SMSFs and Collectibles

Thinking of having your SMSF invest in artworks or jewellery that you can admire on your wall or on your wrist? Think again. It may seem like a good idea, but it’s strictly forbidden.

This doesn’t mean that your SMSF can’t invest in collectibles. It just means that related parties – fund members, their family and even their businesses – are not allowed to derive any kind of present-day personal benefit from them. The only benefit allowed is an arm’s length income or an increase in value (hopefully) that will eventually contribute to the provision of retirement benefits. 

The ATO has recently changed the rules about investment in collectibles for SMSFs, so there are quite a few issues you need to be aware of.

What are collectibles?

Collectibles are classed as personal use assets. They include:

• Artwork (paintings, sculptures, photographs, &c)

• Jewellery

• Antiques

• Collectible coins, banknotes and postage stamps (where actual value is greater than face value)

• Rare books

• Memorabilia

• Wines and spirits

• Vintage or veteran vehicles

Who can use them?

Since related parties can’t derive any present-day benefit from collectible items, it follows that they can’t be displayed in your home or used by you in any way. You can’t even put an artwork owned by your SMSF on the wall of your business premises, or lease it to a related party (a family member, for example).

Your only options are to store them safely or lease them to an unrelated party (such as an art gallery). In this last case, the gallery can’t be owned by a related party, and the lease terms must be at arm’s length (i.e. at the current market rate).

Where can they be stored?

Storing collectibles in your home, or a related party’s home – even in the cellar or the garden shed – is not allowed. You can however, store collectibles (but not display them) at your business premises.

SMSF trustees must decide where any collectibles are to be stored, and keep a record of their decision.

What about insurance? 

An SMSF’s physical assets should be protected by insurance, and insurance is mandatory if they are collectibles. Such items normally require to be specifically mentioned in an insurance policy, or covered by a separate policy. The policy must be in the fund’s name, not yours, so the collectibles can’t be covered in your home and contents policy.

You have a window of only seven days after acquiring the asset in which to arrange insurance. Some collectibles may be difficult or prohibitively expensive to insure, so it would be a good idea to make enquiries about insurance before completing the purchase. Seek professional advice or help in contacting the ATO if your fund has purchased collectibles which you find you can’t insure.

What are the rules about selling a collectible investment?

If a collectible item is not the subject of a profitable lease, it will clearly need to be sold at some stage in order to make a financial contribution to retirement benefits.

Fund members, their family members or their business may want to acquire the collectible asset by purchasing it from the fund. This is allowed, provided a qualified and independent valuer has fixed the selling price, so that the sale is completed at arm’s length market value.

If you are in any doubt about the rules governing investment in collectibles, contact us on (02) 4628 9555.

Important

This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.