Does your self-managed superannuation fund (SMSF) own a motor vehicle, artwork, wine, coins, jewellery or other collectibles?
More stringent rules for how these collectible and personal use assets are managed come into effect for all funds from 30 June 2016. While it’s important for all SMSFs to ensure that they are compliant with the rules, funds with collectibles purchased before 1 July 2011 have had a grace period to get their house in order. This grace period ends on 30 June 2016.
There is around $407 million worth of these collectible and personal use assets sitting in SMSFs in Australia. The Tax Office’s main concern is that it’s really easy for fund members to forget that these assets – like artwork and cars - are owned by the fund and must be held for retirement purposes. That means members of the fund (or anyone related to them) can’t use or enjoy that asset.
If you have these assets in your fund (or are looking to acquire them), here’s what you need to ensure:
The asset must not be leased to a related party - a related party includes a member of the fund, their relatives, business partners, the spouse or child of these business partners), or any company or trust that the fund members control or influence.
The asset must not be stored in the private residence of the related party - this includes sheds and garages etc.
The trustees must keep a written record of where, how, and why the asset is to be stored.
The asset must be insured in the fund (trustees) name. If your SMSF is buying a collectible, insurance needs to be in place within the first seven days. If the fund already owns the asset it must be insured in the trustees name before 1 July 2016!
The asset must not be used by a related party. For example, if your fund owns a vintage car, you cannot drive it for any reason, not even to go to the mechanic.
If the asset is sold to a related party, the asset must be sold at a market price determined by a qualified and independent valuer.
A few issues come out of these requirements. Sometimes insurance is difficult or impossible to get for collectible assets. If you can’t secure insurance, the asset may need to be sold. If a collectible asset needs to be sold because the rules can’t be met, the sale process can sometimes be protracted – this could be an issue if you need to sell the asset pre 30 June.
Before your fund acquires a collectible asset, it’s also important to ensure that the fund Trust Deed allows for collectibles to be acquired, the Investment Strategy of the fund allows for the collectible to be acquired, and that the sole purpose of acquiring the collectible is to provide retirement benefits for members.
What is a collectible and personal use asset?
The definition of a collectible is quite broad and will often capture assets that many fund members don’t realise qualify as collectibles.
A common example is motor vehicles. The definition of a collectible includes motor vehicles such as utes, not just classic cars that are generally considered collectors items.
When the Tax Office talks about collectibles, they mean: artwork – including paintings, sculptures, drawings, engravings and photographs; jewellery; antiques; artefacts; coins, medallions or bank notes (coins and banknotes are collectables if their value exceeds their face value, and 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; memorabilia; wine or spirits; motor vehicles and motorcycles; recreational boats; and, memberships of sporting or social clubs.