicle will continue to be suffocated by Governmental regulations.
The tiny Australian art industry will be substantially boosted; the change to the massive share market will be imperceptible.
The current dismal state of affairs, created by Labor but perpetuated by the Coalition, is characterised by excessive and intrusive Governmental regulation, a nanny state mentality, absurd economics, selective discrimination against the art industry and Mao-style cultural censorship.
Why is the Coalition Government continuing to support the appalling circumstances created by its Labor Party predecessors?
Michael Levitt, Perth
Good Points, Michael,
So it's okay for a SMSF to own gold bullion (which doesn't provide an income)and display it on a shelf (or use it as a book end?) but not okay to own a Pro Hart and hang it on your wall?
Surely a certain percentage should be allowed. At least art doesn't have a ticker price on it so over the long term if you have bought well, there should be some sort of capital gain which the gov't is more than happy to tax.
Posted by: Account Deleted | December 24, 2013 at 11:07 AM
A strong and clear arguement Michael. Makes you wonder why the Arts community has not been more vocal on this issue. Also the greens allowed this through the senate - I am still trying to work out what voters they represent in parliament?
I doubt that you will get change. The govt wants a regular income so it can bank on a regular tax income. In other words the governments view is that our super is only there as a source of future taxation income. Art is far too easy to give to your family and sell for cash, avoiding tax (it was stolen) in the process.
Posted by: RossCO | December 24, 2013 at 01:27 PM
I reckon superannuation is like quantum mechanics - if you think you understand it, you don't understand it.
Posted by: Arthur Dent | December 24, 2013 at 04:46 PM
It's difficult to imagine that the Coalition Government does not realise that the SMSF amendments forms part of Labor's class war agenda.
The problem being that Labor took aim at the consumer but hit the producer (the artist) and the thousands of small businesses in between.
Repealing the amendments will greatly assist in the recovery of Australia's bottom line - more tax collected, less welfare paid.
Posted by: Quentin | December 27, 2013 at 11:13 AM
when does Menzies House return from the aummer break ???
Posted by: Neil Saphire | December 29, 2013 at 11:37 PM