Is art a good super investment?
Is art a good super investment?
Art was once the investment of choice for the discerning, art-loving Self-Managed Super Fund (SMSF) investor.
However, in much the way of artist Banksy’s sensational self-shredding painting auction stunt, art as a super investment has all but imploded in recent years – thanks to strict SMSF rules that came into full effect in 2016.
Australian Tax Office SMSF statistics show that as at June 2014, $712 million (0.18%) of all SMSF assets were held in collectibles. Just over three years later, a mere $414 million (0.06%) of the massive $675 billion of assets held by SMSFs (as at March 2017) were in collectibles. (Source: ATO)
While it is still possible to hold art or other collectibles in a SMSF, strict rules must now be followed.
In essence, your artwork or collectible must broadly conform to the following:
- You may not store or display it in your private residence
- While you can store your art at your business premises, you cannot display it (yes, that means you can’t hang your prized painting on your office wall!)
- The SMSF trustee must record in writing the reason for the decision on storage – and keep that record for 10 years
- The SMSF must ensure the asset is insured in the name of the fund
- Art must not be used by any related party, or leased to any related party
- Valuation must be carried out by a qualified independent valuer. Any transfer of ownership to a related party must be done at market price as determined by a qualified independent valuer.
What constitutes ‘art’ in terms of SMSF?
‘Art’ includes paintings, sculpture, drawings, photography, jewellery, antiques, artefacts, books, coins, stamps, rare manuscripts, boats, memberships of sporting or social clubs, motor vehicles and wine or spirit collections.
Source: Section 62A of the Superannuation Industry (Supervision) Act 1993
If you decide to add art to your SMSF, there are custodians willing to store your assets. However, be aware that buying art and simply storing it can expose investors to unintended risks. This was demonstrated recently when Sydney-based art storage company Smith and Hall was placed into receivership and the Administrator sought orders to sell some of the art. Grey areas emerged, and in some cases it was not clear whether the investors or suppliers owned the art.
So is art a good investment, you ask?
If you exclude the high end of above $50 million, then the following should be considered. When purchasing a piece you may pay between 10 and 25% as an auctioneer’s premium – and at least a similar amount to a dealer. You will need to insure the piece in the name of the SMSF within 7 days of acquiring it and while you are holding it. If it has many owners you will need to ensure its providence if you plan to resell it; and ensure that the next buyer will consider your proof enough. As the secondary market for most artists is quite small, you will not really know the value of the piece until you sell it. As art by its nature is original, regardless of what similar pieces have sold for your piece may not be as popular when you wish to sell it.
Art as an investment represents many additional challenges, creates no ongoing income, has ongoing expenses and the value is not known until it is sold. As a consequence art is quite a risky investment.
Best to buy it because you know what you like rather than how much it will be worth down the track!
Sources:
SMSF compliance: Strict rules for artwork and other collectibles https://www.superguide.com.au/smsfs/smsf-investment-art-collectors-subject-to-stricter-guidelines#Why_were_the_new_rules_introduced Accessed 13/2/2019
The Smith & Hall Liquidation Process – a Cautionary Tale
https://www.aasd.com.au/index.cfm/news/220-the-smith-and-hall-liquidation-process-a-cautionary-tale/
Why ‘investing’ in art is a terrible idea
https://www.businessinsider.com.au/why-investing-in-art-is-a-terrible-idea-2015-4