The very generous asset allowance measures introduced a year ago, at the beginning of the COVID period, will almost certainly come to an end on 30 June.

One of these measures has come to be known as the Instant Artwork Write-Off, giving a small business the ability to purchase an artwork and deduct the entire amount on their tax return.

How exactly does this work?

The starting point is to determine if you are a small business. For the purposes of the write-off measure, a small business is one whose aggregated turnover is less than $500 million.

Next, you need to work out if the artwork cost is less than the threshold for a 100% write-off. For artworks first used or installed ready for use between 12 March 2020 and 30 June 2021, and purchased by 31 December 2020, the threshold is $150,000.

Note that if the artwork was purchased between 1 January 2021 and 30 June 2021, it is still possible to claim a 100% write-off of the artwork, but the small business definition is refined as follows:

  1. Temporary full expensing will be allowed for corporate tax entities with a turnover of up to $5 billion that satisfy the alternative test;
  2. Temporary full expensing will be allowed for artworks bought on the secondary market for entities with a turnover less than $50 million; and
  3. Businesses with a turnover of less than $10 million may write-off the cost of artworks bought on the primary and secondary markets by using the re-pooling rules.

Finally, the artwork must meet the following criteria:

  1. Tangibility;
  2. Movability;
  3. Purchased with the dominant purpose of display in a business premise; and
  4. Not be trading stock.

In relation to the criteria of being displayed in a business premise, you will need to demonstrate that this premise is one where clients meet you on a regular basis. For home-based businesses the artwork must be displayed in an office area that has no private use. COVID has complicated this requirement as some businesses were forced to work from home for long periods over the last year, and to comply with health directions, they were not allowed to meet their clients at home.

At the same time, the government relaxed the rules concerning home office deductions during COVID, which included not having to have an office area with no private space.

The situation is not clear, but it does appear that businesses that were forced to work from home without a dedicated office, could purchase artworks and seek a deduction, as long as clients could visit them when possible during the pandemic.

The rules for employees claiming the cost of artworks on their tax returns are much more constrained than for small businesses, and generally confined to:

  1. home office expense – artworks costing up to $300; or
  2. low-value pool deduction – artwork costing $1,000 or less.

Employees who were forced to work from home, without a dedicated office space, may claim the cost of artworks using either method during the COVID period.

The 2021 Federal Budget, being brought down in May, will clarify the instant artwork write-off in the post-COVID era.

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Featured Image: Odelle Morshuis, Movement Drawing (Orange) (2020). Acrylic on canvas, 76 cm by 76 cm.