PHILISTINES V ELITISTS A COMPARISON OF AUSTRALIA S AND … · Journal of the Australasian Tax...

JournaloftheAustralasianTaxTeachersAssociation2019Vol.14No.1

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PHILISTINESVELITISTS?ACOMPARISONOFAUSTRALIA’SANDNEWZEALAND’STAX-BENEFITTREATMENTOFCOLLECTORSOFARTWORKS

JONATHANBARRETT*

ABSTRACT

Afterareviewoftaxconcessionsgrantedtocollectorsofartworksinmaturemarkets,thisarticleconsidersthetaxandbenefittreatmentofcollectorsinAustraliaandNewZealand.Relevant policy considerations are identified and applied to current tax and benefitprovisionsforAustralasiancollectors.Thequestionofwhetherdifferentialtreatmentofcollectors(relativetootherinvestors)canbejustifiedongroundssuchaspromotingartmarketsandpreservingculturalheritageisdiscussed.Recommendationsaremade,andconclusionsarethendrawn.

*Email:[email protected].


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I INTRODUCTION

Thenatureofartishighlycontested,1butthegeneralpublicislikelytoconsiderthethingsthat constitute artisticworks under copyright law—paintings, sculptures, drawings,engravings,photographs, andartisanalworkswithartisticquality2— tobeartworks.Provided Indigenous creations, which might be excluded from a traditional Westerndefinitionoffineart,suchasbatiksandweavings,3areincluded,thiscopyrightdefinitionofartisticworksadequatelyidentifiesartworksforthepurposesofthisarticle.France,theUKandtheUShavematureartmarkets.4 ‘Maturity’,asusedhere,doesnotsimply connote size. Although the US and the UK currently host the first and secondlargestartmarkets,5China’s rapidlyexpandingartmarket ismuch larger than thatofFrance,6buttheFrenchmarketcanbeconsideredmoremature.Thebuyingandsellingofartworks,particularlyinParis,takesplacewithinthecontextofanartsocialsystem,7or art ecosystem,8 that comprises well-established schools, ateliers, galleries andmuseums,auctionhouses,andclustersofspecialisation.9Principalnodesoftheglobalartmarket, notably London, New York and Paris, have relevant infrastructure andconcentrationsofexpertise; theyalsohave the‘status,branding, cachet, celebrity,andaesthetics’that help to ensure optimal pricing of works in that market.10 In maturemarkets, collectors are also typically knowledgeable and active participants in the

1See,forexample,ArthurCDanto,WhatArtIs(YaleUniversityPress,2013).2SeeCopyrightAct1968(Cth)s10,definitionof‘artisticwork’;CopyrightAct1994(NZ)s2,definitionof‘artisticwork’.Artisanalworksareproblematicundercopyrightlaw:seeGeorgeHensherLtdvRestawhileUpholstery(Lancs)Ltd[1975]RPC31.Nevertheless,peoplearelikelytoconsider,say,anEamesloungechairtobeaworkofartisticcraftsmanship.3CompareResaleRoyaltyRightforVisualArtistsAct2009(Cth)s7,definitionof‘artwork’.4Relativeto financialmarkets, it isarguablethatallartmarketsare immature.OlavVelthuisandEricaCoslorobserve‘thefinancializationofarthasbeenincomplete—orisatleastfarfromfinished,especiallywhencomparedtootherfinancialmarkets’.SeeOlavVelthuisandEricaCoslor,‘TheFinancializationofArt’in Karin Knorr Cetina and Alex Preda (eds),The Oxford Handbook of the Sociology of Finance (OxfordUniversityPress,2013)471,480.5 In2017, theUSaccounted for40percentof theglobalartmarket, and theUK21percent. SeeArtsEconomics,TheBritishArtMarket2017 (surveyprepared for theBritishArtMarketFederation,2017)<http://tbamf.org.uk/wp-content/uploads/2014/08/The-British-Art-Market-2017.pdf>.6Ibid.In2017,China’sshareoftheglobalartmarketwas20percent,whileFrance’swas7percent.Seealso Darius A Spieth, ‘Art Markets’, Oxford Art Online (Web Page, 2019)<http://www.oxfordartonline.com/page/Art-Markets#>. Given its population and massive increase inwealth,Chinawillmostlikelybecomethedominantplayerintheartmarketinthefuture.Inthepast150years,thecentreoftheartmarkethasshiftedfromFrancetotheUK,thentotheUS,and,perhapsinthefuture,toChina.7SeeNiklasLuhmann,ArtasaSocialSystem(StanfordUniversityPress,2000).8SeeNathalieMoureau,DominiqueSagot-DuvaurouxandMarionVidal,ContemporaryArtCollectors:TheUnsungInfluencesontheArtScenes(Départementdesétudes,delaprospectiveetdesstatistiques,2015)18<https://books.openedition.org/deps/935?lang=en>.9Forexample,NewYorkhasastrongmarketforcontemporaryart,Londonfor‘OldMasters’,Genevaforwatches,andAmsterdamforfurniture.SeeJoergWuenschel,‘Article95ECRevisited:IstheArtist’sResaleRightDirectiveaCommunityActbeyondECCompetence?’(2009)4(2)JournalofIntellectualPropertyLaw&Practice130,132,n25.10 United States Copyright Office, Resale Royalties: An Updated Analysis (December 2013) 57<https://www.copyright.gov/docs/resaleroyalty/usco-resaleroyalty.pdf>.


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processes of creating, exhibiting and marketing artworks. Jurisdictions with suchsophisticatedartmilieusmaygrantsignificanttaxconcessionstoprivatecollectors.11Netwealthtaxes,12andcapitaltransfertaxes,inparticular,oftenincludeconcessionsforcollectors.13 Inorderto ‘enlargepubliccollectionsandpreventexportsofartworks’,14bothFrance(dationenpaiement)andtheUK(acceptanceinlieu)permitataxpayertosettletheirestatetaxdebtbytransferringaculturallyimportantartefacttothestate.TheArtsCouncilEnglandoperatesthe ‘acceptance in lieu’scheme,withapanelofexpertsdetermining whether an object is sufficiently ‘pre-eminent’ to be accepted in lieu ofmonetarysettlementofinheritancetax.15Artworksmaybe exempted from capital gains tax (‘CGT’).16 This concession typicallyrelatestoprivateassets,ratherthanartworksassuch.InFrance,however,gainsfromthesaleofanartworkorothercollectableitemareexemptedfromCGTifthesalepricedoesnotexceed€5000(aboutAUD8,000).17IntheUS,althoughcollectablesaresubjecttoahigherthannormalrateoftax,18salesofartworksusedtoqualifyforCGTroll-overrelief.19While thatconcessionhasbeenrecentlyabolished,CGT liabilityontheproceeds fromsalesofartworkscanbedeferrediftheproceedsareinvestedinqualifyingOpportunity

11 According toMoureau, Sagot-Duvauroux andVidal (n 8) 18, ‘[i]n academic literature, there are twodifferent ways of defining a collector. The first takes a non-utilitarian, quantitative approach anddeterminesthatonebecomesacollector“whenonehasrunoutofwallsforone’sworks”(ie,“onebecomesacollectorwhenonenolongerviewsaworkasadecorativeobject”).Thesecondtakesamorequalitativeapproach,emphasisingtheimportanceoftheselectionprocess.“Thecollectorisguidedbyacertaintaste”.’12ThenumberofOECDcountriesthatlevynetwealthtaxesfellfrom11in1990tofourin2017:seeOECD,TheRoleandDesignofNetWealthTaxesintheOECD(TaxPolicyStudiesNo26,OECDPublishing,2018)<https://doi.org/10.1787/9789264290303-en>.Inthefaceofthegiletsjaunes(yellowvests)protests,theMacronadministrationinFrance,hasreportedlyconsideredreinstatingitsimpôtdesolidaritésurlafortune(wealth tax):seeHarrietAgnew, ‘FrenchGovernmentOpensDoor toWealthTaxConcession’,FinancialTimes (online at 6 December 2018) <https://www.ft.com/content/79d9c18c-f87b-11e8-af46-2022a0b02a6c>.13SeeErnst&Young,WorldwideEstateandInheritanceTaxGuide2017(EYPrivateClientServices,2017)<https://www.eycom.ch/en/Publications/20170929-Worldwide-Estate-and-Inheritance-Tax-Guide-2017/download>.14AnnabelleGauberti, ‘ArtTaxLaw:ADouble-HedgedSword’,LegalNewsRoom (BlogPost,17 January2013) <https://www.lexisnexis.com/legalnewsroom/tax-law/b/stateandlocaltaxation/posts/art-tax-law-a-double-hedged-sword>.15 ‘Acceptance in Lieu’, Arts Council England (Web Page) <https://www.artscouncil.org.uk/tax-incentives/acceptance-lieu>.16OnAustria,Belgium,Germany,Italy,Switzerland,andtheUK,seeDeloitte,FineArt—DirectandIndirectTaxation Aspects, A Masterwork of Complexity (2016)<https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/artandfinance/lu-en-artfinance-taxmatrix-16092013.pdf>.17AnnabelleGauberti,‘TaxationofAcquisitionandSaleofArtWorks:AuctionsandPrivateSales’,Crefovi(Web Page, 5 November 2015) <http://crefovi.com/articles/taxation-of-acquisition-and-sale-of-art-works-auctions-and-private-sales-art-tax-law>.18Gainsonthedisposalofcollectablesaretaxedatamaximumrateof28percent—significantlyhigherthantheusual15percentrateapplicabletoassetsheldlongterm.Foradiscussion,seeAndrewMaplesandStewartKarlinsky,‘TheUnitedStatesCapitalGainsTaxRegimeandtheProposedNewZealandCGT:ThroughAdamSmith’sLens’(2014)16(2)JournalofAustralianTaxation156.19GeorginaAdamreports:‘TheTaxCutsandJobsActsignedbyPresidentTrumpinDecember2017sawtheeliminationof1031s,or“like-kindexchanges”,ataxvehiclethathasbeenapowerfuldriveroftheUSartmarketinrecentyears.’SeeGeorginaAdam,‘Trump’sTaxActOffersPotentialTaxHavensforArt’,TheArtNewspaper(onlineat3January2019)<https://www.theartnewspaper.com>.


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Zones.20UnderUKlaw,artworksmayattractthefavourableCGTtreatmentaccordedtoplantwithwastingvalue.21Under the French General Tax Code (Code général des impôts), businesses that buyoriginalworksof livingartistsandallocate themtoan immobilisedassetaccountcandeductfromtheirincomeintheyearofpurchaseandthefourfollowingyearsanamountequalto20percentofthepurchaseprice.Toobtainthisdeduction,thebusinessmustexhibit thework in aplace readily accessibleby thepublic throughout thedeductionperiod.22Furthermore,accordingtoNathalieMoureauandherco-authors:23

Thedonationofworkstoamuseumeitherasagiftfromhandtohandorthroughanofficiallyrecordedprocedure,mayconfercertaintaxbenefits.Asumequivalentto66%ofthevalueofthedonation…maybedeductedfromincometax,uptoavalueof20%oftaxable income.Where donations exceed 20% of the collector’s taxable income, anyremainingbalancemaybecarriedoverthenextfiveyears.

OthertaxincentivestopromoteartistsincludeaTVA(GST)concession,24whichallowsregisteredartists to chargeonly5.5per centTVAondirect salesof their artworks tocollectors.25IntheUK,goodsandservicesthatareexemptedfromvalueaddedtax(‘VAT’)include:admission charges by public authorities or eligible cultural bodies to certain culturalevents, such as visits tomuseums and art exhibitions; and antiques, works of art orsimilar(asassetsofhistorichouses)soldbyprivatetreatytopubliccollectionsorusedtosettleataxorestatedutydebt.26Furthermore,importedworksofartaretaxedataneffectiverateof5percent,27ratherthanthestandardrateof20percent.Importedworksofartarethereforepreferentiallytaxed,alongwithperhapsmoreobviouslydeservingitems,suchaschildren’scarseats,butarenotexempt,as,forexample,children’sclothesare. A European Union directive curtailed more favourable treatment of artworks.28Consequently, jurisdictionsoutside theEuropeanUnionmayprovidemore favourableVATtreatmentofartworks.29

20SeeActof22December2017,PubLNo115-97<https://www.congress.gov/bill/115th-congress/house-bill/1>.21InHMRCvTheExecutorsofLordHowardofHenderskelfe[2014]EWCA278,theCourtofAppealheldthatSirJoshuaReynolds’PortraitofOmai(1776)wasplantandwasthereforedeemedbys44oftheTaxationofChargeableGainsAct1992(UK)tobea‘wastingassetwithapredictablelifenotexceeding50years’.Whileitmayseemunusualthata240-year-oldpaintingshouldbeconsideredawastingasset,itwasusedtoenhanceCastleHoward,acommercialventure.22Codegénéraldesimpôts(France)art238bisAB.23Moureau,Sagot-DuvaurouxandVidal(n8)9.24TaxesurlaValeurAjoutée.25Gauberti,‘ArtTaxLaw’(n14).26ValueAddedTaxAct1994(UK)s31(1)sch9,Groups11and13.27Intermsofs21(4)oftheValueAddedTaxAct1994(UK),only25percentofthevalueistaxable.Theterm‘workofart’isextensivelydefinedins21(6).Comparewiththedefinitionof‘artwork’giveninIncomeTaxAssessmentAct1997(Cth),s995.1.28SeeEuropeanCommission, ‘EuropeanCommissionAdoptsReportonVATandtheArtMarket’(PressReleaseIP/99/274,28April1999)<europa.eu/rapid/press-release_IP-99-274_en.pdf>.29ElizabethRLash,‘TheEuropeanVAT:GoodforTaxRevenue,BadfortheCommercialArtMarket?’,CenterforArtLaw(BlogPost,4March2015)<https://itsartlaw.com/2015/03/04/el_vat>.


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AccordingtoAnnabelleGauberti,injurisdictionswithmatureartmarkets,‘taxlawhas…becomeinstrumentalinpromotingthecreation,consolidationandexpansionofprivatecollectionsandpatronage’.30Why?Gaubertiboldlystates: ‘AllWesterncountrieshavecometotheconclusionthat,nomatterhowmuchthestateintervenestokeepartworks,artefactsandantiquesonitssoilandinitsmuseums,thefirstandirreplaceablepreserverofthenationalestateistheprivateowner.’31Thetax-benefitsystemsofAustraliaandNewZealandincludedifferentialtreatmentofcollectors. SinceAustralia provides no specific concessions to collectors, its approachmight be caricatured as an exercise in philistinism.32 Conversely, New Zealand’spreferences for collectors might be considered elitist. In fact, both manifestations ofdifferentiation lack sophisticated policy consideration, and indicate jurisdictionswithimmatureartmarkets.33AnnettevandenBoschexplains:34

Australiansonlybecameseriousartcollectors in the1960s. Initially,mostcollectors,eventhosewhotraveledwidely,onlycollectedAustralianart…Privatecollectorscollectdifferent works to art museums — they collect more decorative pictures. Privatecollectorsareoftensurprisedwhenagifttheyproposetoastateornationalgalleryisdeclined … Inexperienced collectors lacking serious knowledge of art and museumcollectionscanoftenbemisledbyanunscrupulousdealerorabeliefinthesupremacyoftheirowntaste.Publicpolicyandeducationintheartsvariesfromstatetostateandhas frequently been the target of budget cuts or a ‘back to basics’ movement thatemphasisesliteracyandnumeracyskillsovercreativecontent.ResearchonaudiencesforpublicgalleriesinAustralia,andpublicattitudestothearts,showthatthereisveryrestrictedunderstandingoftheworkandroleofanartistincontemporarysociety.

TherelativelyunsophisticatednatureofartinvestmentinAustraliawasreflectedintherecommendation of the government’s Super System Review Final Report (‘CooperReview’) that collectables should not be permitted as investments for self-managed

30Gauberti,‘ArtTaxLaw’(n14).31Ibid(emphasisadded).SeealsoGilbertPaulVerbit,‘FranceTriesaWealthTax’(1991)12(2)UniversityofPennsylvaniaJournalof InternationalBusinessLaw181,184,n13,ontheexpectationthatexemptingartworksfromthewealthtaxwouldkeepartworksinFrance,andencourageFrenchcontemporaryart.32TheCulturalGiftsProgrampermitstaxincentivesforculturalgisttoAustralia’spubliccollections.SeeAustralianGovernment,CulturalGiftsProgramGuide:TaxIncentivesforCulturalGiftstoAustralia’sPublicCollections (2013). Because the programme is not restricted to artworks and essentially covers anypropertythatapubliccollectionispreparedtoaccept,itwillnotbeconsideredfurtherinthisarticle.Australiaalsooperatesaresaleroyaltyrightschemeforartists(seeResaleRoyaltyRightforVisualArtistsAct2009(Cth)andTaxLawsAmendment(ResaleRoyaltyforVisualArtists)Act2009(Cth)),andprovidesincome tax concessions for artists (see ‘Income Averaging for Special Professionals 2018’, AustralianTaxation Office, Australian Government (Web Page, 2018) <https://www.ato.gov.au/Forms/Income-averaging-for-special-professionals-2018>).33 To reiterate, the size of a country’s artmarket does not in itself determinematurity, nevertheless,‘[r]elativetotheglobalmarketforvisualart,theAustralianmarketissmall.In2011,Australianauctionsalesrepresented0.6%ofthetotalglobalauctionmarket.’See‘GlobalArtMarket’,artfacts:(WebPage)<http://artfacts.australiacouncil.gov.au/visual-arts/global-10/fact-10-the-global-art-market-is-150-times-bigger-than-the-australian-art-market>. TheNewZealandmarket is too small to bemeasured inglobalcomparisons.34AnnettevandenBosch,‘TheArtsEndofSuperannuation’,TheConversation(WebPage,12April2011)<https://theconversation.com/the-arts-end-of-superannuation-495>(emphasisadded).


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superannuationfunds(‘SMSFs’).35Nevertheless,thetaxandbenefitconcessionsthataregrantedmeritanalysis.Thisarticleisstructuredasfollows:afterthisIntroduction,differentialtaxandbenefittreatmentofcollectorsinAustraliaandNewZealandisoutlinedinSectionII.InSectionIII,relevanttaxpolicyconsiderationsaresketchedandappliedtothedifferentialtaxandbenefit provisions. Section IV discusses whether differential treatment of collectors(relative to other investors) canbe justified onother grounds, such as promoting artmarketsandpreservingculturalheritage.Recommendationsaremade,andconclusionsarethendrawn.

II DIFFERENTIALTAXANDBENEFITTREATMENTOFCOLLECTORS

SinceneitherAustralianorNewZealandleviesnetwealthtaxesorcapitaltransfertaxes,thesignificantpreferencesconferredbysomecountriesthroughthosetaxesdonotmeritfurtherconsiderationcurrently.Chapter3ofANewTaxSystem(GoodsandServicesTax)Act1999(Cth)establishesthetax-preferredgoodsandservicesundertheAustralianGSTsystem.Thesedonotincludeartworks.36TheGoodsandServicesTaxAct1985(NZ)seekstotaxallgoodsandservicesunlessitisimpracticabletodoso.37Nevertheless,differentialtreatmentofcollectorsispresentinAustralasiantax-benefitsystems.Thissectionofthearticleidentifiesthisdifferentialtreatment.

A CGTNewZealanddoesnotlevyageneralCGT,38andisunlikelytointroducesuchataxintheforeseeable future.39Nevertheless, theTaxWorkingGroup(‘TWG’),whichreported in2019, in making recommendations that were quite different from Australian law,providedusefulpointsofcomparison.

1 AustraliaUnder Australian law, personal use assets acquired for less than AUD10,000 aredisregarded for CGT purposes. Personal use assets include boats, furniture, electricalgoods and household items, but exclude collectables. Collectables include paintings,

35Treasury,AustralianGovernment,SuperSystemReviewFinalReport:PartTwoRecommendationPackages(2010) 247 <https://static.treasury.gov.au/uploads/sites/1/2017/06/R2009-001_Final_Report_Part_2_Consolidated.pdf> (‘CooperReview’).On the impactof the regulatory changesfollowing the Cooper Review, see Duncan Hughes, ‘Art Lovers Selling Down Collections as SMSF RuleChanges Near’, Financial Review (online at 18 September 2015) <https://www.afr.com/personal-finance/superannuation-and-smsfs/art-lovers-selling-down-collections-as-smsf-rule-changes-near-20150915-gjn2r7>.36ForadiscussionofpreferencesundertheAustralianGSTsystem,seeGraemeSCooperandRichardJVann,‘ImplementingtheGoodsandServicesTax’(1999)21SydneyLawReview337.37ForadiscussionofNewZealand’sbroad-basedGST,seeMattBenge,MariePallot,andHamishSlack,‘PossibleLessonsfortheUnitedStatesfromNewZealand’sGST’(2013)66(2)NationalTaxJournal479.38Certainreceipts,whichwouldbetreatedascapitalgainsunderaCGT,arecurrentlytaxableasincomeunderssCB3,CB4andCB5oftheIncomeTaxAct2007(NZ).Foradiscussion,seeJohnPrebbleandGrantPearson,FundamentalsofIncomeTax(ThomsonReuters,2018)128–9.39See,forexample,StaceyKirk,‘ArdernPushesCGTofftheTable’,TheDominionPost(Wellington,18April2019)1.


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sculptures,drawings,engravingsorphotographs.40GainsoncollectablesacquiredforlessthanAUD500 are excluded. Presumably, policymakers consider personal assets to bewastingassets,whereascollectablesarenot.

2 NewZealandTheTWGnotonlyrecommendedaCGTbutalsoproposedablanketpersonaluseassetexemption,including‘jewellery,fineart,taonga[treasures]andothercollectables(rarecoins,vintagecarsetc)’.41

B Benefitmeans-testingWelfare benefits can be broadly distinguished between universal and means-testedversions.42Forexample,theNewZealandSuperannuationisauniversalbenefit,whereasAustralia’sAgePensionismeans-tested,albeitwithasignificantassetexemption.43ThissectionoutlinesthepositionofcollectorsunderAustralasianmeans-tests.

1 AustraliaTheassetmeans-testfortheAgePensioniscomprehensive,andincludesmotorvehicles,boats, personal items, and trading, hobby or investment collections.44 The same rulesapplytoagedcareapplications.45Inshort,policymakersdrawnodistinctionsbetweendifferenttypesofassetsinapplyingmeans-testing.

2 NewZealandFor the purposes of ascertaining eligibility for the residential care subsidy (‘RCS’),‘exempt assets’ include ‘personal collectables or family treasures or taonga such asartworks,books,stamps,andantiques’.46Althoughregulationsmayprescribevaluelimitsfor types of exempt property,47 none currently apply to personal collectables, and so

40 See IncomeTax Assessment Act 1997 (Cth) sub-divs 108-B and 108-C; ‘CGTAssets andExemptions’,Australian Taxation Office, Australian Government (Web Page, 16 March 2018)<https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/#Personal_use_assets>.Seealsosub-div30-Aondeductionsforgiftsyoucandeduct.41TaxWorkingGroup,NewZealandGovernment,FutureofTax:FinalReportVolumeII—DesignDetailsofthe Proposed Extension of Capital Gains Taxation (21 February 2019) 14<https://taxworkinggroup.govt.nz/resources/future-tax-final-report-vol-ii-html>(‘TWGII’).42 See, for example, Timothy Besley, ‘Means Testing versus Universal Provision in Poverty AlleviationProgrammes’(1990)57(225)Economica119.43 ‘Assets’, Department of Human Services, Australian Government (Web Page, 25 September 2019)<https://www.humanservices.gov.au/individuals/enablers/assets/30621#a1>.44‘AgedCareMeansTestforResidentialCare’,DepartmentofHumanServices,AustralianGovernment(WebPage,2018)<https://www.humanservices.gov.au/individuals/services/aged-care-means-tests>.45Ibid.46SeetheResidentialCareandDisabilitySupportServicesAct2018(NZ)s4definitionof‘exemptassets’,readwithResidentialCareandDisabilitySupportServicesRegulations2018,cl16andsch3,pt1.Neitherlegislationnorlegislativeinstrumentsdefine‘personalcollectables’.Presumably,‘personal’isusedtoexcludethestockofaprofessionaldealer.47ResidentialCareandDisabilitySupportServicesAct2018(NZ)s74(1)(g).


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forth. Furthermore, no relation-back provisions appear to prevent converting non-exemptassetsintoexemptassets,suchasartworks.48

III TAX-BENEFITPOLICYCONSIDERATIONS

Thissectionofthearticleconsiderswhethertaxandbenefitpreferencesmaybejustifiedwhenmeasuredagainstusualcriteria,inparticular,equityandefficiency.

A UsualtaxcriteriaTaxcommentatorsbroadlyagreethattaxesshouldbefairandefficient.49Otherdesirablecharacteristicsincludesimplicity,50convenience,51andneutrality,52sustainability,53andpolicy consistency.54 The TWG sought to marry New Zealand’s developing LivingStandards Framework with Te Ao Māori (the Māori worldview),55 and to situate taxcriteriawithinthatspecificbiculturalcontext.Thiswasanambitiousgoalthatsoughttoextendanalysisbeyondusualtaxcriteria.Nevertheless,itsanalysisoftaxpolicyreliedontraditionalcriteria.56

48Underthedeprivationofincomeorpropertyprovision,inconductingameansassessment,theMinistryofSocialDevelopmentcanignoreanydisposalofproperty:ResidentialCareandDisabilitySupportServicesAct2018(NZ)s39(1)and(2).Section39(3)specificallyexcludesexemptassetsfromproperty.Guidelinesissuedbytherelevantministriesdonotclarifytheissue.See‘IncomeandAssetTesting’,MinistryofHealth,New Zealand Government (Web Page, 15 June 2018) <https://www.health.govt.nz/our-work/life-stages/health-older-people/long-term-residential-care/income-and-asset-testing>; ‘Residential CareSubsidy’, Work and Income, New Zealand Government (Web Page)<https://www.workandincome.govt.nz/products/a-z-benefits/residential-care-subsidy.html#null>.49AdamSmith’sfourmaximsoftaxationincludedequityandadministrativeefficiency:AdamSmith,AnInquiryIntotheNatureandCausesoftheWealthofNations(EncyclopaediaBritannica,1952)361.50 Australian Government, Reform of the Australian Tax System: Draft White Paper (1985) includedsimplicityalongwithequityandefficiencyastheessentialcriteriaforassessingataxsystem.JohnRalph,Review of Business Taxation, A Strong Foundation: Establishing Objectives, Principles and Processes(Discussion Paper, Treasury, Australian Government, 1998) included ‘facilitating simplification’, with‘optimisingeconomicgrowth’and‘ensuringequity’,as‘nationalobjectives’.ExtractsprovidedinGCooper,RKreverandRVann,IncomeTaxation:CommentaryandMaterials(AustralianTaxPractice,4thed,2002).51Smith(n49)362.52CarlSShoup,PublicFinance(Aldine,1969)21.53Sustainabilityoftherevenuebasewasaparticularconcernofthe2010TaxWorkingGroup.See,TaxWorkingGroup,‘ATaxSystemforNewZealandFuture:ReportoftheVictoriaUniversityofWellingtonTaxWorking Group’ (Centre for Accounting, Governance and Taxation Research, Victoria University ofWellington, January 2010) <https://www.victoria.ac.nz/sacl/centres-and-institutes/cagtr/pdf/tax-report-website.pdf>.54Treasury,AustralianGovernment,Australia’sFutureTaxSystem:ConsultationPaper(10December2008)ch 2<http://taxreview.treasury.gov.au/content/ConsultationPaper.aspx?doc=html/publications/Papers/Consultation_Paper_Summary/Chapter_2.htm>.55TaxWorkingGroup,NewZealandGovernment,FutureofTax:FinalReportVolumeI—Recommendations(21February2019)25<https://taxworkinggroup.govt.nz/resources/future-tax-final-report-vol-i-html>.56Ibid28.


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B ApplicationofusualtaxcriteriaThis section of the article applies the criteria of equity, efficiency, and other relevantconsiderationstoCGTandmeans-testedbenefits.

1 CGTToreiterate,AustraliaallowsaAUD10,000exemptionforpersonaluseassets,excludingcollectables, and a AUD500 exemption for collectables. Conversely, the TWGrecommendedincludingcollectablesinacompleteexemptionofpersonaluseassets.

(a) EquityAccordingtotheTWG,collectables‘aredistinguishablefromothertypesofpersonaluseassets because they are often purchased as investments and are usually expected toincreaseinvalue’.57PerceptionsaboutinvestmentsinartaredistortedbythesensationalpricesartworkscreatedbyaselectgroupofartistsfetchinaduopolyofauctionhousesinLondonandNewYork.Artworkscommonlydonotappreciateinvalue.Indeed,eventheworksofglobal‘superstars’,suchasDamienHirst,maylosevalue.58Toreiterate,inthesophisticatedParisiancontemporaryartecosystemthatMoureauandherco-authorsstudied,collectorsdonotacquireworkswithanexpectationofmakingaprofit.59Itseemslikelythatgenuinecollectorsgainpleasurefromtheircollections,beyondtheirpotential investmentvalue:forexample,nooneis likelytocollectStarWarsfigurines,unless they have a passion for StarWarsmovies. The same consideration applies tocollectorsofartworks, thepossibilityofspeculationinthehighendofglobalmarkets,notwithstanding. It is then an example of simplistic policy reasoning to assume thatcollectorsintendtoandareabletopurchaseartworksthatwillnecessarilyincreaseinvalue. It should also be borne in mind that artworks are often fragile and easilydestroyed,60and,iftaintedasfakes,61losesignificant,ifnotall,value.Intheabsenceofasocial judgementthatcertaintypesof investmentsaremeritoriousandthereforedeservespecialtaxtreatment,62itisreasonabletoexpectgovernmenttotreatdifferenttypesofassetswithanevenhand.63 Itwould,therefore,beequitabletotreatprivatecollectablesforCGTpurposesinthesamewayaspersonaluseassets.

57TWGII(n41)14(emphasisadded).58SeeTimSchneider,‘ADecadeafterDamienHirst’sHistoric‘BeautifulInsideMyHeadForever’Auction,Resale Prices Are Looking Ugly’, Artnet News (Web Page, 12 September 2018)<https://news.artnet.com/market/damien-hirst-beautiful-resales-1346528>.59Moureau,Sagot-DuvaurouxandVidal(n8)15.60Seeaboven21ontheapparentparadoxofa240-year-oldpaintingbeingtreatedasawastingasset.Butpaintingsdotypicallywaste.Inoneestimation,95–99percentof17thcenturyDutchpaintingsnolongerexist:seePaulTaylor,Condition:TheAgeingofArt(PaulHolberton,2015)68.61AccordingtovandenBosch(n34),‘[i]nAustralia,atanyonetimethereareatleast400peopleproducingfakesofAboriginal,historicandcontemporaryart’.62Onmeritwants and goods, seeRichardAMusgrave,TheTheory of Public Finance: A Study in PublicEconomy(McGrawHill,1959)9–14.Itissubmittedthatapersuasiveargumentcanberaisedthatartworksconstitutemeritgoodsandshould,therefore,betaxedpreferentiallyrelativetopersonaluseassets.Spacedoesnotpermitexaminationofthatargumenthere.63See,generally,RichardAEpstein,‘TaxationinaLockeanWorld’(1986)4(9)SocialPhilosophyandLaw49.


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(b) EfficiencyTheTWGnotedthat‘[e]xcludingthesetypesofassetsfromanextensionofthetaxationofcapitalgainsmayincentiviseinvestmentinsuchassetsovermoreproductiveassets’.64TheproposedCGTwouldhavebeen leviedatmarginal income tax rates (33per centmaximum). Consequently, it is plausible that wealthy individuals might have beenincentivisedtoinvestintheglobalartmarketinsearchoftax-freegains.Suchanincentivewould have been perverse. The risks of investing in the global art market would besignificantforindividualinvestors,65andsuchinvestmentsmaydonothingtodevelopthedomesticartecosystem.TheCooperReviewrecognisedthattaxconcessionsshouldnotbenefitinvestorsinrisky,unregulatedformsofinvestment.Thefinalreportstated:‘Theprincipal concern is that the cumulative regulatory and compliance complexitiesoutweighthepotentialbenefitsofallowingsuchaliberal investmentmenutoasectorthatisnotdirectlyprudentiallyregulated.’66The art market is, indeed, generally recognised as the last unregulated mainstreammarket,67and,perhaps,theAustralianmarketisinparticularneedofcoherentregulation.InMcBridevChristie’sAustraliaPtyLtd,68itwasallegedthatperhapsasmanyasone-thirdofartworksforsaleintheAustralianmarketarefakes.69AccordingtoSashaGrishin,inadditionto ‘nineconflicting federal,stateandterritorial jurisdictions, lackofapropercatalogue raisonné for thework ofmost artists aswell as a lack of a comprehensiveregisteroffakescreatesafertileplaygroundforcrooks,forgersandignorantcollectors’.70(SeeSectionIV.Cbelowonspeculation.)Notonlywouldafullexemptionforartworksbeeconomicallyinefficient,ifasufficientnumberofinvestorstookadvantageoftheconcession,thesustainabilityoftherevenuebasecouldbeaffected.

(c) SimplicityOnce policymakers draw distinctions between types of assets for CGT purposes,anomaliesandabsurditiesinevitablyarise.TheUKdistinguishesbetweenpersonalassetsdeemed tohavealifespanshorteror longer than50years.71 Stamps, forexample,aredeemedtohavealifespanofmorethan50yearsandthereforepotentiallyattractCGTondisposal,whereasantiqueclocksorwatchesaredeemedtolastfewerthan50yearsandrelevantcapitalgainsarenottaxed.Australianpolicymakersmaynothaveengagedin

64TWGII(n41)14.65AsvandenBosch(n34)observes:‘TheglobalartmarketisnotasafeplacefortheaverageSMSFtrusteeorfundholder.’66CooperReview(n35)246.67SeeVelthuisandCoslor(n4)480.68[2014]NSWSC1729.69SeeAnneDavies,‘SupremeCourtFraudCaseRevealsCorruptioninArtMarket’,SydneyMorningHerald(onlineat22July2014)<https://www.smh.com.au/entertainment/art-and-design/supreme-court-fraud-case-reveals-corruption-in-art-market-20140721-zvdkz.html>.70SashaGrishin,‘IsThataWhiteley?WhyCollectorsBuyLousyFakesasMasterpieces’,TheConversation(WebPage,19March2015)<https://theconversation.com/is-that-a-whiteley-why-collectors-buy-lousy-fakes-as-masterpieces-38832>.71‘CapitalGainsTaxonPersonalPossessions’,Gov.UK(WebPage)<https://www.gov.uk/capital-gains-tax-personal-possessions>.


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thisdegreeofpettifoggerybutthelinebetweenpersonaluseassetsandcollectablesisnotclear.Furniture,forexample,canbebothutilitarianandcollectable.TheTWG’sproposal‘toexcludetheseassetsforreasonsofsimplicityandcompliancecostreduction’ was ill-advised, and the Group appears to have recognised this when itqualified its recommendation, saying ‘[t]his concession should be monitored and, ifnecessary, revisited in the future, either entirely or by tax applying over a certainthreshold’.72Aproportionatesimplicityrecommendationwouldbetoapplythesamecaptopersonaluseassetsandcollectables.

2 BenefitsUnlikeAustralia,NewZealandonlymeans-teststheRCS.

(a) EquityInNewZealand,atleast,itisarguablyunfairthatolderpeoplemustpayforresidentialcare,whenhealthcareisotherwisefundedfromgeneralrevenue.But,havingnotedthispossibility, equity concerns lie with the class of people who might claim the RCS. Ifapplicant A holds their wealth in shares, and applicant B holds their wealth incollectables,A’swealthwillbeusedto fundtheircare,whereasB’swealthwillbe leftuntouched. It is plausible that having to sell a tangible artwork, rather than, say,intangiblesharestofundresidentialcare,73mightcausemoredisutilitytotheapplicant.74However,itseemsunlikelythatmeans-testingpolicycanaccommodatesuchsubjectivepossibilities.TheAustralianapproachthatpermitsanallowanceforallpersonalpropertyappearsmoreequitable.

(b) EfficiencyAmple evidence exists to demonstrate that New Zealanders use trusts to divestthemselvesofrealpropertywithaneyetoavoidingRCScontributions.75Nocaselaworother publicly available documentary evidence exists to indicate that potential RCSapplicants are similarly ‘abusing’ the collectable exemption.Nevertheless, itwouldbesurprising if the elder advisory industry does not take note of this extraordinaryconcession. Even so, it seems unlikely that the concession has a significant effect onpeople’seconomicdecision-making—morelikely,itmayprovideanunplannedbenefitforasmallnumberoflong-termcollectors.Inpractice,however,becausetheyoftenhaveasenseofcuratorialduty,seriouscollectorsmaydisposeoftheircollectionsastheyreachold age from concerns about not being able to properly preserve and protect their

72TWGII(n41)14.73Thesharesmight,however,beinacompanytheapplicanthasspenttheirworkinglifebuilding,whereastheartworkwaspurchasedamonthpreviously.74Ontheconceptofpersonhoodproperty,seeMargaretJaneRadin,‘PropertyandPersonhood’(1982)34StanfordLawReview957.75SeeJonathanBarrettandLisaMarriott, ‘IncomeDeprivationandBenefits:TheRoleofTrusts inNewZealand’(2020)NewZealandJournalofTaxationLawandPolicy(forthcoming).


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artworks.76 In short, unlike the TWG’s proposed collectables exemption, the RCSconcessionislikelytobepracticallytrivial,butthatdoesnotjustifyit.

C ConcludingcommentsCGT is an inherently complex tax, and, once politically necessary exemptions areintroduced,itscomplexityisexacerbated.Everydeviationfromafundamentalprinciplethat all receipts shouldbe taxeddiminishes equity.77 Equity is not, however, theonlygenerally accepted taxprinciple.Efficiency, sustainability and simplicity, amongothercriteria,shouldalsobeconsidered.InitsrecommendationsonCGTandpersonalassets,theTWGelevatedsimplicityaboveothermorepertinent considerations.Consequently,wealthypeoplemight continue toreceivetax-freecapitalgainsbyinvestingintheirprincipalresidenceandcollectables.Thispossibilitywouldbeunfair,inefficient,andpotentiallyunsustainable.

IV DISCUSSION:BROADERPOLICYCONSIDERATIONS

Thissectionofthearticlepresentsbroaderpolicyconsiderations,inparticular,whethergroundsbeyondtraditionaltaxcriteriamightjustifyconcessionsforcollectors.Whydogovernmentsinmatureartmarketsprivilegecollectors?78Theyrecognise,first,thatartis socially valuable and, therefore, it is appropriate for the state to takemeasures toencourage the creation of art; second, they believe that aiding collectors is critical toachieving national cultural goals, such as retaining significantworkswithin domesticcollections.

A ThesocialvalueofartArt fundamentally contributes to the constitution of a national culture.79 SpecificallycontemplatingNewZealand,butexpressinganideathatappliestoallcountries,HamishKeithsays:

Theartmadehereorinfluencedbythisplaceistheonlyartthatspeakstousdirectlyaboutourexperience.Thatdoesnotmakeitbetter,orworse,thantheartofsomeotherplace—itjustmakesitdifferent.80

In their research on behalf of the Arts Council England, AndrewMowlah and his co-authorssortedthesocialvalueoftheartsandculturetheyobservedintothecategories

76Forexample,LesandMillyParisamassedthefinestprivatecollectionofcontemporaryNewZealandartbut,whenLesdied,Millycouldnolongercareforthecollectionandputitupforauction:seeSophieSpeer,‘Artistic Vision Builds Something Special’, The Dominion Post (online at 30 August 2012)<http://www.stuff.co.nz/dominion-post/culture/7576393/Artistic-vision-builds-something-special>.77SeeCharlesRHultenandRobertMSchwab,‘AHaig-Simons-TieboutComprehensiveIncomeTax’(1991)44(1)NationalTaxJournal67.78Thepossibilityofpolicycapturebyaneliteisnoted,butwillnotbeconsideredfurther.79 See, generally, Francis Pound, The Invention of New Zealand: Art & National Identity, 1930–1970(AucklandUniversityPress,2009).80HamishKeith,TheBigPicture:AHistoryofNewZealandArtfrom1642(Godwit,2007)269.


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ofeconomy,healthandwell-being,society,andeducation.81Thesecategoriesarebrieflyoutlinedbelow.

1 EconomyTheartscontributedirectlytothenationaleconomythroughgrossvalueadded,andthemultipliereffectsofartistsandotherartsindustryworkers’spentearnings.82Whileitisdifficulttoaccuratelyattributeearningsfromtourismtothearts,particularlyinmatureart ecosystems, art collections do attract tourists.83 At a sub-national level, localgovernmentscommonlyexpecttheartstoattractvisitors,createjobsanddevelopskills,attractandretainbusinesses,revitaliseplaces,anddeveloptalent.84Manycitiesseektoemulate‘theBilbaoeffect’ofFrankGehry’sGuggenheimMuseumandtohavethe‘pullingpower’ofadestinationgallery.85InAustralasia,destinationgalleriesawayfromthemainmetropolitanareas,includetheMuseumofOldandNewArt(‘MONA’)inHobart,andtheLenLyeCentreattheGovett-BrewsterArtGalleryinNewPlymouth.

2 Healthandwell-beingAconsiderablebodyofliteratureexistsonthehealthbenefitsofexposuretothearts.86For example, a comprehensive survey by the Scottish government demonstrated apositivelinkbetweenengaginginculturalactivities,andhealthandlifesatisfaction.87

3 SocietyAccordingtoMowlahetal, ‘childrenandyoungpeople’sengagementwiththeartsandculturehasaknock-onimpactontheirwidersocialandcivicparticipation.88

81AndrewMowlahet al,TheValueofArts andCulture toPeopleandSociety:AnEvidenceReview (ArtsCouncilEngland,2nded,2014).82CentreforEconomicsandBusinessResearch,TheContributionoftheArtsandCulturetotheNationalEconomy:AnAnalysisoftheMacroeconomicContributionoftheArtsandCultureandofSomeofTheirIndirectContributionsthroughSpilloverEffectsFeltintheWiderEconomy(ReportforArtsCouncilEnglandandtheNational Museums Directors’ Council, May 2013) <https://www.cebr.com/wp-content/uploads/2013/05/CEBR_economic_report_web_version_0513.pdf>.83 The Museum of Contemporary Art, the Sydney Opera House, and street art in Melbourne may beattractionsforoverseastouristsintheirownright.84LocalGovernmentAssociation,DrivingGrowththroughLocalGovernmentInvestmentintheArts(March2013)<https://www.local.gov.uk/sites/default/files/documents/driving-growth-through-lo-334.pdf>.85 See RowanMoore, ‘The Bilbao Effect: How Frank Gehry’s Guggenheim Started a Global Craze’,TheGuardian(onlineat1October2017)<https://www.theguardian.com/artanddesign/2017/oct/01/bilbao-effect-frank-gehry-guggenheim-global-craze>.86OntheArtsinHealthmovement,seeJaneMacnaughton,MikeWhiteandRosieStacy,‘ResearchingtheBenefitsofArtsinHealth’(2005)105(5)HealthEducation332.87 Clare Leadbetter andNiamhO’Connor,Healthy Attendance? The Impact of Cultural Engagement andSportsParticipationonHealthandSatisfactionwithLifeinScotland(ScottishGovernmentSocialResearch,2013)<https://www.webarchive.org.uk/wayback/archive/20170118130801/http://www.gov.scot/Publications/2013/08/9956/downloads>.88Mowlahetal(n81)32.Someevidenceexiststoindicatethatart-relatedinterventionsmayreducecrime:at33.


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4 EducationVariousreportsindicate‘thatlearningthroughtheartsandcultureimprovesattainmentacrossmanyotheraspectsoftheschoolcurriculumandhasawealthofotherbeneficialimpactsonyoungpeople’.89

B Whydopeoplecollectartworks?Various reasons can be adduced to explain why people collect art. Erin Thompsonidentifies: ‘an ostentatious desire to seem persons of superior taste’;90 creating anddevelopingsocialbonds;establishingperceivedassociationswithnotablepeople;but,she claims, ‘most collectors have little regard for profit’.91 Whether or not herobservationsareempiricallysupported,thesereasonsforcollectingcouldnotplausiblyprovidegroundsforextendingtaxconcessionstocollectors—indeed,asumptuarytaxmight be indicated. Tax preferences could only be justified if private collecting hadidentifiablesocialbenefits.Eventhen,policymakersmightfeeluneaseaboutpromotingprivate ownership of artworks for public benefit. Gauberti argues that, whilepolicymakersintheUKandtheUSusearttaxincentivesliberallybecausetheygraspthe‘bigpicture’,eveninFrance,conflictexists‘aboutthesocialimpactofexplicitlypromotingownershipofartworks,toimplementacoherentsetofincentivisingarttaxrules’.92HavingresearchedthebehaviourmotivationsofcollectorsofcontemporaryartinParis,Moureauandherco-authorsobserve:

Collectorsofcontemporaryartarenotmerelybuyers.Theyoperateonbothsidesofthemarket,notonlycreatingdemand,butalsosupplythroughtheirinvolvementinartisticlife.Thus,overthreequartersofcollectorsactinavarietyofdifferentwaystosupportthose involved in the art ecosystem: the investormay invest in production (orders,financingofcatalogues,etc),dissemination(loansforexhibitions,presentingtoothercollectors,etc),orassistance(financial,materialorothersupport).Collectors’actionsmayinvolvevariousotherparties,egartists,galleriesorindeedinstitutions.93

C SpeculationIntheincreasinglyglobalisedartmarket,adistinctionmaybedrawnbetweentraditionalcollectors, who often demonstrate public-spiritedness,94 and speculators for whomartworksareessentiallyatradablecommodityoraquasi-currency.95Aspeculatorwho,say,keepsan‘OldMaster’inabankvaultprovidesnoobviousbenefitforlivingartistsorthepublic,96andshouldnotexperienceanytaxencouragementtobehaveinthatway.

89Ibid35.90CompareThorsteinVeblen,ConspicuousConsumption(PenguinBooks,2006).91 Erin Thompson, ‘Why People Collect Art’, Aeon (Web Page, 23 August 2016)<https://aeon.co/essays/what-drives-art-collectors-to-buy-and-display-their-finds>.92Gauberti,‘ArtTaxLaw’(n14).93Moureau,Sagot-DuvaurouxandVidal(n8)5.94AccordingtoThompson(n91),JPaulGetty,beingLondon-basedandphobicofairtravel,neversawthefullcollectionofworkshehadaccumulatedfortheGettyMuseuminLosAngeles.95See,forexample,ThePriceofEverything(HBODocumentaryFilms,2018).96 In order to maintain an artwork’s market value, the collector may ensure its preservation. Futuregenerationsmighteventuallyenjoyaccesstothepreservedartwork.Conversely,concentratedstorageof


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Theemergenceoffreeportsforartworkshasfacilitatedspeculation.AccordingtoRonCorver:

Freeportsarewarehousesinfreezones,whichwere—originally—intendedasspacesto storemerchandise in transit. They have since become popular for the storage ofsubstituteassets, includingart,preciousstones,antique,goldandwinecollections—oftenonapermanentbasis.Apartfromsecurestorage,salesargumentsinthefreeportbusinessincludethedeferralofimportdutiesandindirecttaxessuchasVATorusertaxaswellasahighdegreeofsecrecy.97

In 2012,The Economist reported that ‘[t]heworld’s largest free ports, in Geneva andZurich,areeachfilledwithwoodencratesbelievedtoholdwellover$10billion-worthofpaintings,sculpture,jewels,gold,carpetsandotheritems’.98Sincethen,freeportshaveproliferated.99AsJohnZarobellobserves:

It is difficult to imagine a reason to keep art works in a freeport unless there isspeculationgoingon.Ifyouareacollectoroffineart,youwanttoseeandappreciatewhatyouown.Butifyouareaspeculator,allyouneedisprivateandsecurestorage,sinceyouarebettingthattheworkisgoingtoincreaseinvalue.100

D CollectiveactionthroughcharitiesAustralasianpolicymakers—inrelation toboth taxandculture—shouldbewaryofmodelsfromcountrieswithmatureartmarketsthatemphasiseandprivilegetheroleofindividualcollectors.Thisdoesnotmeanthattaxpoliciesshouldforegoopportunitiestopromote the arts, but should rather develop existing policy. As British-heritagejurisdictions, Australia and New Zealand have long-established and broadly trustedtraditions of collective action through charities, and both countries extend significantconcessionstocharitiesandtheirdonors.101Section 12(1)(e) of the Charities Act 2013 (Cth) includes ‘the purpose of advancingculture’ as a ‘charitable purpose’. New Zealand legislation does not define ‘charitable

artworksinfreeportsmayleadtoanincreasedriskofcatastrophicdestruction.See‘PaintThreshold’,TheEconomist (online at 1 September 2012) <https://www.economist.com/finance-and-economics/2012/09/01/paint-threshold>.97RonKorver,Ex-postEvaluationUnit,EuropeanParliament,MoneyLaunderingandTaxEvasionRisksinFree Ports (Study at the request of the Special Committee on Financial Crimes, Tax Evasion and TaxAvoidance, European Parliament, October 2018) 5<http://www.europarl.europa.eu/RegData/etudes/STUD/2018/627114/EPRS_STU(2018)627114_EN.pdf>.98‘PaintThreshold’(n96).99See,forexample,GrahamBowleyandDoreenCarvajal,‘OneoftheWorld’sGreatestArtCollectionsHidesbehind This Fence’, The New York Times (online at 28 May 2016)<https://www.nytimes.com/2016/05/29/arts/design/one-of-the-worlds-greatest-art-collections-hides-behind-this-fence.html>.100JohnZarobell,ArtandtheGlobalEconomy(UniversityofCaliforniaPress,2017)235–6.101See,forexample,IncomeTaxAct2007(NZ)ssCW41,CW42,CW43.SectionCW41exemptsthenon-businessincomeofcharities.SectionCW42exemptsthebusinessincomeofcharities,butonlytotheextentthat income is applied for charitablepurposeswithinNewZealand. Subject to aminimumdonationofNZD5,individualsmayclaimataxcreditof33⅓percentoftheiraggregateannualdonations.SeeIncomeTaxAct2007(NZ)ssLD1–LD3.Thetotalgiftsthatqualifyforthetaxcreditmaynotexceedtheindividual’staxableincome:TaxAdministrationAct1994(NZ)s41A(3).


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purpose’.Underthecommonlaw,102acharitymustbeforthepublicbenefitandhavethepurposeofrelievingpoverty,advancingeducation,advancingreligion,orbenefittingthecommunity.Promotionoftheartshasbeenfoundtosatisfythatessentialcriterion. InRoyalChoralSocietyvInlandRevenueCommissioners,103LordGreeneMRobserved‘theeducationofartistictaste isoneofthemost importantthings inthedevelopmentofacivilised human being’.104 Furthering the arts in this way is included in the well-establishedcategoryofeducation,butthegeneralpromotionofarthasalsobeendeemedtobeacharitablepurpose,105andgiftstoartgallerieshavebeenfoundtobecharitableinnature.106

E RecommendationsItseemslikelythatpromotingtheartsinthepublicsphereandimprovingtheeconomicwell-being of artists are goals most effectively pursued through direct grants andsubsidies.107ACGTexemptionmightalsoassistinachievingtheseobjectives,butcouldbedisproportionate.Forexample,whileroll-overreliefintheUSgenerallybenefittedtheartmarket,itmayhavebeenadisproportionatewayofpromotingpublicaccesstotheartsorhelpingthoseartistsmostinneed,andislikelytohaveencouragedspeculation.Inimmatureartmarkets,suchasthoseofAustraliaandNewZealand,removingbarrierstocollectingworksoflocalartistsmaybeamoreappropriatepolicygoalthanseekingtoprovideincentivestocollectors.Tothisend,nodistinctionshouldbedrawn,asAustraliadoes,betweenpersonaluseandcollectableassets,becauseanudgetowardspersonaluseassetsmaydiscourageinvestmentinartworks.Conversely,acaponexemptedpersonaluseassets,ifappliedequallytocollectables,mightencouragepurchasesoflessexpensiveartworkscreatedbyemerginglocalartists.WhiletheNewZealandgovernmenthasnottakenup theTWG’srecommendation foraCGT, theGroup’sproposedexemptions forcollectablesilluminatetheunnecessarydiscriminationbetweenpersonaluseassetsandcollectablesunderAustralian law.Finally, formorevaluableartworks, a rebatemightapplyforpublicdisplay.Forexample,ifanownerlendsanartworktoapublicgalleryforhalftheperiodtheyownit,a50percentrebatecouldapplytoanygainondisposal.

IfAustralasianartecosystemsweretodeveloptothesophisticatedlevelexemplifiedbytheParisiancollectorsstudiedbyMoureauandherco-authors,shouldweexpectsimilartaxprivileges?Theanswermustberesoundinglynegative.TheUK’sVATprivilegingofentrance fees tomuseumsandgalleriesmightpresentanexampletobe followed.But‘corrupting’itspureGSTwouldbeunthinkableinNewZealand,andintroducingfurthercomplexity to the Australian GST system would be counter-productive. Besides, inAustralasia,entrancetogeneralexhibitionshostedbypublicmuseumsandgalleriesis

102SeeCommissionerofIncomeTaxvPemsel[1891]AC531.103[1943]2AllER101.104Ibid105.105CrystalPalaceTrusteesvMinisterofTownandCountryPlanning[1951]Ch132.106DonaldPoirier,CharityLawinNewZealand(DepartmentofInternalAffairs,NewZealandGovernment,2013)221.107 See, for example,DanielReid, ‘AnAmericanVisionof FederalArts Subsidies:WhyandHow theUSGovernmentShouldSupportArtisticExpression’(2009)21YaleJournalofLaw&theHumanities361.


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usually free.108 Focused grants and subsidies, revisited in annual budgets, are moreeffective than tax privileges that may become entrenched and therefore politicallydifficult to remove. Individual collectors do contribute to the constitution of nationalculture,butcollectiveactionthroughregulatedandtax-privilegedcharitiesseemsamorepreferableoptionforAustraliaandNewZealand.Furthermore,astheEuropeanUnionhasdiscovered,extendingtaxconcessionstocollectorscanfacilitateabusebyspeculatorsandcriminals.109

V CONCLUSION

ThisarticlehassurveyedthetypesoftaxconcessionscollectorsenjoyinthematureartmarketsofFrance,theUKandtheUS,andcomparedtheseprivilegeswiththetax-benefittreatmentofcollectorsinAustraliaandNewZealand,countrieswithrelativelyimmatureartecosystems.Australia’s inclusion of all types of assets in its superannuation and residential caremeans-test,coupledwithasignificantallowance,ispreferabletoNewZealand’sblanketexemption of personal collectables. On the one hand, policies should encourageinvestment in domestic art because that promotes national culture, but, on the otherhand,investmentinthegeneraleconomyshouldnotbediscouraged.TheTWG’sproposalof excluding all collectables from a putative CGT net on simplicity grounds wasdisproportionate and, unlike the RCS exemption, could have led to significant andundesirableeconomicdistortions.Conversely,Australia’sCGTapproachtocollectablessendsoddsignalstotaxpayers.Surely,buying,say,aboatshouldnotbeprivilegedoverbuyinganartwork?AnappropriateapproachwouldliewithallowingaAUD10,000forallpersonalassets,includingcollectables.Australiantax-benefitpolicyinrelationtotheartsisnotamanifestationofphilistinism,andNewZealandhasnotoptedforelitism,butrelevantpolicyinbothcountriesmeritsfurtherconsideration.

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