Before introduction of the new SMSF collectable rules, regulations for collectables within SMSF was broadly contained in section 62 Sole Purpose Test and financial assistance in section 65 . It is worth mentioning because section 62 and 65 are still the reference point for transitional arrangements.
Collectables and personal use assets have been in the spotlight since the release of Cooper Review back in 2010. One of the recommendations in Cooper Review was that SMSFs are forbidden from investing in such assets because of the risk that these assets may provide current day benefit or enjoyment to members.
Rather than prohibiting investment in collectables altogether, the government has addressed the concern raised in Cooper Review by tightening the rules governing the way collectables are stored, maintained and valued.
New SMSF Collectable Rules
A new Section 62A was inserted after Section 62. Effective from 1 July 2011, new legislation applies to collectibles and personal use assets owned by SMSFs.
Transitional arrangements are in place for collectable and personal use assets held as at 30 June 2011 until 1 July 2016. For assets acquired after 1 July 2011 the new legislation applies.
Collectables and personal use assets include artwork, jewellery, antiques, artefacts, coins, medallions or bank notes, postage stamps of fist day covers, rare folios, manuscripts or books, memorabilia, wine or spirits, motor vehicles, recreational boats, memberships of sporting or social clubs and assets of a kind which are ordinarily used or kept mainly for personal use or enjoyment.
The regulations (Reg. 13. 18AA) require that trustee of the SMSF
- Must not be leased to any related party of the funds.
- Must not be stored or displayed in the private residence of any related party of the fund
- 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
- Must ensure that collectables and personal used assets are insured in the name of the fund within 7 days of acquisition
- The assets cannot be used by any related party of the fund
- The transfer of the asset to a related party is at market price determined by a qualified independent valuer.
The auditor of an SMSF will be looking for documents as evidence that the above rules have been complied with.
Sufficient audit evidence may include
- Evidence on where the asset is stored
- Documentation on the decision for storing it
- Insurance for the asset
- Lease agreement
- Lease or sale of the asset is at market value determined by a qualified independent valuer