Collectables and Personal Use Assets in an SMSF

This week’s technical update will cover: Collectables and personal use assets in an SMSF – Grandfathering Rules Ceasing 1 July 2016.

All newly acquired investments by SMSF trustees in collectables and personal use assets since 1 July 2011 have been subject to strict rules under reg 13.18AA of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (‘SISR’).

However, SMSF trustees who held such investments prior to 1 July 2011 were granted grandfathering relief for a 5 year period.  This grandfathering period will come to an end on 1 July 2016. Therefore, to avoid potential penalties, SMSF trustees with grandfathered investments in collectables and personal use assets will need to consider the current rules carefully and take appropriate action before 1 July 2016 to ensure their investments are compliant.

Regulation 13.18AA covers artwork, jewellery, antiques, artefacts, coins, medallions or bank notes, postage stamps or first day covers, rare folios, manuscripts or books, memorabilia, wine or spirits, motor vehicles, recreational boats, and memberships of sporting or social clubs.

Investments in such items must be made for genuine retirement purposes, not to provide any present-day benefit.
So collectables and personal use assets can’t be:

• leased to, or part of a lease arrangement with, a related party
• used by a related party
• stored or displayed in a private residence of a related party.

In addition:

• your investment must comply with all other relevant investment restrictions, including the sole purpose test
• the decision on where the item is stored must be documented (for example, in the minutes of a meeting of trustees) and the written record kept
• the item must be insured in the fund’s name within seven days of the fund acquiring it
• if the item is transferred to a related party, this must be at market price as determined by a qualified, independent valuer.

For further information on Collectible and Personal Use assets inside an SMSF please click here.

In conclusion SMSF trustees who have previously enjoyed grandfathered protection in relation to their investments in collectables and personal use assets held prior to 1 July 2011 will need to take appropriate action to ensure they meet the strict requirements of the SISR prior to 1 July 2016.