Investing in Collectables in Self-Managed Super Funds (SMSF) have certain Regulations around them that require you to be aware of new rules about storage and insurance to ensure you are keeping compliant.
When new regulations began in July 2011 with a deadline in July 2016 – the effect has seen more than a 50% drop in the level of collectables held in SMSFs over these 5 years – from $713 mill (0.18%) to $419 mill (0.07%)!.
The Australian Tax Office (ATO) as regulator of SMSFs explains –
Definition of collectables and personal use assets
Collectables and personal use assets are:
- artwork – including paintings, sculptures, drawings, engravings and photographs
- coins, medallions or bank notes
- coins and banknotes are collectables if their value exceeds their face value
- bullion coins are collectables if their value exceeds their face value and they are traded at a price above the spot price of their metal content
- postage stamps or first-day covers
- rare folios, manuscripts or books
- wine or spirits
- motor vehicles and motorcycles
- recreational boats
- memberships of sporting or social clubs.
Definition of private residence
A private residence includes all parts of a private dwelling (above or below ground), the land on which the private residence is situated and all other buildings on that land, such as garages or sheds.
Collectables and personal use assets can’t provide a present day benefit so they can’t be used by members or related parties.
For example, if your SMSF owns a vintage car, related parties can’t drive it for any reason – not even for maintenance purposes or to have restoration work done – because this constitutes use of the asset. However, a person who is not a related party can drive the vehicle for such a purpose.
Display or storage
Collectables and personal use assets must not be stored in the private residence of any related party. If they were acquired before 1 July 2011 you have until 1 July 2016 to meet this requirement.
You can store (but not display) collectables and personal use assets in premises owned by a related party provided it is not their private residence. They can’t be displayed because this means they are being used by the related party. For example, if your SMSF invests in artwork it can’t be hung in the business premises of a related party where it is visible to clients and employees.
Remember to keep a record of the reasons for deciding on where to store the assets.
Collectables and personal use assets purchased by the fund must be insured in the name of the fund within seven days of the purchase.
As part of the decision to invest in collectables and personal use assets, you need to consider the availability and cost of insurance. If your fund has made the investment and you find you can’t obtain insurance, contact both your fund’s SMSF auditor and the ATO to try to rectify the situation.
Your fund’s collectables and personal use assets may be insured under separate policies or collectively under the one policy, but it must be in the name of the fund. You can’t, for example, insure the assets as part of a trustee’s home and contents insurance.
If you acquired a collectable or personal use asset prior to 1 July 2011, you must insure it in the name of the fund prior to 1 July 2016 to comply with the rules.
You can only lease collectables and personal use assets to an unrelated party and the lease must be on arm’s length terms.
For example, your SMSF can lease artwork to an art gallery provided the gallery is not owned by a related party and the lease is on arm’s length terms.
Collectables and personal use assets can be sold to a related party provided the sale is at market price as determined by a qualified, independent valuer.
- A valuer is qualified either through holding formal valuation qualifications or by being considered to have specific knowledge, experience and judgment by their particular professional community.
- A valuer is independent if they are independent of the interests of the fund. This means the valuer should not be a member of the fund or a related party of the fund (for example, an investment partner).
If your fund acquired the collectable or personal use asset before 1 July 2011 and sells it before 1 July 2016, the transaction does not need to be supported by a valuation determined by a qualified independent valuer. However, the transaction must still take place on arm’s length terms.
Valuations are discussed and explained here – Valuation guidelines for self-managed super funds
Also see the – Personal Property Securities Register External Link – to search to find out if the collectable is subject to a security interest that may see it repossessed.
Interested to know what self-managed super (SMSF) is all about, and if it is for you? See the slides SMSF Roadmap Overview.
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