New SMSF rules for owning art & collectables

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 30^thJune 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:

• collectables and personal use assets must not be leased to any related party of the funds. Previously artwork was allowed to be leased to a related party for a market value rental and shown for example in the business reception area.
• collectables and personal use assets must not be stored or displayed in the private residence of any related party of the fund.  There were previously no restrictions on the storage of these assets as long as no personal benefit was obtained.
• trustees must make a written record of the reasons for the decisions on where to store the collectables and personal use assets and keep the record for 10 years
• trustees must ensure that collectables and personal use assets (other than a membership of a sporting or social club) are insured in the name of the fund within seven days of acquisition
• collectables and personal use assets cannot be used by any related party of the fund
• the transfer of ownership of collectables and personal use assets to a related party of the self-managed super fund must be done at a market price determined by a qualified independent valuer.

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 30^thJune 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.