Collectables and Personal Use Assets

An SMSF can invest in artworks, collectables and personal use assets if the Trust Deed and Investment Strategy allows for these type of investments. These investments must satisfy the Sole Purpose Test, which is to provide a retirement benefit to the Members.

There is no maximum value limitation on collectables and personal use assets. However, if the artwork is leased to or used by any related parties, it will breach the Sole Purpose Test and the In-House Asset rule will be triggered as well.

Stricter Rules for collectables and personal use assets taking effect from 1 July 2016

Since 2011 there are more stringent rules on collectables and personal use assets. For collectables and personal use assets that you held before 1 July 2011, there are significant changes taking effect from 1 July 2016. Trustees have until 30th June 2016 to comply with these rules.

These tightened rules state that:

The collectables and personal use assets must be insured in the name of the fund within seven days of acquisition
Any decision concerning the storage (e.g where the item is stored) of the item must be recorded in the SMSF minute and keep the record for 10 years
The collectables and personal use assets must not be stored in a Trustee’s or any related party’s private residence
The collectables and personal use assets must not be leased to or used by a related party
If collectables and personal use assets are sold to a related party it must be independently valued

Types of collectables and personal use of assets

Collectables and personal use assetsArtworkClassic Cars

Collectables and personal use assets are:

  • 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
    • 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
  • memberships of sporting or social clubs.
Artwork is generally defined by the ATO as a painting, sculpture, drawing, engraving or photograph, a reproduction of such a thing, or property of a similar description or use.

SMSFs can invest in classic cars if it is allowed by the Deed and Investment Strategy of the Fund. However, there are restrictions that you must be mindful of. These restrictions are described by Regulation 13.18AA of the act.

In order to invest in classic cars under an SMSF name, the investment has to pass the sole purpose test. This means the investment objective should be to provide for the retirement benefits of Members.

To satisfy the sole purpose test, please make sure the classic car is not:

  • purchased from a related party
  • leased to, or part of a lease arrangement with, a related party
  • used by a related party
  • stored or displayed in a private residence of a related party.

For example, a related party is not allowed to drive the classic car in any circumstance, even for maintenance purposes.

Be mindful that collectables may not be easily converted to cash like listed shares. As an SMSF may have to pay operating expenses, income tax and potentially a minimum pension, ensure enough liquidity in the Fund to allow for these payments.

Lastly, remember the SMSF must take out insurance on the asset within 7 days of acquiring it.

Conclusion

The ATO website carries a question and answer section devoted to collectables, please see here.

There are strict rules from the ATO in investing in artworks, collectables and personal use assets. The Trustees need to be aware of the new ATO rules to fully execute their duties and responsibilities.

 

 

  • http://www.solepurposetest.com SolePurposeTest

    These rules are less severe than the recommendation of the Cooper Review interim report, which was to prohibit SMSFs from holding collectibles and personal use assets. Really these are just things SMSF trustees either couldn’t do before (like hang art in their home) or should have been doing anyway (like insuring art and documenting decisions).

    • superannuationwarehouse

      Agreed, there’s still heaps of opportunity for SMSF’s to invest. As long as Trustees do the right thing, i.e. genuinely saving for their retirement benefit.

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