Collectables and personal use assets have been a very enticing investment for SMSFs for many years. It’s simple, the SMSF purchases a painting, a motor vehicle, jewellery, wine etc. etc. and then the trustees use the assets ‘incidentally’ or ‘insignificantly’.
This type of activity resulted in a recommendation from the Cooper Review in May 2010 to have SMSFs restricted from investing in collectables and personal use assets.
On the 27 June 2011 section 62A of the SIS Act and regulation 13.18AA of the SIS Regulation were introduced. Section 62A of the SIS Act considers the holding of collectables and personal use assets under the sole purpose test and defines what types of assets are defined as a collectable or personal use asset. Regulation 13.18AA provides the legislative restrictions for an SMSF holding collectables and personal use assets.
These new rules apply to all new SMSF investments purchased after 1 July 2011. For any investments acquired prior to 1 July 2011, the new rules will not need to be complied with until 1 July 2016. Essentially, this means trustees have just under 220 days to get things right!
Under section 62A, a collectable or personal use asset is defined as:
- artwork (within the meaning of the Income Tax Assessment Act 1997 ); or
- jewellery; or
- antiques; or
- artefacts; or
- coins or medallions; or
- postage stamps or first day covers; or
- rare folios, manuscripts or books; or
- memorabilia; or
- wine; or
- cars; or
- recreational boats; or
- memberships of sporting or social clubs; or
- assets of a particular kind, if assets of that kind are ordinarily used or kept mainly for personal use or enjoyment (not including land).
Under regulation 13.18AA, collectables and personal use assets must abide by the following restrictions:
Collectables acquired before 1 July 2011 (rules up to 30 June 2016) –
If the investment was acquired prior to 1 July 2011 regulation 13.18AA will not take effect until 1 July 2016, therefore the following rules will apply until 1 July 2016:
- The collectable or personal use asset could be leased to a related party for consideration via an agreement providing asset represented under 5% of the market value of the fund
- Incidental or insignificant use by a related party is permitted
- Collectables and personal use assets could be stored at the private residence of a trustee or other related party
- No strict requirement to provide written documentation of how or why the collectable or personal use asset is stored
- Sufficient for the asset to be insured under a personal home and contents insurance or by third party leasing asset
- Trustees could determine a market value they considered suitable to sell the asset to a related party
Collectables acquired after 1 July 2011 –
If the investment was acquired after 1 July 2011, regulation 13.18AA will take effect immediately, therefore, the following rules will apply:
- The collectable or personal use asset must not be leased to a related party of the fund
- Collectables and personal use assets cannot be used by any related party of the fund
- Collectables and personal use assets must not be stored or displayed in the private residence of a related party of the fund
- Trustees must make a written record of the reasons for the decisions on where to store the collectables and personal use assets and keep the record for 10 years
- Trustees must ensure that collectables and personal use assets are insured in the name of the fund within seven days of acquisition
- Market value must be determined by a qualified independent valuer prior to sale of the asset
It is therefore critical that action is taken immediately as the transitional period will expire soon for collectables acquired before 1 July 2011 that continue to exist in a SMSF.
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