SMSF trustees will need to forego investments such as vintage cars, fine art and wine collections as new rules around collectables and personal use assets come into effect from 1 July.
Tighter rules introduced on 1 July 2011 made amendments to the guidelines for insurance, storage and valuation of collectables and personal use assets held in an SMSF. These rules are to ensure trustees make investment decisions for genuine retirement purposes and prevent trustees from receiving a personal benefit from the investment pre-retirement.
The new legislation applies to a wide range of collectables and personal use assets such as artwork, jewellery, antiques, artefacts, coins, postage stamps, memorabilia, wine or spirits, recreational boats, rare folios, manuscripts or books and memberships of sporting or social clubs.
Trustees must ensure that from 1 July 2016 collectables are not stored in a private residence (such as a member of the SMSF) or leased or used by any related party (including formal and informal arrangements). A collectable may be stored in a related party’s business premises, however, it cannot be displayed as the asset may be deemed to be used pre-retirement.
Trustees are also required to document the reasons for a particular storage location and keep that documentation for 10 years. In addition, the assets are to be insured in the
name of the fund.
Trustees wishing to transfer collectables to a related party must conduct the transaction at arm’s length and the market value must be determined by a qualified independent valuer.
Strict penalties apply to trustees who do not comply with the new legislation.
Breaches can attract a penalty of $1800 per trustee, which can be applied multiple times to each breach. Furthermore, there are existing general administrative penalties that can attract fines of up to $10,800 per trustee for each offence. Trustees must be aware that assets held before 1 July 2011 must comply before 1 July 2016.
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