If you hold artwork, wine, personal use assets, coins or other collectable items in your self managed superannuation fund, then you need to consider rules that came into force on July 1 2011. These rules cover the storage, insurance and valuation requirements for all new purchases after this date. They also provide that assets held prior to this date do not need to meet the new rules until 30thJune 2016, effectively grandfathering existing assets.
What is a collectable/personal use asset?
The SIS Act regulates all superannuation funds. Regulation 13.18AA(1) lists the assets that are considered collectables and personal use assets for the purposes of the new rules.
(a) artwork (within the meaning of the Income Tax Assessment Act 1997);
(b) jewellery;
(c) antiques;
(d) artefacts;
(e) coins, medallions or bank notes;
(f) postage stamps or first day covers;
(g) rare folios, manuscripts or books;
(h) memorabilia;
(i) wine or spirits;
(j) motor vehicles;
(k) recreational boats;
(l) memberships of sporting or social clubs.
What are the rules?
S62A of the SIS Act provides the rules that trustees must abide by in relation to these assets. This extends the “Sole Purpose Test” already found in S62 which is the requirement for all trustees to maintain the fund for the sole purpose of providing retirement benefits to the members
The regulations require that:
These rules are quite onerous, including storage of assets and documentation of reasons for storage of these assets, acquiring insurance in the name of the fund within 7 days of purchase, and ensuring that transfer out of the fund are done at market value.
In addition, the requirement to store assets outside of the family home opens the trustee up to additional risks in case the storage provider misappropriates the asset, or cannot meet its own financial obligations and appoints an administrator.
Why were the rules introduced?
The Cooper review in 2010 originally recommended that SMSF’s be banned from holding collectable and personal use assets. The government has considered this and decided instead to introduce more onerous requirements on the holding of such assets through the super environment in order to remove the risk of trustees and related parties gaining a benefit through holding these assets.
When do they come into effect?
Immediately for new assets purchased after 1 July 2011.
30 June 2016 for existing assets held prior to 1 July 2011.
Do I need to do anything?
If you have purchased collectables or personal use assets in your superannuation fund since 1 July 2011, you will need to ensure that the new rules are adhered to, including obtaining insurance in the name of the fund, storage is not at a private residence, is not leased to any related party of the fund. We can assist in the preparation of your 2012 Income Tax Return in preparation of a minute documenting the reason for the decision on where to store these assets.
If you hold collectables purchased prior to 30thJune 2011, then you still have a bit of time to decide what you are going to do.
You need to start to think about whether you will continue to hold these assets after the grandfathering exemption ceases or whether you will need to obtain an independent valuation to transfer these out of the fund.
You need to ensure the assets are held in the name of the trustee as trustee for the fund and it is possible to obtain insurance in the name of the fund
You need to start considering where these assets are stored and whether this will still be appropriate in 2016
And finally, as with all assets, you need to ensure that these assets form part of your overall investment strategy
Should you need advice regarding your self managed superannuation fund contact us today on (+613) 5221 3844 or at enquiries@tagwealth.com.au.
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