The ATO is cracking down on the types of assets that your SMSF is able to own. If your Self-Managed Superannuation Fund owns motor vehicles, artworks, wine, coins, jewellery or other collectibles these new changes will affect you!
SMSF’s that had purchased collectibles and personal use assets before 1 July 2011 were given a grace period to allow these new rules to be implemented however that grace period concludes on the 30 June 2016.
The ATO’s reasons for the implementation of new rules was that there is around $407 million worth of collectibles in Australia alone and it is very easy for members of the fund to forget that the collectibles or cars that were purchased in the SMSF were solely held for retirement purposes only, under no circumstances were they meant for the use or enjoyment of these assets.
If you have these assets in your fund (or are looking to acquire them), here’s what you need to ensure:
- The asset must not be leased to a related party – a related party includes a member of the fund, their relatives, business partners, the spouse or child of these business partners), or any company or trust that the fund members control or influence.
- The asset must not be stored in the private residence of the related party – this includes sheds and garages etc.
- The trustees must keep a written record of where, how, and why the asset is to be stored.
- The asset must be insured in the fund (trustees) name. If your SMSF is buying a collectible, insurance needs to be in place within the first seven days. If the fund already owns the asset it must be insured in the trustees name before 1 July 2016!
- The asset must not be used by a related party. For example, if your fund owns a vintage car, you cannot drive it for any reason, not even to go to the mechanic.
- If the asset is sold to a related party, the asset must be sold at a market price determined by a qualified and independent valuer.
Issues that can arise from these requirements include insurance is difficult or impossible to get for collectible assets. If you can’t secure insurance, the asset may need to be sold. If a collectible asset needs to be sold because the rules can’t be met, the sale process can sometimes be protracted – this could be an issue if you need to sell the asset pre 30 June.
Before your fund acquires a collectible asset, it’s also important to ensure that the fund Trust Deed allows for collectibles to be acquired, the Investment Strategy of the fund allows for the collectible to be acquired, and that the sole purpose of acquiring the collectible is to provide retirement benefits for members.