SMSF TechnicalSMSF Collectables ATO Investment Rules - Grow SMSF

January 29, 2016by Grow SMSF

Does your self-managed super fund own artwork, jewellery, coins, vintage cars, wine collections or antiques to name a few of the major items deemed SMSF collectables?

Significant changes came into effect from 1 July 2016 for SMSF collectables and the ATO as well as independent SMSF auditors are strictly enforcing these rules.

SMSF collectables rules

From 1 July 2016, any collectible owned by an SMSF must adhere to the new rules:

  • The collectibles are not to be stored at the SMSF trustees residence;
  • SMSF trustee or a related party is not permitted to lease or use any of the collectibles;
  • The collectible MUST be insured by its’ own separate policy;
  • Document and minute the storage decision by the trustees;
  • If the collectible is to be sold to an SMSF trustee or related party then a valuation by a qualified independent valuer must be sought to determine the market value.

Types of collectables and personal use assets

The following a list from the ATO of the different types of collectible and personal use assets that a fund could own as part of its SMSF investment strategy:

  • Artwork
    • Paintings (including a Banksy!)
    • Sculptures
    • Drawings
    • Engravings
    • Photographs
  • Jewellery
  • Antiques
  • Artefacts
  • Coins, medallions or bank notes
    • Coin and banknotes are collectables if their value is more than the face value of the note or coin
    • Gold and silver 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
    • Other precious metals such as gold, silver or platinum bullion is typically NOT considered a collectible where the value is primarily influenced by the weight of the precious metal.  Learn more: Can my SMSF invest in gold and silver bullion?
  • 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

Collectibles are not to be stored at the SMSF trustees residence

This is where the ATO are circumventing the “I store the painting at home, but of course it’s in the safe – wink, wink” conversation.  As the SMSF auditors, or the ATO cannot be at your home to verify the existence of the collectible or that it truly is not being used, the decision was made to remove the temptation and remove the collectible from reach.  Therefore, the new legislation states that any collectible must not be stored the SMSF trustees residence.

 

SMSF trustees or related parties are not permitted to lease or use the collectible

Following on from not storing the collectible at home, the ATO wanted to make it clear that using the collectible is not OK.

The ATO’s SMSF collectibles rules state that you can store (but not display) collectables and personal use assets in premises owned by a related party (for example business premises), provided it is not the private residence of the members of the fund.

Artwork or any other collectible items can’t be displayed because this means they are being used by a related party of the fund. Who is a related party of an SMSF?

 

SMSF collectibles insurance must be obtained

A collectible CANNOT be insured under a trustees own general home and contents policy.  Whilst this requirement may be difficult to comply with, it is definitely a must from 1 July 2016. Think of this way, you wouldn’t expect the parking lot to insure your car if it was parked in their carpark while at work, same with a collectible.

The collectible belongs to the SMSF, purchased by your retirement funds and if something should happen where you would need to claim on insurance, then the payout from that insurance policy also belongs to the SMSF.

There are not too many specialist insurers in the market place, however one provider is SMSF Insurance Australia. For a quote for SMSF art works and collectables insurance you can visit their website: SMSF Insurance Australia  

 

Document and minute the SMSF collectables storage decision

A simple document or trustee minute stating the reason why you stored the collectible at which location.

 

Selling SMSF collectibles to a related party of the fund

The sole purpose of an SMSF is to provide for the retirement of the members. When you retire, the ATO want to ensure that if you decide to sell collectibles from your SMSF to either yourself or any other related party, that the sale price is market value.

The ATO have determined that the best person to determine what the market value is for collectibles, a qualified independent valuer is necessary to state what that sale price should be.

Valuation of collectables for SMSFs

The valuation rules required by the ATO are similar to that of other SMSF investments such as real property.

In the case of an SMSF collectibles valuation should be obtained at least every three years or at the time of selling or transferring the collectibles to a member of the SMSF (for example as an in-specie lump sum benefit payment).

Valuations should be completed by an appropriately qualified independent person following the ATOs valuation guidelines for SMSF collectables.

SMSF Collectables valuation requirement depends on date asset was acquired and disposed of
DateDisposal occurs before 1 July 2016Disposal occurs on or after 1 July 2016
Acquired before1 July 2011No need for valuation by a qualified independent valuerQualified independent valuer determines market price
Acquired on or after 1 July 2011Qualified independent valuer determines market priceQualified independent valuer determines market price

SMSF collectibles summary

In summary, Collectibles can be owned by the SMSF, however, the ATO want to ensure that the trustees or members of an SMSF treat the artwork, coin, vintage cars etc as an investment for the future retirement of members, not as a perk on the way too retirement.

FAQs on SMSF collectibles

The following is a list of common questions relating to SMSF collectible investments:

Can an SMSF purchase artwork or other collectibles from a member of the fund?

No. An SMSF is prohibited by s66 of the SIS Act from purchasing artwork and other collectibles from related parties including members of the self-managed super fund.  Similarly a member cannot transfer an artwork or collectable to the SMSF as an in-specie contribution.

Can an SMSF sell or transfer artwork or collectables to a member of the fund?

Yes. Provided a market valuation is obtained prior to selling or transferring the collectable(s), then it’s possible for an SMSF to transact with the member in an arms-length transaction.

This means a member of a self-managed super fund can buy a piece of artwork or jewellery from the SMSF based on an independent appraisal, or if the member is over pension age, receive the SMSF collectible as an in-specie lump sum payment.

Can an SMSF collectible be used to pay a pension to a member?

No. An in-specie transfer (of an asset rather than cash) cannot be used to make a pension payment. Pensions must be paid in cash.  Even gold bullion coins or collectible coins do not count as legal tender – therefore are NOT cash!

A pension member can make a partial commutation to transfer some of their SMSF pension balance to accumulation to enable an in-specie transfer lump sum to be made.

Correct documentation is essential.

How do I record ownership of an SMSF collectable item?

Many SMSF collectables do not have a formal third party registration system like shares and property, therefore the key items to prove the artwork or collectibles are owned in an SMSF are:

  • Purchase documents including tax invoices
  • Insurance policy documents (in the name of the SMSF of course!)
  • Trustee minutes or resolutions confirming the purchase
  • A Declaration of Trust or Acknowledgement of Trust document confirming the SMSF is the beneficial owner

What if I drink some wine owned by my SMSF?

Just ensure the SMSF auditor was not at the time!

Realistically, this should never happen because as per the above rules, SMSF trustees cannot store collectibles at their personal residence.

What if insurance is unavailable or too costly for my SMSF collectables?

If a separate policy of insurance cannot be obtained, then the collectible cannot be held by the SMSF and must dispose of the asset through selling to a third party of related party at market value.

Is it ‘collectible’ or ‘collectable’ ?

Great question.

Collectible and collectable are alternative spellings of a word that can be an adjective or a noun. As a noun, they refer to items that are valued by collectors. Americans prefer collectible. Britons prefer collectable as an adjective and use both versions as nouns. Source: Writing Explained

Please note we have intentionally used collectible and collectable in this article to make it easier for people to find when searching for this topic.

We believe collectable is the most correct noun in an Australian context.