By Joe Kaleb, Chartered Accountant & CEO of Australianbiz
There have been recent media reports that a small business with a turnover of less than $2M can claim an instant tax deduction for” individual” items of artwork costing less than $20,000 based on the Treasurer’s Budget announcement.
It is my view that the purchase of a “collectible or name brand piece of artwork” costing up to $20,000 won’t be eligible for the up-front tax deduction as it does not qualify as a “depreciating asset” defined by the ATO as follows:
“A depreciating asset is an asset that has a limited effective life and is expected to decline in value over the period you use it. Land, items of trading stock and certain intangible assets are not depreciating assets”
A collectible or name brand painting is unlikely to meet this definition as it would normally have a long life span and the value is expected to increase over time rather than decline. It does not matter that the painting may be hanging up in the boardroom or reception area. The same would apply to other collectibles such as antiques and even vintage cars if they don’t meet the definition of a depreciating asset.
To take this issue to the extreme, if a business could claim an instant tax deduction for expensive capital appreciating artwork, investors would be tempted to for example buy individual paintings up to the $20,000 threshold for their business instead of in their personal name and claim multiple large up-front tax deductions.
If a business was for example to buy an off-the-self painting costing say $2,000 and hang it up in their boardroom, an instant tax deduction should be allowed as it would most likely have a limited life span (e.g. goes out of style over time) and the value would be expected to decline in the future.
The ATO says that it will be working with small businesses to ensure they are appropriately claiming this deduction.
For more information, please contact:
Joe Kaleb: Chartered Accountant & CEO of Australianbiz
Phone: (02) 9979 8880
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