Q. My wife has built a really impressive coin collection in the recent year and the idea has always been to build further and put the collection into our Self-Managed Super fund (SMSF). I believe the rules have become very severe in this area and it may not be worth it, what do you think?
A. The rules that apply to “Collectibles and Personal Use Assets” owned by a SMSF, applied to assets purchased on or after 1 July 2011. However, it is worth noting that from 1 July 2016, these rules applied to existing “Collectibles and Personal Use Assets” acquired by a SMSF prior to 30 June 2011. It essential that Trustees who already owns collectibles or propose to acquire collectibles ensure they understand the changes and their ongoing obligations to comply.
It is important to recognize that the rules do not preclude a SMSF Trustee from investing in collectibles. The types of assets that are covered are outlined in the Superannuation law. The definition of Collectibles and Personal Use Assets include the following; artwork, jewellery, antiques, artefacts, coins, postage stamps, manuscripts or books, memorabilia, wine or spirits, automobiles, and boats.
Transferring ownership of the coin collection to the SMSF cannot occur as the SMSF cannot acquire the collectible or personal use asset from a member of the fund or a related party by way of a purchase or in- specie contribution. This is regardless of the complex rules that relate to in-house assets and the required limits prescribed in the superannuation law.
Should you decide to purchase collectibles within the fund from other parties (such as a collectibles dealer who is not a member of the fund or a related party), there are a range of important restrictions that apply to owning collectibles within a SMSF that the Trustee would need to ensure they are familiar with before making this decision.
These are; the assets cannot be leased to a member of the fund or a related party. The asset cannot be stored in a private residence of a member of the fund or a related party. The asset must be insured within 7 days of acquisition in the SMSF’s name. The asset cannot be used by a member of the fund or a related party. If the asset is disposed of to a member of the fund or a related party, it must occur at market price assessed by a qualified independent valuer.
The law applies a set of rules of how you must document ownership, prove the purchase, seek independent valuation and proof/recognition of ownership. Should you lease the collectibles to a third party, copies of the lease arrangement (when generating income) and evidence of investment returns to the fund are obliged to be maintained. Likewise evidence of expenses incurred for the costs of maintaining the assets.
As a Trustee, you need to affirm that all super laws are satisfied, the investment in collectibles complies with the Fund’s Investment Strategy and an independent valuation is obtained (at least every 3 years or when the asset is sold or transferred).
This is a complex area of advice, the rules may have become more severe but not as severe as the penalties for making a mistake. Along with the administration requirements, anyone who is looking to invest into Collectibles and Personal Use Assets within a SMSF should seek advice. Given the recent broader application of the rules to assets acquired prior to 30 June 2011, SMSF Auditors and the Australian Tax Office will continue to scrutinise this area very carefully.