30% Tax deduction on Artwork


The federal budget has just announced new tax breaks for small business.
Click here for information on the new 100% tax deduction.

Please note. For small businesses with an annual turnover of less than 2 million dollars, the tax break has been increased to 50%. The tax break was also extended until December 31st, 2009.

The Government announced on 3 February 2009 a special tax deduction for the cost of new tangible depreciating assets including new art works. (Ends June 30th 2009)

This is a great opportunity for business owners to purchase artwork. More details are set out below.

1. The owner of a new art work may claim a special deduction in calculating their taxable income of 30% of the cost of the new art work where the new art work is used by the owner mainly in carrying on business. For the special deduction at the rate of 30% the new art work must be ordered before 30 June 2009 and installed ready for use no later than 30 June 2010. However, if the new art work is ordered after 30 June 2009 and installed ready for use by 31 December 2010 the owner may claim a special deduction of 10% of the cost of the new art work.

2. For taxation purposes ‘Art Works’ are depreciating assets. An art work may include a painting or sculpture. A deduction may be claimed by the owner of the art work where the art work is used by the owner in carrying on business for the purpose of producing assessable income. The Australian Taxation Office in Table B of Taxation Ruling TR 2008/4 states the effective life of art works is 100 years and the depreciation rate is 1% prime cost method and 2% diminishing value method.

3. Professional and business persons who furnish their professional rooms or offices with art works will be entitled to the special deduction. Those persons who order and place the art work in their rooms or offices before 30 June 2010 will be entitled to the special deduction at the rate of 30%.

4. For a small business the art work must cost a minimum of $1,000.00. A small business is broadly a business whose turnover is less than $2,000,000.00 annually. For other businesses the minimum cost of the art work is $10,000.00.

5. There is no ‘claw back’ of the special deduction on a later sale, disposal or change of use of the art work. There is no minimum holding period for the art work.

6. Art works may be ordered before 30 June 2009 for delivery before 30 June 2010 by a written order with a non-refundable deposit of 5% of the cost of the art work.

7. The purchase price of the art work will include GST. Owners who are registered for GST may claim an input tax credit for the GST included in the purchase price. For owners who are registered for GST the cost of the art work for calculating the special deduction will exclude the GST claimed as an input tax credit.

8. The special deduction will not be available for art works placed in premises used for rental purposes.

9. This new incentive was announced by the Government on 3 February 2009. An exposure draft bill has been released by the Government for public comment. The Bill, Tax Laws Amendment (Small Business and General Business) Tax Break Bill 2009, is expected to have passed through all stages of Parliament and to have become law by 31 May 2009.

10. These notes are a guide and for information only. Clients should seek their own taxation advice and not rely on these notes on the taxation aspects of any purchase of an art work from Wentworth Galleries.

Update on 2009-05-24 23:33 by Peter Aitken

This proposed legislation has been passed and is now law. The tax break has also been increased for businesses with less than 2 million dollars turnover per annum. Those businesses will get 50% tax break on art purchased from Wentworth Galleries. The 30% incentive still remains for businesses with turnover of more than 2 million.