Can my SMSF own artwork and lease it to my business? – How to invest in collectables and other personal-use assets

Can my SMSF own artwork and lease it to my business? – How to invest in collectables and other personal-use assets

One of the biggest benefits of an SMSF is that it allows you to hold a wider range of investments that other superannuation funds can’t. The most popular example of an investment that you can have in an SMSF, but not in a retail or industry super fund, is real property.

Another lesser-known class of investments that SMSFs can invest in are known as collectables and personal use assets. These include:

  • Artwork (e.g. paintings, sculptures, drawings, engravings, photographs)
  • Jewellery
  • Antiques
  • Artefacts
  • Coins, medallions or bank notes
  • Postage stamps
  • Rare folios, manuscripts or books
  • Memorabilia
  • Wine or spirits
  • Motor vehicles
  • Recreational boats
  • Memberships of sporting or social clubs.

IMPORTANT NOTE: If you intend to outsource the administration of your fund, please double check if your administrator will allow the above investments. Many low-cost online SMSF administrators do not allow the funds they manage to invest in these assets classes. (Please note at Rivkin we allow and manage the administration SMSFs with ANY investment allowed within Australian law).

While these types of assets are not generally popular (comprising less than 1% of all SMSF assets, according to the latest ATO statistics available), there are those who feel that this may be an area of relative expertise for them as opposed to more traditional investments like shares. These investments, however, do come with more conditions:

  1. The collectable must be allowed by the fund’s deed
  2. The fund’s investment strategy allows for this investment, the reasons for the investment have been documented and the associated costs and risks have been considered
  3. The ‘Sole Purpose Test’, which ensures that all investment decisions are made with the purpose of providing for the retirement of members, has been met. Members or related parties should not be receiving a more immediate personal benefit from the collectable.

Additionally, for collectables purchased after 1 July 2011, the collectable asset:

  1. cannot be leased to a related party
  2. cannot be stored in the private residence of a related party
  3. cannot be used by a related party
  4. must be insured (unless the asset is a membership to a sporting or social club)
  5. must be independently valued if being transferred to a related party.

A "related party" is very broadly defined, however it includes (but is not limited to) the members of the fund, relatives of those members, and any entities that these parties control.

For collectables purchased before 1 July 2011, trustees have a transitional period until 1 July 2016 to comply with these rules.

Frequently-asked questions

Can my SMSF own artwork and lease it to my business?

No. If the SMSF owned this artwork and it was already leased to a related business prior to 1 July 2011, you will need to either stop leasing to the business or sell the investment before 1 July 2016.

Can my SMSF own artwork and lease it to a non-related party, such as an art gallery?

Yes. Make sure you have all your paperwork in place as well as a lease agreement. 

Can I display the artwork that my fund owns at home?

Definitely not. No exceptions.

It's much cheaper to store my wine/jewellery/artwork at home. Do I really need to arrange to have it stored externally? I promise I’m not displaying or using it.

You must have the collectable or personal use asset stored externally. Saving the fund money on storage costs comes second to meeting the Sole Purpose Test. This is to ensure that you are not receiving a benefit from the assets before retirement.

Do I really need insurance on my asset?

Yes. This is not a negotiable condition of holding a collectable or personal use asset. If you cannot obtain insurance on the asset or the cost is prohibitive, then the fund can’t own the asset.

I’ve insured the asset under my home and contents/business insurance policy. Is this OK?

No. The asset must be insured separately, and the auditors are likely to ask for a copy of the policy and invoice to ensure this condition is met. Again, if the fund held the asset prior to 1 July 2011, trustees have until 1 July 2016 to change their insurance arrangements.

What happens if I don’t meet all the conditions of holding that collectable asset?

From 1 July 2014, the ATO has the power to impose new administrative penalties. Depending on the penalty units deemed by the ATO, trustees can be fined from between $850 to $10,200 for breaches of superannuation law.

Each trustee of the fund commits an offence if any of the collectable and personal use assets regulations are contravened. The current penalty is $1,700 per trustee – this means that if your fund has individual trustees then each individual will be penalised $1,700 each. Additionally, any imposed fines cannot be paid from the fund’s assets and must be paid by the trustee/s.

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