Do you own collectable or personal use assets in your SMSF?
1 July 2016 sees the transitional provisions for collectable and personal use assets expire. These provisions apply only to assets held by a SMSF prior to 1 July 2011.
- Collectable and personal use assets held prior to 30 June 2011 were granted a 5 year transition period to comply with the new regulations.
|What is a collectable or Personal Use Asset?
SIS Regulation 13.18AA(1) defines collectables and personal use assets as:
The new rules and what they mean for your SMSF?
The new rules took effect from 1 July 2011, so all new collectable and personal use assets acquired since then (and from 1 July 2016, ALL collectable and personal use assets):
- Cannot be leased to, or part of, a lease arrangement with a related party;
- Cannot be used by a related party, and;
- Cannot be stored or displayed in a private residence of a related party.
For example, if an SMSF invests in artwork it cannot be displayed in the business premises of a related party where it is visible to clients and employees.
However, you can store collectables and personal-use assets in premises such as purpose-built storage facilities which are owned by a related party, provided the premises are not part of the private residence of the related party and the assets are not on display.
An SMSF can lease artwork to an art gallery provided the gallery is not owned by a related party and the lease is on arm’s-length terms.
The artwork must be insured in the name of the SMSF, irrespective of the art gallery’s own insurance policies.
SMSF investments in motor vehicles, in addition to restrictions on display and storage, cannot be driven by a related party, even for maintenance purposes or to have restoration work done, as this constitutes use of the asset.
In addition to restrictions on the storage and use of collectables:
- the investment must comply with all other relevant investment restrictions, including the sole purpose test;
- the decision on where the item is stored must be documented (for example, in the minutes of a meeting of trustees) and the written record kept for at least 10 years;
- the item/s must be insured with seven days of the fund acquiring it. The insurance policy must be held by the SMSF and;
- if the item is sold or transferred to a related party, this must be at market price as determined by a qualified, independent valuer.
If an SMSF acquired the collectable before 1 July 2011 and sells it before 1 July 2016, you do not need a valuation from a qualified independent valuer, howeve3r the transaction must still take place on arm’s length terms.
What you need to do
- All collectables must be insured within 7 days of acquiring, and the policy/s held by the SMSF – if you cannot obtain the insurance then you should not acquire the asset.
- Ensure the decision on where to store the asset is documented and minuted – these must be held for at least 10 years.
- You should ensure that any decision to invest in collectables is consistent with the Fund’s investment strategy.
- If you have collectable assets acquired pre 1 July 2011, you should ensure these assets either comply with the legislation now or that any issues can be resolved before 30 June 2016.
- If you SMSF is selling the pre 1 July 2011 asset to a related party, a qualified independent valuation is not required – this may reduce the cost of sale if Trustees act prior to 30 June 2016.
- Trustees need to give consideration to their ability to comply with all the regulations prior to making the investment.