Since 2016, when the full implementation of the restrictive rules surrounding SMSF investments in collectables commenced, there has been a marked reduction in the number of funds holding this class of investment. We are now seeing some increased exposure as trustees look for alternative investment options, but I suspect that many are not also considering the restrictions and ongoing administrative ramifications involved.
Collectables and personal use assets include artwork, jewellery, antiques, artefacts, coins, stamps, books, memorabilia, wine, cars, bikes, recreational boats and club memberships.
Bullion is not included as its value is based on intrinsic weight and purity.
Collectables can’t be leased or used by a related party or stored in a private residence of a related party. Funds can only lease them to unrelated parties so the SMSF can lease artwork to an art gallery provided the gallery is not owned by a related party and the lease is on arm’s length terms.
If the SMSF owns a vintage car, related parties can’t drive it for any reason – not even for maintenance purposes or to have restoration work done – because this constitutes use of the asset.
Storage must be remote from the trustee’s private residence which includes any part of the land on which its situated – so a vintage car cannot be stored in a purpose built shed – and a record must be kept of the reasons for deciding where to store the items.
They must be insured in the name of the fund. If they constitute only a part of a policy held by another party, they must be specified, and the fund must be noted as the owner and beneficiary. If the fund is unable to insure them appropriately, they must be disposed of.
Collectables and personal use assets can be sold to a related party provided the sale is at market price as determined by a qualified, independent valuer which is a more onerous requirement then for other asset classes.
I suspect that trustees will be less inclined to want to participate in this class of investment when made aware of the rules. If they still wish to proceed our investment strategy tool includes the additional documentation required to formalise the fund’s investment in accordance with the Act. This is part of our suite of SMSF solutions you may like to consider from the link below.
