|Summary: The superannuation sole purpose test governing the treatment of art and other collectibles in a super fund could be about to undergo a review, if the Coalition wins power.|
|Key take-out: Fund trustees holding art may finally be able to hang their superannuation pieces on the wall.|
|Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.|
Australian art collectors are watching carefully for new superannuation policy initiatives from the Coalition in the coming weeks as rumours swirl over plans for the art market.
It is understood the Coalition is seriously considering reforming one of the anomalies of the superannuation system – the sole purpose test, which prohibits collectors of art and other valuables from directly accessing their collections.
Under the current terms of superannuation a DIY fund member may own art or any other collectable such as antiques, coins or jewellery. However, the goods must be kept at arms-length from the individual. Typically an art collection has to be kept literally in a bank vault, or in an offsite storeroom. Under the current superannuation legislation the art collector cannot enjoy or view the art unless they ‘rent’ the art back from the fund. Not surprisingly, there is strong anecdotal evidence the current legislation is being disregarded in some quarters.
A move to ease restrictions on art and collectables will be a boon for the art and collectables market. In recent years international art auction group Christie’s has closed its doors in Australia, while numerous smaller art and collectable operations have reduced or closed their operations.
Already this year one of Australia’s biggest coin companies has hit the rocks. The Rare Coin Company, based in Albany WA, collapsed last month owing millions to creditors. This is in stark contrast to Europe and the US, where coin collecting is thriving and record prices are being set at rare coin auction houses. Indeed, in the last six months, Stack’s Bowers, a top coin and paper currency auction house in the US has had two record-breaking sales: an 1891 $1,000 silver certificate that sold for $2.6 million and a 1794 silver dollar that sold for $10 million. (For more on the rare coin market see Small Coins, big money).
A reform of the superannuation rules would be welcomed not just by the art industry but also by financial advisers and investment professionals who believe Australian investors have not been sufficiently diversified since the GFC, with inordinate amounts of super still sitting in cash.
A recent study by UK wealth consultants WealthInsight suggests that Australia’s wealthy investors have renewed their interest in alternative assets, including collectables (see Wealthy pickings). Among the wealthy, art, wine and classic cars are seen as a great means of storing wealth and increasing portfolio diversification. Still, the current legislation certainly doesn’t give any incentive to hold such beautiful, rare items.
WealthInsight estimates that collectables could account for 12% of wealthy Australians’ alternative investments within a few short years. If the Coalition goes ahead with this bold move and changes the legislation, the allocation to collectables could indeed be a lot higher … and collectors investing through their DIY fund might actually get a chance to view and enjoy their collections.