Draft legislation that would add arduous reporting and storage rules to art investment by self-managed superannuation funds (SMSF) will have wide ramifications, according to lobby group Save Super Art.
Draft legislation that would add arduous reporting and storage rules to art investment by self-managed superannuation funds (SMSF) will have wide ramifications, according to lobby group Save Super Art.
The reforms stem from last year’s Cooper Review, which recommended changes to SMSF investment rules were made to provide benefits for retirement.
Under the reforms, art held in super funds must not be used, or stored by, or leased to any party related to the fund and must by valued independently before any asset purchase or sale.
Storage records must also be kept for at least a decade, which Save Super Fund co-founder Michael Fox said would combine with associated transaction costs to act as a definite disincentive for self-managed super investment in art.
Mr Fox said the Senate agreed to a motion from the Greens in February that stipulated the Federal Government would not introduce any regulations that would act as a disincentive for investment in the arts industry.
After seeing the draft legislation, Mr Fox said: “On any measure, you would have to say they didn’t keep to that promise.”
Super funds will have five years to adhere to the rules for existing art investments, but any art bought after that date will have to comply immediately.
Mr Fox said the pressure was already being placed on trustees holding art assets who cannot store their art under the regulation. This was leading to art being put on what he described as a congested market. “Given the choice, most people will head toward the exit gate sooner rather than later,” he said.
Another of the regulations stipulates art must be insured in the fund’s name, not by a private individual.
Mr Fox said the best insurance for an artwork was to hang it on a wall because wrapping it before storage could damage it. He also warned that the regulations, particularly around storage and valuation, would open the door for exploitation.
Mr Fox said outside of the proposed rules, his concern was that the public was largely unaware of the changes, with no announcements coming directly from the federal arts minister.
According to Mr Fox, the arts industry is collateral damage in the Federal Government’s plans to slow down the diversity of self-managed superannuation investment, thereby redirecting superannuation into larger institutional funds. “Members of the Cooper panel, the majority of them, had a vested interest to make it more unattractive for people to invest self-managed funds than invest in industry retail funds. This is where it is all coming from,” he said.
Submissions can still be made. The Government has flagged July 1 as the start date for the reforms.