Collectables and personal-use assets

Have you ever wanted to buy that Brett Whiteley or Albert Namatjira painting for your SMSF? Thinking of investing in that rare 100 yo Single Malt Whiskey or Penfolds Grange Hermitage?

My recommendation is don't do it because the storage, insurance and valuation rules makes it difficult and too troublesome.

SMSF trustees are reminded that they must comply with the rules that apply to collectable and personal-use assets acquired by their fund. They are as follows:

  • assets can't be leased to, used by, or stored in the residence of a related party
  • assets must be insured in the fund's name within seven days of purchase
  • assets must comply with all other investment restrictions, including the sole purpose test
  • storage decisions must be documented and the written record kept for at least 10 years
  • if assets are transferred to a related party, they must be at market value as determined by a qualified, independent valuer.

If your SMSF held collectables and personal-use assets before 1 July 2011 you have until 30 June 2016 to comply with these rules.

The Superannuation Industry (Supervision) Regulations 1994 Division 13.18AA defines collectables and personal use assets as :

(1)  For section 62A of the Act, this regulation applies to investments involving any of the following (section 62A items):
                     (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.
Asset must not be leased to related party
 
Regulations 13.18AA subsection (4), (5) and (7) specifies the requirement for storage, insurance and valuation:

Decision on storage of item must be documented
(4)          Each trustee of a regulated superannuation fund that is a self managed superannuation fund
               commits an offence if:
                (a)          the fund holds an investment involving a section 62A item; and
                (b)          the trustee or trustees of the fund make a decision relating to the storage of the
                               item; and
                (c)           either:
                                 (i)  a written record of the reasons for the decision is not made; or
                                 (ii) if a written record of the reasons is made—the record is not kept for at least 10
                                       years after the decision.

So you finally bought that Brett Whiteley for $2 million and decided to hang the painting in your office or mansion. Sorry, you can't because it can't be displayed or stored in the residence of a related party or leased to a related party. The Whiteley has to stored in a secured Art Storage facilty which the SMSF rents. You can store it on your commercial property but you can not display it. Or leased to an unrelated party.

Item must be insured in fund’s name
(5)          Each trustee of a regulated superannuation fund that is a self managed superannuation fund
               commits an offence if:
                (a)       the fund owns a section 62A item, other than a membership of a sporting or
                            social club;  and
                (b)        it is more than 7 days since the fund acquired the item; and
                (c)        the item is not insured in the name of the fund.

Even though the Art Storage facility has its own insurance, the SMSF trustees still have to obtain a separate cover for the painting with the SMSF as the policy owner.

If the plan is to sell the collectable to members/related-parties, an independent valuation is required according to subsection 7 :


 Transfer of asset to related party requires independent valuation
  (7)          A trustee of a regulated superannuation fund that is a self managed superannuation fund
                 commits an offence if:
                  (a)       the trustee realises an investment held by the fund involving a section 62A item;
                              and
                  (b)       a related party of the fund receives an interest in the item because of the
                               realisation; and
                   (c)       the realisation was not at a market price determined by a qualified independent
                                valuer.

Say for example, you are celebrating being 60 years old and ready pop open that 100 year old single malt stored in a wine vault. Well you can’t, not yet anyway. Your account has to be in Pension mode and you need to have an independent valuation of the bottle. The market value will be the income stream withdrawal for your pension subject to the min and max pension percentage rules. If it is a Transitional to Income Stream (TRIS), then there’s a 10% maximum limit of your pension balance. If it’s an Accounts Based Pension (ABP) and member is permanently retired, there is no maximum limit.

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Chartered Accountants

Jimmy CK Chong is a Chartered Accountant & registered tax agent. Contact him via:
Tel : 08 9440 0871
Mob : 0433 117 110
Email : jchong@superfund.me

Liability limited by a scheme approved under Professional Standards Legislation.

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