Personal Use Assets and Collectables in SMSFs
Contrary to some popular beliefs, a self managed superannuation fund (SMSF) can invest in collectables such as artworks, jewelry and wine, as well as personal use assets such as boats, classic cars and other vehicles. However, investment in these assets must occur in keeping very strict and specific rules in order to qualify, and thus care should be taken to avoid breaches of super rules in relation to owning collectables and personal use assets in SMSFs.
To start with, collectables and personal-use assets encompass a wide range of assets, including:
- artworks (paintings, sculptures, drawings, engravings, photographs etc);
- coins, medallions or bank notes in certain circumstances (eg coins, bullion coins and bank notes are considered collectables if their value exceeds their face value);
- postage stamps or first-day covers;
- rare folios, manuscripts or books;
- wine/spirits etc;
- motor vehicles and motorcycles;
- recreational boats; and
- memberships of sporting or social clubs.
Rules of Investment
The SMSF is allowed to invest in any of these collectable or personal use assets, provided such items are acquired for genuine retirement purposes and not to provide any present day benefit to either the members of the SMSF or related parties. In addition, the investment must also satisfy the following criteria:
- it must comply with all other relevant investment restrictions, including the sole purpose test;
- the decision on where the item is stored must be documented and a written record kept;
- the item(s) must be insured in the fund’s name within seven days of the fund acquiring it;
- where an item is subsequently transferred to a related party, it must be at the market value as determined by a qualified, independent valuer; and
- the items must be unencumbered.
First and foremost, these rules mean that whatever collectable or personal use asset is purchased by the SMSF, it cannot be used by members or related parties in any capacity. To show how far this rule goes, the ATO cites an example of a classic car: if it is owned by the SMSF as an investment, it cannot be driven by a member or any related party for any reason. This holds true even if the only reason for driving the car is to maintain the car or to perform restoration work.
These rules also mean that any collectable or personal use asset owned by the SMSF cannot be stored on or in the private residence of any member or related party (this includes all parts of a private dwelling, as well as the land on which the private residence is situated and all other buildings on that land, such as garages or sheds). However, the asset can be stored – but not displayed – in premises owned by a related party that are not their private residence.
For example, an artwork that is an SMSF investment cannot be displayed in the business premises of a related party where it would be visible to clients and employees, but it could be stored in a cupboard or another similar storage area. Additionally, the artwork (or other collectable/personal use asset) can be leased to unrelated parties on arm’s length terms.
The ability to obtain insurance must also be considered where an SMSF is going to invest in collectables or personal use assets. It is a requirement that the items are insured within seven days, under either separate policies or one collective policy. The owner and beneficiary of the policy must be the SMSF itself. If the SMSF has already made the investment but is unable to obtain insurance, the ATO will need to be notified.
Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.