The Australian Taxation Office has recently confirmed its view with regard to self managed superannuation funds (SMSFs) that invest in collectables and the stringent rules that must be complied with from 1 July 2016.
Types of collectables
- coins or medallions
- postage stamps or first day covers
- rare folios, manuscripts or books
- recreational boats
- memberships of sporting or social clubs
- assets of a particular kind, if assets of that kind are ordinarily used or kept mainly for personal use or enjoyment (not including land).
These assets tend to be of a limited supply and as such, there is an assumption that over time they will increase in value, although they do go through their own value cycles. There is nothing in the SIS Act (1993)¹ that prevents trustees from investing in these types of assets, however there are some regulations around how you invest and what you need to do to comply.
Regulations that apply for collectables
Specifically, SMSF trustees who invest in collectables or personal use assets must:
- not permit use of the asset by a member or related party
- not lease this asset to members or a related party
- not store the asset in the private residence of a member or related party including any other buildings such as garages or sheds on that land
- document the reasons for deciding on the storage location of the asset
- insure the asset (in the name of the SMSF), unless the asset is a membership to a sporting or social club
- obtain a valuation, from a qualified independent valuer, should the fund sell the asset to a member or related party at market value.
These rules already apply to all SMSFs where collectables or personal use assets were acquired on or after 1 July 2011. Collectables that were owned by the SMSF (as at 1 July 2011) have until 1 July 2016 to comply with the rules.
Above all, from an investment perspective you need to have a good understanding of:
- the market for these types of investments
- a sound rational reason as to why you are investing in them
- why they will appreciate in value over time.
If not, they can turn into very high risk ventures that can decimate the value of your fund.
If you are an industry expert in any of these investment areas, it makes sense that you would invest in an area you know well. If you’re not and want to invest in collectables, we recommend that you engage an expert who can guide you. You should also ensure that your trust deed has provision to invest in collectables and it is included in your fund’s written investment strategy.
The ato.gov.au website has more information or contact our office.
¹ Superannuation Industry (Supervision) Act 1993