SMSF investment rules: Collectables and personal use assets

Collectable and personal use assets are a potential SMSF asset category that have associated superannuation legislation compliance obligations.

What are collectables and personal use assets?

Collectables and personal use assets include any of the following:

• Artwork (such as paintings and sculptures)
• Jewellery
• Antiques
• Cultural or historical artefacts
• Motor vehicles
• Motor cycles
• Recreational boats
• Sporting club memberships
• Social club memberships
• Coins, medallions or bank notes if their value exceeds their face value
• Rare books, manuscripts or folios
• Memorabilia
• Wine or spirits
• Postage stamps

According to the latest figures from the Australian Taxation Office (ATO),  at the end of 2018 Australian SMSFs held a total of $366 million in collectable and personal use assets. This represents just 0.05% of total SMSF assets.

What are the rules around SMSFs investing in collectables and personal use assets?

Collectables and personal use assets must not:

• Provide any present-day benefit for SMSF members or related parties. In other words, they cannot be used by SMSF members or related parties. Instead, these types of investments must be for the benefit of members in their retirement (or to pass onto their dependants or beneficiaries when they die). This ensures that they comply with the sole purpose test on which the Australian superannuation system is based.
• Be leased to an SMSF member or a related party.
• Be stored or displayed in the private residence of an SMSF member or related party. The decision on where these items are stored must be documented and kept as a record.

In addition, collectable and personal use assets must:

• Be insured in the SMSF’s name within seven days of being acquired.
• Be valued by a qualified, independent valuer if they are transferred or sold to a related party.

Penalties for non-compliance

The ATO can impose a range of penalties on SMSF trustees who breach their compliance obligations in relation to collectables and personal use assets in their fund. The extent of the penalty will depend on the seriousness of the breach. More serious breaches can result in trustee fines or even imprisonment.

The bottom line

SMSF trustees have specific legal compliance obligations for any collectable or personal use assets that they have in their fund. The most important of these obligations is that these assets cannot provide any present-day benefits for fund members or related parties.

The information contained in this article is general in nature.