Are you thinking about investing in collectibles for your SMSF? Or do you already have collectibles and want to ensure your investment is compliant? Wherever you are in the process of using collectibles in your SMSF investment strategy, this articles provides you with some simple guidelines and must-know facts.
What are collectibles?
One of the investments your SMSF can make is in collectibles (collectables) and personal-use assets – as long as the Trust Deed and Investment Strategy allows for these type of investments.
There are several things that are considered SMSF collectibles and the ATO have provided a list of items that would fall under the description of a collectible. According to their advice, a collectible is something such as:
artwork – such as a painting, sculpture, drawing, engraving or photograph
- coins, medallions or bank notes – according to the ATO, coins and banknotes are collectables if their value exceeds their face value, bullion coins are collectables if their value exceeds their face value and they are traded at a price above the spot price of their metal content
- postage stamps or first day covers
- rare folios, manuscripts or books
- wine or spirits
- motor vehicles
- recreational boats
What are the restrictions around collectibles?
There is no limit on the amount of investment your SMSF can make in collectibles, and investing in these items can be lucrative for your SMSF. However, there is a level of risk involved and in July of 2016 strict rulings from the ATO came into place on how these collectibles are to be treated.
The basic, underlying rule for SMSF collectibles is that they should be used for benefit upon retirement, not for the purpose of present-day gain. Rules which came into place in July 2016 help ensure that this concept is adhered to. The ATO has laid out guidelines that will ensure any collectibles your SMSF has are compliant, and these guidelines are as follows:
- Collectibles must not be stored at a SMSF trustee or related party’s residence.
- SMSF trustees and related parties are not permitted to use any collectibles; nor can SMSF trustees and related parties must not lease the collectibles.
- Any SMSF collectibles are to be insured by the SMSF in a separate policy – e.g. not under a trustee’s home and contents insurance. The collectible must be insured within seven days of being purchased by the SMSF.
- The decision about where the collectible is to be stored must be documented – such as being recorded in any meeting minutes when a decision is made.
- As with any SMSF investments, a collectible must comply with relevant restrictions, including the sole purpose test which decrees that any investment made is for the sole purpose of benefit upon retirement or death of the member, not for present benefit – more information on that can be found here: ATO Sole Purpose Test
- If sold to a related party or another SMSF trustee the collectible must be valued by a qualified independent valuer to determine the market value.
How can I ensure my SMSF meets these rules?
There are severals ways to manage your collectibles that will help you meet the guidelines and remain compliant.
- Look into SMSF storage – there are specific storage solutions for SMSF collectible. These are storage companies that have a facility for SMSF storage or that specialise in that area. Some SMSF may choose to have artwork collectibles on display in a gallery, although there is a level of risk in this, because it relies on the gallery ownership. For best practice, before you invest be sure you can store these collectibles whilst remaining compliant.
- SMSF collectible insurance – it is a good idea to research what insurance would cost and who can provide it to you. You must use a niche insurance that provides your SMSF with insurance and not a trustee. There are some niche insurance options available on the market.
- Follow the ATO valuation guidelines – most of the guidelines have been laid out in this article, but your SMSF must be sure that the collectible will adhere to the laws.
- Ensure your investments meet the sole purpose test at all times – this is a sure fire way to meet the collectibles ruling. If your collectible provides benefit to you in the present day (whether it is artwork displayed in your home, or a collection of wine stored in your cellar) then it doesn’t meet the sole purpose test, and is not compliant.
As with all your SMSF assets and investments, ensure you meet the guidelines laid out by the ATO with regards your SMSF collectibles and their valuation. And if in doubt seek advice from an SMSF professional.
For further information, check out the ATO guidelines here : ATO Collectables and Personal Use Assets
Disclaimer: This information should not be considered personal financial advice as it is intended to provide general advice only. This factsheet has been prepared by Superhelp Australia Pty Ltd without taking into account your personal objectives, financial situations or needs.
The information contained in the fact sheet may not be appropriate to your individual needs, therefore, you should seek personal financial advice before making any financial or investment decisions.
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