SMSF and Collectables

Collectable and Personal-Use Assets in SMSFs: A Comprehensive Guide

SMSF and CollectablesIt’s possible for an SMSF to invest in collectable and personal-use assets.  Good news. BUT there are a lot of hoops to jump through.  Gone are the days when the SMSF trustee could purchase a vintage car or expensive jewelry and store it at home.  The perceived danger was the SMSF obtains a collectable asset for the member’s use, and enjoyment, by using fund assets which does not meet the sole purpose test of funding the member’s retirement.  Superannuation legislation and regulations were introduced way back in 2011 to define what collectable and personal use assets are and regulations applying to those assets.

Always ensure the decision to invest in collectables by a SMSF is allowable by the trust deed and fits within the investment strategy and objectives and is formally documented. 

What Qualifies as a Collectable and Personal Use Assets in SMSF Investments?

The Superannuation Legislation specifically describes what a collectable and personal (collectable) use asset is.  The general catch all is “assets of a particular kind, if assets of that kind are ordinarily used or kept mainly for personal use of enjoyment (not including land).  Specific examples include:

  • Artwork (can include paintings, sculpture and reproductions)
  • Wine
  • Motor Vehicles
  • Memberships of sporting or social clubs
  • Postage stamps or first day covers
  • Antiques

Regulations Governing Collectables and Personal Use Assets in SMSFs

Like any SMSF investment, the acquisition of collectables are subject to the usual SMSF rules including the sole purpose test with the main requirement being the provision of retirement benefits to members.  In addition, there are special rules which apply to collectables owned by an SMSF which include:

  • cannot lease to a related party
  • cannot store at the private residence of a related party
  • decision on storage must be documented
  • the transfer of a collectable to a related party requires an independent valuation
  • cannot be used by a related party
  • the item must be insured in the fund’s name 

Leasing of Collectables

A collectable cannot be leased to a related party which includes any agreement or arrangement or understanding.

A collectable can be leased to an unrelated party on arm’s length terms and conditions.  A self-managed super fund could purchase a painting and lease it to the local unrelated art gallery.

Storage of Collectables in Private Residence of a Related Party 

A collectable, owned by a SMSF, must not be stored in the private residence or home (includes a garage or storage shed) of a member or other related party of the fund. 

The Australian Taxation Office have clarified that a painting cannot be displayed at the business premises of a related party. The painting cannot be hung on the wall where it would be visible to clients and employees.  However, the painting could be stored at the business premises.  Storage is ok but display is not. 

Documentation for Storage Purposes

The trustee must formally prepare a written record of the decision made to store a collectable, regardless of if it being stored at a related party business or other unrelated premises.

A written record of the decision is required and must be kept for at least 10 years. The record can be a minute of the trustees detailing where the storage is and why the Trustees decided it was appropriate.

Example – Wine can be owned by the SMSF where it can be stored by businesses such as Wine Ark or Signature Cellars who provide a record of the wine being stored, what is being stored and provide evidence of existence.  Insurance is usually included in the costs of storage. Any wine storage and insurance must be in the name of the SMSF and paid directly by the SMSF. Self-storage at a business like Kennards Self Storage may be allowed but it is more difficult to evidence existence of the wine at a particular time. 

Selling Collectables Held by the SMSF to a Member or Other Related Party

The superannuation legislation allows a collectable to be sold to a related party.

However, the collectable must be sold at market value.  The valuation MUST be made by an independent valuer with expertise in that specific field. 

The ATO have always preferred a Trustee to obtain a market valuation from a qualified independent valuer.  However, the legislation in relation to collectables requires the market valuation be determined by a qualified independent valuer which is a higher standard.

Use of Collectables for SMSFs

A member or related party cannot look at, drive, wear or otherwise use a collectable.  

Example – Where a SMSF owns a vintage car the member or trustee cannot drive the car or maintain it or do restoration work even where the work would increase or at least maintain the value of the car.  The car can be driven or used or leased to an unrelated party provided all transactions are at arm’s length. 

Insurance for SMSFs with Collectables 

Collectables and personal use assets (except membership of a sporting or social club) must be insured in the name of the SMSF within seven days of it being acquired. 

It is important the SMSF will be adequately compensated for the loss of collectables and personal assets which can be at risk if the policy owner and beneficiary is not identified as the SMSF or the amount of the insured value is too low. The ATO will accept a separate policy or the collectables can be insured collectively.

The ATO take the view that a SMSF cannot insure the collectable under a member’s home and contents insurance. As the SMSF is unable to store a collectable in a member’s private residence it is unlikely to include it anyhow.

The ATO views the following scenarios as being insufficient evidence of the collectable being insured for the benefit of the fund:

  • Collectable assets may be insured by a third party such as a gallery owner who holds and displays a painting held by the fund
  • The Collectable is noted as a beneficiary on an insurance policy owned by a third party   

*Related party can include a member of the fund, a relative of a member, a closely held company or trust held by the members or other related parties together, a partner of a member. Refer to the ATO website for further details on related parties.

Tax Considerations for Collectables and Personal Use Assets in SMSFs

Generally, capital gains tax applies to the disposal of collectables and personal use assets held by a SMSF. Capital gains are taxed at 15% reduced to 10% if held for longer than 12 months and further reduced down to nil if sold when the asset is being used 100% to provide a pension. The cost to maintain or insure a collectable or a personal use asset is not included in the cost base.

However, special rules and exemptions can apply and include the following:

Collectables

Capital losses from collectables are quarantined and offset, only, against capital gains from collectables. Capital losses from other capital assets can be offset against capital gains from collectables. 

Collectables acquired for $500 or less are exempt from capital gains tax.

Personal Use Assets

A personal use asset which a SMSF may hold include motor vehicles and boats.

A motor vehicle (less than 1 tonne carrying capacity and carries fewer than 9 passengers), including antique, veteran and vintage cars are exempt from capital gains.  In limited circumstances luxury car tax may apply.

Personal use assets costing less than $10,000 are exempt from capital gains. Capital losses are ignored. 

Frequently Asked Questions in Relation to SMSF Collectable Rules

Is Silver and Gold Bullion a Collectable?

Silver and gold bars will, generally, not be considered a collectable. Bullion usually derives its value from the spot price of the metal content plus a premium price for metal preparation. The ATO may view bullion bars and coins as collectable if their value exceeds their face value. 

Where the bullion dealers trade bars and coins at the spot value plus a standard mark up the ATO is very unlikely to see this as exceeding the face value. 

Are Pink Diamonds Collectables?

The ATO view natural diamonds, including pink diamonds, held in loose form as not being a collectable. However, if the diamonds are used to manufacture a necklace or a ring increasing the value beyond the underlying metal spot price the character of the diamond is changed and would be a collectable.

Are Coins and Banknotes Collectables?

The ATO view coins and banknotes as a collectable where the value exceeds their face value.  Coins and banknotes which are collected for their rarity, condition and beauty can be valued well above the prevailing metal spot price and are considered to be collectables. 

Can a Collectable be Paid as a Pension Payment?

No. A pension payment must be paid in cash.

Can My SMSF Purchase a Painting from me if it is at Market Value?

No. The Superannuation Legislation specifically prohibit an acquisition of an asset from a member unless there is an exception.  A collectable is not one of the listed exceptions. 

The Key Takeaways

  • Ensure investment returns are commensurate with the cost and scrutiny of holding collectables 
  • Documentation is key 
  • Do not hang artwork on your wall at home
  • Do not drink the Fund’s wine collection
  • Insurance must be in the name of the SMSF
  • Consider the capital gains tax rules 

 

Do you want to learn more about SMSF and Collectables?

Give us a call on 1300 392 544 or get in touch online.

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If you’re interested in learning more about SMSF and Collectables? Please reach out for a confidential quote. Simply submit your details and one of our friendly team will be in touch as soon as possible.

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Do you want to learn more about SMSF and Collectables?

Give us a call on 1300 392 544 or fill in the form above

Contact Us

If you’re interested in learning more about SMSF and Collectables? Please reach out for a confidential quote. Simply submit your details and one of our friendly team will be in touch as soon as possible.

Contact Us

Name(Required)