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Matters of the Art…

In the world of artworks, whether they be masterpieces by recognised greats or works produced by up-and-coming artists, values are constantly fluctuating. Demand can be fickle;

  • Trends and tastes can change with the wind.
  • A work that was considered invaluable two years earlier can now be all but unsellable.
  • A piece that was purchased on a whim could suddenly command a fortune.
  • And a change in self-managed super fund (SMSF) regulations can send tremors everywhere.

ATO shakes it up

The lower end of the art market, defined as items or collections valued under $40,000 is heavily propped up by the SMSF market. It holds about $771 million in artworks, collectibles, metals and jewels.

But there are turbulent times ahead for this end of the market thanks to changes in SMSF regulations.

Any such items purchased after 1 July, 2011, cannot be kept at the investor’s home.

Specifically, any valuables held within an SMSF must be covered by standalone insurance, must be independently valued and must not be held in an environment in which a party related to the SMSF receives personal benefit from them.

Artworks and collectibles must also not be leased to any party related to the SMSF and the reasons for deciding on a specific storage space must be kept in writing.

To ease the transition, items purchased before mid-2011 do not need to be insured until 2016.

Sometimes people will want to insure their artworks through their home and contents policy, and that’s fine if you don’t have to comply with SMSF rules. But even then, you run the risk of an inferior product. Such policies are not well designed for art and collectibles.

Some who would like to insure their SMSF-held artworks go to a gallery or an art dealer who arranges a group policy on behalf of all of their clients, and expect this to satisfy the ATO rulings but it absolutely does not.

If a fund is simply noted for their interest in the asset, within a group policy, then this does not satisfy the ATO’s regulations.

Talk with your accountant and insurance broker to ensure you have appropriate and compliant protection.

Source:  Chris Sheedy | Insurance Risk & Professional 01 May 2014

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