You can use your self-managed super fund to collect almost anything of value – but there are strict rules about what you can do with these assets once they are inside the trust, say SMSF experts.
Kane Munro, director of accountancy practice Accountancy Online, says there is a virtual treasure trove of assets you can collect in your super fund, including most artwork, jewellery, antiques, artefacts, coins, postage stamps, memorabilia, some motor vehicles and wine or spirits.
“A Black Caviar print signed by Peter Moody or the Shroud of Turin could both theoretically be held in an SMSF provided you don’t break the SMSF rules,” says Munro.
“As long as you have a legitimate and documented investment rationale behind holding the specific asset and also comply with the ever narrowing rules on how you hold it, then most collectibles and valuables are capable of being held inside an SMSF,” he explains.
John Kelly, director, Self Super Insurance, says when it comes to collecting valuables in an SMSF, the law distinguishes between personal use assets and non-personal use assets.
According to Kelly, non-personal use assets include land, shares in a company, rights and options, leases, units in a unit trust, goodwill, licences, convertible notes, your home (although there are certain exemptions), contractual rights, foreign currency and any major capital improvement made to certain land or pre-CGT assets.
The main rule around investing in personal use assets is that the investments must be made for genuine retirement purposes, rather than being used on a daily basis by the fund’s members.
Glenn Roberts, divisional manager, wealth management, HLB Mann Judd explains in more detail how the rules around collecting valuables in a SMSF work. “Since 1 July 2011 collectables have not been able to be displayed or stored in the private residence of a related party.”
Says Monro: “so obviously you can’t hang or store that Black Caviar print in your house or business or leave it for safekeeping with any related party like your mum or your sister. And you certainly can’t use the Shroud of Turin as a throw rug as you’re getting the benefits of the asset now.”
He says staying inside the rules can be onerous and expensive. The auditor of your fund must obtain sufficient evidence on where the collectable is stored, keep documentation on the decision for storing it, and also maintain records on the insurance cover for the assets and any lease documents, if the assets are leased out.
Trustees also need to ensure they comply with the rules when they decide to sell any personal use assets. “If they wish to sell the item to a related party they must arrange a professional valuation. These rules apply to any items acquired after 1 July 2011. If the items were acquired before 1 July 2011 the fund has until 1 July 2016 to comply with new rules,” says Kelly.
If you have personal assets in your SMSF at the moment and you or a relative are enjoying a valuable painting on the wall of your house, or swanning around wearing diamonds that belong to the fund the message is clear: you need to re-evaluate how you store these investments or you could receive an unwelcome knock on the door from the ATO.
“There are two consequences if you break the rules; one is relatively minor, the other is more serious,” says Kelly.
If a trustee of the fund contravenes the personal use assets regulations he or she will be liable to a fine of 10 penalty units. One penalty unit is currently $170, so the fine would be $1,700.
More worryingly, the fund could lose its status as a complying super fund if the trustee seriously breaches the rules. This means it would also lose all the taxation advantages super funds enjoy such as the tax-free status of assets inside the entity. “A fund losing its complying status is a disaster,” says Kelly.
When considering action taken by SMSF trustees, the ATO looks at the seriousness of the breach, the behaviour of the trustees and the tax consequences.
It may even look at prosecution for major and ongoing transgressions. A maximum penalty of $220,000 and/or five years’ imprisonment could apply if a trustee is prosecuted for a serious breach of the rules and is found guilty.