On 27 June 2011 amendments to the rules surrounding Self-Managed Superannuation Funds investments in collectables received royal assent and were made law. These changes made investing into collectables in your SMSF a much more difficult and strenuous exercise than before, with new standards for record keeping, storage and insurance.
There was however a carve-out for assets which were held by SMSFs at 1 July 2011, which were not required to comply with the new regulations until 1 July 2016. The time has now come for these assets. If Trustees have not made arrangements for these assets to be held in accordance with the rules, then they will find themselves in breach as at 1 July 2016.
The laws have a broad scope, with section 62A of the Superannuation Industry (Supervision) Act 1993 ('SIS Act') including in the definition of collectables such things as artworks, antiques, memorabilia, wine, cars, and memberships of sporting or social clubs, among others.
The specifics relating to how the Fund must maintain an investment in collectables include:
- Assets cannot be leased to a related party, which under the SIS Act can include a trustee, trustee’s spouse, related trust, related company, dependents, and many others.
- Collectables cannot be stored in the private residence of a related party.
- Use of the assets by related parties is not permitted.
- The reasons for deciding on the storage of the asset must be documented.
- Assets must be insured, unless the asset is a membership to a sporting or social club.
- If the asset is later transferred to a related party, a qualified, independent valuer must provide a valuation of the market value of the asset.
The legislation was designed to stop SMSF trustees using their super funds to acquire assets that they could enjoy benefits from before retirement, which could breach the 'sole-purpose test'.
While it is still permissible to invest in collectable assets through an SMSF, these rules add layers of complexity into the process and make it crucial that trustees and advisors have a deep understanding of their obligations as penalties for breaching the provisions can be severe.
If you still have collectibles of this nature, or aren't sure if you've done all that is required please contact us to discuss your situation as soon as possible as 30 June is not far away!