An SMSF can invest in artworks, collectables and personal use assets if the Trust Deed and Investment Strategy allows for these type of investments. These investments must satisfy the Sole Purpose Test, which is to provide a retirement benefit to the Members.

There is no maximum value limitation on collectables and personal use assets. However, if the artwork is leased to or used by any related parties, it will breach the Sole Purpose Test and the In-House Asset rule will be triggered as well.

Stricter Rules for collectables and personal use assets taking effect from 1 July 2016

Since 2011, there are more stringent rules on collectables and personal use assets. For collectables and personal use assets that you held before 1 July 2011, there are significant changes taking effect from 1 July 2016. Trustees has until 30th June 2016 to comply with these rules.

These tightened rules state that:

The collectables and personal use assets must be insured in the name of the Fund within seven days of acquisition

The insurance policy must be in the name of your SMSF. If something happens, the SMSF must receive the insurance proceeds. The collectables and personal use assets must also be insured within seven days of the date of purchase.

Any decision concerning the storage (e.g where the item is stored) of the item must be recorded in the SMSF minute and keep the record for 10 years

The ATO requires a written record regarding the storage of the collectables and personal use assets after the decision is made. The written record can be a minute, either in hard or soft copy . The auditor may ask for a copy of this record during their compliance audit on your Fund.

The collectables and personal use assets must not be stored in a Trustee’s or any related party’s private residence

To comply with the Sole Purpose Test, you cannot display or store collectables and personal use assets in your house before you reach retirement age. The collectables and personal use assets should be stored away from a private residence. It also cannot be stored in the land on which the private residence is located and all other constructions on that land, such as garage or sheds.

The collectables and personal use assets must not be leased to or used by a related party

Trustees need to ensure that Members are not granted the right to use or access the collectables and personal use assets in contravention of the Sole Purpose Test. One of the most common breaches of the Sole Purpose Test is investments that offer Members a pre-retirement benefit such as enjoying an artwork. You can only lease collectables and personal use assets to an unrelated party and the lease must be on arm’s length terms.

If collectables and personal use assets are sold to a related party, it must be independently valued

The ATO requires the market value of the artwork must be determined by a qualified independent valuer. The valuer can seek guidance on acceptable valuation methods from the SMSF valuation guidelines.

Types of collectables and personal use of assets

  • Collectables and personal use assets are:

    • artworks – including paintings, sculptures, drawings, engravings and photographs
    • jewellery
    • antiques
    • artefacts
    • coins, medallions or bank notes
      • coins and banknotes are collectables if their value exceeds their face value
      • bullion coins are collectables if their value exceeds their face value and they are traded at a price above the spot price of their metal content
    • postage stamps or first-day covers
    • rare folios, manuscripts or books
    • memorabilia
    • wine or spirits
    • motor vehicles and motorcycles
    • recreational boats
    • memberships of sporting or social clubs.
  • Artwork is generally defined by the ATO as a painting, sculpture, drawing, engraving or photograph, a reproduction of such a thing, or property of a similar description or use.

  • SMSF’s can invest in classic cars if it is allowed by the Deed and Investment Strategy of the Fund. However, there are restrictions that you must be mindful of. These restrictions are described by Regulation 13.18AA of the Act.

    In order to invest in classic cars under an SMSF’s name, the investment has to pass the Sole Purpose Test. This means the investment objectives should be to provide for the retirement benefits of Members.

    To satisfy the sole purpose test, please make sure the classic car is not:

    • purchased from a related party
    • leased to, or part of a lease arrangement with, a related party
    • used by a related party
    • stored or displayed in a private residence of a related party.

    For example, a related party is not allowed to drive the classic car in any circumstance, even for maintenance purposes.

    Be mindful that collectables may not be easily converted to cash like listed shares. As an SMSF may have to pay operating expenses, income tax and potentially a minimum pension, ensure enough liquidity in the Fund to allow for these payments.

    Lastly, remember the SMSF must take out insurance on the asset within 7 days of acquiring it.

Conclusion

The ATO website carries a question and answer section devoted to collectables, please see here.

There are strict rules from the ATO in investing in artworks, collectables and personal use assets. The Trustees need to be aware of the new ATO’s rules to fully execute their duties and responsibilities.

FAQs about insurance for Collectables and Personal Use Assets:

Q:Can collectables and personal use assets be insured collectively under one insurance policy?

Collectables and personal use assets can be insured collectively under one policy or in separate policies. However, the insurance policy must be in the name of the SMSF. This is to confirm the Fund’s legal ownership and to ensure that all insurance proceeds are payable directly to the Fund.

Q:If the Trustee is unable to obtain insurance in the name of the SMSF, what can be done?

Trustees may contact the ATO directly through voluntary disclosure to seek further guidance on how to rectify the situation.

Q:Can artwork be displayed in a business premises?

If your SMSF invests in artwork, it can’t be displayed in the business premises of a related party where it is visible to clients and employees.

For more information on insurance in an SMSF, please see here.

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