If you buy an asset by 30 June 2017 and it costs less than $20,000 (GST Exclusive), if you qualify as a small business and use the asset for your business (or part thereof), you can claim a deduction for the business portion of each asset you buy without having to write them off over several years. Now if you have an office for work and adorn it with art, be aware of the immediate tax deduction you should be getting. The 2017 Budget has extended this concession to 30 June 2018 but this has not yet been passed in Parliament. If you are thinking of buying an asset (including art) less than $20,000 and you satisfy the criteria, you might be best to do it before 30 June 2017 to make sure you get the deduction now while you can.
Does this mean you can buy art then effectively at 51% of its price after tax (if you are paying tax at 49%)? Well, technically yes.
What then are some of the key points & eligibility criteria?
Figure 1: Even the Beatles invested in art even though they might just have failed the turnover test! Photo courtesy of Lara Scolari Gallery Balmain
1: You Must Be In Business
To take advantage of this concession you must be a genuine business. This means that you must have a legitimate Australian Business Number and your activity as a whole is commercial with an aim to make a profit. A hobby does not qualify as a business.
To find out whether you have a legitimate claim to an ABN, you might want to visit the ATO's ABN entitlement tool.
If you did have an ABN and you have effectively ceased activity, be aware that you possibly should have cancelled your ABN and buying assets to claim the instant write-off might not be valid.
2: Your (Aggregated) Turnover Must be < $10,000,000
There are three ways to work out whether you are a small business entity (SBE) for the current year. You can:
- use the previous year's turnover (even if your current turnover this current year is is over $10,000,000); or
- estimate your current year turnover (Be careful with this though. You will need to be able to why you think the income would have been projected to be less than $10,000,000 at the time through either things like budgets, unusual sales in prior year(s), drop in business activity etc); and
- actual current income year turnover.
Remember that the turnover test is the aggregated turnover. This is the annual turnover of the business plus the annual turnover of any business that is connected with you that is your affiliate.
Figure 2: Galleries are helping small businesses invest in art using the $20,000 SBE write-off. Photo courtesy Art2Muse Gallery Double Bay
3: The Asset Must Be Used for Business
If you are an SBE and you buy the artwork for less than $20,000 and wish to write it off, make sure that it is used for your business. This would typically mean that it is hanging up in your office or if say you are a restaurant or other type of business where art might be hanging that is used for business.
It is no good if you buy art for home and have it sitting there as this would be regarded as private in most cases. Similarly, if you were to go out and buy 10 pieces of artwork and you can't fit them on the walls in your office then you are going to have a hard time convincing the ATO that they were bought as a business asset.
4: You Can Purchase As Many Items As You Like New Or 2nd-Hand
You can buy as many items as you like and they can be new or second-hand.
Figure 3: Affordable art particularly when it can cost half price courtesy of the government! Photo courtesy Lara Scolari Gallery Balmain
5: Using Your Superfund To Buy Art
If you wish to find another tax effective way to buy art, you can also do it through your self managed superfund. However, collectables and personal use assets (i.e. artworks) cannot provide a present day benefit so that they cannot be used by members or related parties.
You are allowed to store but not display collectables and personal use assets in premises owned by a related party provided it is not their private residence.
You will need to ensure that these artworks are insured within 7 days of purchase.
Figure 4: Acquiring art the smart way will put a smile on your face! Photo courtesy of Lara Scolari Gallery Balmain
If you are a small business entity and you've always wanted to buy that beautiful $2,000, $5,000, $10,000, $19,999 piece of artwork for your office at half price (assuming your marginal tax rate), now might be the time to buy it! Always check with your small business accountants before you buy to ensure you are eligible.
It's available now until 30 June 2017 and most likely to 30 June 2018 (subject to approval by Parliament).
Act now while you can before they take this concession away!