Collectables + Personal Use
Super is all about gratification delay. Suffer now. Retire later. But collectables and personal use assets mean instant gratification.
Collectables and Personal Use Assets
When your SMSF acquires collectables and personal use assets, you have fun right now. There is no gratification delay. The legislator doesn’t like that.
Life was good before 2011. Back then you could get your SMSF to buy Aboriginal art and hang it on your living room wall. Or buy a vintage car and drive it around on weekends. Or buy a Tiffany ring and wear it next to your wedding ring.
And then you just hoped for capital growth some time in the future. That was enough to pass the sole purpose test – sort of.
But the legislator didn’t like that one bit. They struggled to see the sole purpose in your expensive paintings and vintage cars. And so they addressed the issue in two steps.
s62A SIS Act
They added a definition in s62A of the SIS Act to clarify what the term ‘collectables and personal use assets’ actually includes.
s62A lists collectables and personal use assets – ranging from artworks, artefacts and antiques over jewellery, coins and stamps to vehicles, motorbikes and recreational boats.
Paragraph 13.18AA SIS Reg
And then they added paragraph 13.18AA to the SIS Regulations to do the heavy lifting. Para 13.18AA lists clear rules about the usage, storage, insurance, lease and subsequent sale of collectables and personal use assets.
Since the term ‘collectables and personal use assets’ is quite a mouth full, they are often referred to as ‘s62A items’.
s62A items must not be leased to or used by a related party, not be stored or displayed in the private residence of a related party and not be sold to a related party below market value and without an official valuation. The asset must be insured in the name of the fund. And any decision regarding the storage of the asset must be well documented and kept for 10 years.
The purpose of all these rules is to prevent a member from receiving a benefit before a condition of release has been met.
You and related parties must not use collectables and private use assets in any way. Any use – however insignificant, incidental or arbitrary – counts as usage.
So if your SMSF owned a vintage car, you or other related parties must not drive it. Not even to get the car to a work shop for maintenance or restoration work. If you want the car moved, ask a third party not related to your SMSF.
You can store your SMSF’s s62A items in any way you like as long as it is not a related party’s private residence.
Private residences are a huge No No when it comes to collectables and personal use assets. The legislator doesn’t want these assets anywhere near a private residence where a related party’s private use or display would be impossible to track.
But other premises – for example an office, warehouse, factory, boat shed, trailer – are ok even if a related party owns or leases these premises. Any storage outside of private residences is ok as long as the storage does not amount to a display.
When you store a s62A item, you need to keep a record why you decided to store the items the way you did.
You and related parties must not display your SMSF’s s62A items in any way.
So if you store your SMSF’s art works in your office building, they must be packed away. You can’t display them in your reception, meeting room, office or wherever else you might have an empty white wall.
There is only one way s62A items can see the light of day. And that is when they are leased to an unrelated party at arm’s length – for example to an art gallery.
Your SMSF must insure any collectables or personal use assets within seven days of purchase. The policy must be in your SMSF’s name, but it doesn’t matter whether the items are insured under separate policies or collectively under one.
The need for insurance in the SMSF’s name is probably the greatest hurdle. Insuring s62A items is often prohibitively expensive, if you manage to find an insurer. Many insurance company don’t insure lifestyle assets, and when they do charge accordingly.
If your SMSF holds collectables or personal use assets, it must not lease these to a related party. A lease is only permissible if at arm’s length to an unrelated party.
So your SMSF could lease art work to an art gallery at arm’s length as long as no related party has any connection with this art gallery.
The legislator doesn’t really want your collectables and personal use assets in your SMSF in the first place. So all doors are open for you to sell them again.
You can sell your collectables and personal use assets to anybody you like. Even a related party. You just have to make sure that the sale is at market value determined by a qualified and independent valuer. Qualified means they know what they are talking about. They have formal valuation qualifications or their professional community values their specific knowledge, experience and judgement in the matter. Independent means that they are not a related party.
Superannuation Investment Rules
The rule in para 13.18AA is one of six superannuation investment rules. But there are five more.
Any acquisition of collectables and personal use assets must pass the sole purpose test, be at arm’s length, not from a related party and keep in-house assets below 5% of total assets. And the SMSF can’t borrow money to buy the collectable or personal use asset.
If you acquire collectables or personal use assets you need to pass all six investment rules.
If you get stuck, please email or call us. There might be a simple answer to your query.
Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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Last Updated on 14 March 2020
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We look after the tax and accounting of your business, wealth and SMSF. We are Chartered Accountants and Registered Tax Agents in Australia and IRS-registered CPAs in the US.