Artwork and Collectables owned by SMSF’s – Be aware of potential breaches and penalties
While these rules apply for all collectables acquired from 1 July 2011, collectables already held in an SMSF as at 30 June 2011 were given a five year transitional period to comply. That five year period ends on 30 June 2016.
Know the rules
It means trustees have just over 12 months to ensure they comply with the requirements.
Collectables – what do they include?
The definition of collectables is contained in section 62A of the Superannuation Industry (Supervision) (SIS) Act 1993 and regulation 13.18AA(1) of the SIS Regulations 1994. Collectables include: artwork (within the meaning of the Income Tax Assessment Act 1997), jewellery, antiques, artefacts, coins, medallions or bank notes, postage stamps or first day covers, rare folios, manuscripts or books, memorabilia, wine or spirits, motor vehicles, recreational boats, membership of sporting or social clubs, and personal-use assets.
What are the rules?
There are six rules relating to collectables:
- The asset must not be leased to a related party.
- The asset must not be stored in a private residence of a related party.
- A decision regarding asset storage must be documented and kept for 10 years.
- The asset must be insured in the SMSF trustee’s name.
- The asset must not be used by a related party.
- A transfer to a related party requires an independent valuation.
The collectable rules prohibit personal use. Accordingly, the fund could hold the annual golf membership (and meet the sole purpose test), but the collectable rules prohibit a member or related party from using the golf membership.
Similarly, any collectables that are held in pre-1999 unit trusts that are exempt from the in-house assets arrangements will need to comply with the collectables rules by 30 June 2016.
A contravention of any of the above rules incurs the imposition of $1,700. Any offence is a strict liability offence, meaning it only needs to be proven the contravention occurred and not that the contravention was intentional or reckless.
It is important to review any collectables currently held in an SMSF and determine how the fund will comply by 30 June 2016. If it is not possible or practical for the rules to be complied with, the fund will need to dispose of the asset before this date.
Over the coming months, trustees will need to ensure they have considered any collectables held in the fund, including:
- Reviewing storage arrangements to ensure they meet the requirements and are documented,
- Ensuring the collectable is insurable in the name of the SMSF trustee, and
- Ensuring there is never any personal use of the collectable.
Should you require any further information in regards to Collectables for your SMSF, please contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.