Overall the answer is yes, but to stop yourself falling foul of the Australian Tax Office (who seem every year all the more willing to apply penalties to SMSF trustees) you need to follow the letter of the law. Since 1st July 2011, the regulations covering SMSF’s and collectables has been tightened. Basically collectables owned by an SMSF need to held ‘at-arms-length,’ and not used for present day or ‘related person’ purposes – so you cannot ‘use’ your collectables.
How can a Self Managed Superannuation Fund hold collectables?
The use of a Self-Managed Superannuation Fund (SMSF) to purchase items considered ‘collectables’ or ‘lifestyle assets1’ has always attracted more scrutiny from regulators. Hanging a Picasso on the wall of your house that was bought by your SMSF is harder to prove that it is for retirement purposes and not present day purposes. So to prevent the collective risk of a system being used to buy all sorts of items that are easy to use as personal assets, regulations stipulate that SMSF’s must maintain and hold ‘collectables’ in accordance with present regulations.
As a result of a change in legislation2 any item deemed a ‘collectable’ that is owned and held by a SMSF needs to comply with the change in regulations. A collectable acquired by a SMSF after 1st July 2011 needs to immediately comply with the new regulations and a collectable that has been acquired by a SMSF prior to this date must comply or be disposed of prior to 1st July 2016. A collectable as per the regulations includes the following assets;
- artwork (painting, sculpture, drawing, engraving or photograph; a reproduction of such a thing; or property of a similar description or use)
- coins, medallions or bank notes
- postage stamps or first day covers
- rare folios, manuscripts or books
- wine or spirits
- motor vehicles
- recreational boats
- memberships of sporting or social clubs.
The regulations also cover how a collectable held by an SMSF can be used. The amended regulations prohibit any collectables owned by an SMSF to be leased to a related party, used by a related party or be stored in the residence of a related party, where a related party is a member of the fund or a ‘Part 8 Associate3’ of an individual that is part of the SMSF. This restricts quite significantly what the items can be used for.
Furthermore the regulations require written records pertaining to the storage decision to be held for 10 years, appropriate insurance on the collectable assets to be acquired within 7 days of acquisition and reconfirms that any sales to related parties be done at arm’s length, being sold at market rates deemed by an independent and qualified valuer.
So in the end yes you can buy that Picasso painting with your SMSF, but you cannot hang it on your wall, or on the walls of basically anyone you are related to under the regulations, you need to keep it insured and you need to keep records – failure to do so could mean a non-complying fund and a tax rate that exceeds 46%!
Have a questions about collectables and your SMSF? Start a conversation with fellow MoneyGeeks below!
1 Superannuation Industry (Supervision) Act 1993 Part 62A
2 Superannuation Industry (Supervision) Amendment Regulations 2011 (No. 2)
3 Superannuation Industry (Supervision) Act 1993 Part 70B, 70C, 70D, 70E
About the Author – Benjamin Irons
Benjamin has been involved in the financial services industry since 2004. Benjamin has a Bachelor in Business, Diploma of Financial Services (Financial Planning). Previously a Financial Adviser and a business owner, Benjamin has worked with hundreds of individuals and businesses to implement simple strategies to improve wealth. Benjamin writes for a number of websites to assist people take control of their finances and find their financial freedom!