A common trend in the last decade has been for members of self-managed superannuation funds (SMSFs) to invest in collectables and personal use assets. However, the Australian Tax Office has recently questioned the appropriateness of such investments which are commonly used by trustees to enrich their lifestyles and exploit tax concessions.

Rather than banning investment in collectables altogether, the government has tightened the regulations in the Superannuation Industry (Supervision) Act 1992. These new regulations apply to all investments purchased after 1 July 2012.

If you are a member of an SMSF that purchased investments prior to 1 July 2012, you have until 1 July 2016 to get your assets in order. This bulletin outlines the new regulations and how you can restructure your investments to avoid incurring hefty penalties.

What are considered Collectables?

The extensive list of collectables outlined in the new rules include; art, jewellery, motor vehicles, spirits, fine wines, coins, medallions, antiques, artefacts, recreational boats, manuscripts, books and many other forms of memorabilia. This list is by no means inclusive.

What are the rules?

It is important for SMSF members to note that the new regulations have not replaced any of the requirements of existing superannuation laws. In addition; these tighter regulations ensure that;

• Collectables cannot be leased to any related party of the funds, stored or displayed in a related party’s private residence or used by any related party of the funds.
• Trustees must make a written record of their reasons for deciding where to store their collectables and keep this for 10 years.
• Trustees must insure their collectables or personal use assets in the name of the SMSF within 7 days of acquisition. This is regardless of whether the assets are otherwise insured.
• If the ownership of any collectable is transferred to a related party of the fund, the purchaser is to pay market value which is to be determined by an independent valuer.

Who is a related party?

A related party of a SMSF includes the members of the fund and any partnerships, trusts and companies that the members of the SMSF may control. Partners and relatives of fund members are also included as related parties. This includes grandparents, siblings, uncles, aunts and adopted children to name a few.

There are a few strategies that have been followed by SMSFs over the years to maximise tax concessions. Platinum Members read on to find out whether these tricks of the trade will withstand the new regulations….

What happens if my SMSF doesn’t comply?

Each member of an SMSF is liable to incur a fine of 10 penalty units if the regulations are not complied with. Currently, one penalty unit equates to $110. The Australian Tax office is cracking down and administering penalties regardless of whether breaches are intentional or accidental.

SMSF members be warned! Penalties are incurred per breach, per individual item. Hefty fines can quickly accumulate. Most importantly, you are at risk of losing your tax concessions if your SMSF does not comply with the new rules.

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