As many of our clients would be aware, there are important changes to the rules around Collectables within Self-Managed Super Funds (SMSFs) from 1 July 2016.
First of all, what are collectables?
Collectables or personal use assets, include items such as artwork, jewellery, wine, motor vehicles and recreational boats.
A common problem that the Australian Taxation Office (ATO) has had in the past is the blurred line between members investing their SMSF assets in collectables for purely long term investment purposes and those who invest for their current personal enjoyment. This is because the sole purpose of acquiring collectibles must be to provide retirement benefits for members and not for immediate personal benefit.
An example of this is someone who buys a painting within their SMSF so they can display and enjoy it within their own home today. Similarly, there have been cases of individuals using their SMSF to purchase a vintage car that they then drive around town. In these cases the ATO has good cause for suggesting the assets have been purchased for current enjoyment not as a genuine investment.
Collectable & Personal Use Asset Rules
In 2011, the Government introduced stringent rules outlining what an individual may do with collectables purchased within their SMSF. These include not being allowed to store or display the item in your own home, not being able to use the item personally or lease to a related party, and that the item must be insured.
These rules apply to all collectables purchased from 1 July 2011.
Grandfathering had been available
However, SMSFs with collectables purchased prior to this date, are still permitted to use the old rules until 1 July 2016. This basically allows those members a five year grace period to adjust to the new stricter requirements.
As 1 July 2016 is fast approaching, it’s very important that if you do have a collectable purchased prior to 1 July 2011, that you are compliant as soon as possible and follow the new guidelines. If you purchased your collectable after 1 July 2011, you should already be compliant.
Reasons for Compliance
If your fund is not compliant, each breach can result in a fine of up to 10 penalty units being applied ($1,800 per breach). For continuous serious breaches, the fund could be made non-compliant by the ATO. Therefore it is very important the new guidelines are met.
While this will be an inconvenience for some super fund members, we consider that the changes are a positive one for the SMSF sector overall.
If you are unsure how these new rules affect you, please do not hesitate to contact a member of the William Buck team.