Deadline looms for SMSFs and collectibles
SMSF members have approximately $407 million worth of collectibles and personal use assets held within self-managed super funds.
With collectibles such as motor vehicles, artwork, wine, coins, jewellery and a range of other collectibles as part of many SMSFs, trustees need to ensure they understand and are compliant with the more stringent rules that come into force from 30 June, 2016.
The tightening of the rules is due to the ATO's concern that it's very easy for fund members to forget that collectibles, such as art or cars, are owned by the fund and must be held for retirement purposes. That means that members of the fund – or anyone related to them – cannot use or enjoy that asset.
If you have collectible assets within your fund, or you're looking to acquire them, then here are the six things you need to ensure:
- The asset must not be leased to a related party: This includes a member of the fund, their relatives, business partners (or the spouse or child of business partners) or any company or trust that the fund members control or influence.
- The asset must be stored away from private residences of related parties, e.g. not in a shed or garage belonging to the related party.
- Document 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 trustee's 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.
The challenge with these requirements is that there are some issues that are difficult to resolve. For example, insurance is often difficult or impossible to get for some collectible assets, which means they may need to be sold. If collectibles need to be sold because the rules can't be met, then the sales process can become protracted. This is important to know if you need to sell the asset before 30 June.
Before your fund acquires a collectible asset, it's 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 the difference between a collectible and personal use asset?
The definition of a 'collectible' is actually quite broad and many fund members get caught out because they didn't realise the asset qualifies as a collectible. We've listed below the typical items that the ATO considers to be collectible.
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- 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, 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.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.