Accountants sometimes laugh about the assets they see in client Superannuation Funds. On the other side, maybe some clients like to brag about what they have put in their Funds. If the Fund is a complying SMSF, great care must be taken with any unusual asset.
SMSF accountants and auditors will ask about assets, to check they are properly protected and not used for personal purposes. Accountants and auditors will spot unusual assets and often suggest they be transferred out.
Client SMSF are used to take advantage of Australian Government taxation benefits, so tax free money can be used to build assets separate from a business. Client investments are made in a protected environment. As a consequence, the SIS Act requires adequate accounting records , internal controls and the safeguarding of assets.
Collectible assets can include Art, Jewellery, Antiques, Coins, Stamps, Rare Books, Motor Vehicles, etc. An investor who knows a great deal about a category of collectibles may argue they don’t understand nor trust equities or other investments, so they want to invest in what they know, hence investments in collectibles. Apart from that, it is difficult to understand why such assets would normally belong in a SMSF.
It is critical the collectibles be set aside and not used by the members of the fund or other related parties. Nor must they be leased to a related party. Storage of the collectibles, is an issue. They must be held in the name of the SMSF and may not be stored or displayed in a private residence. Trustee minutes are needed to record the storage decision and keep records for 10 years.
Also, collectables must be insured in the name of the SMSF, within 7 days of acquisition. Special rules apply for collectible assets acquired from a related party, these transfers must occur at an independently determined market value. SMSF auditors will check for appropriate valuations and insurance.
For collectible assets which had been acquired by the SMSF prior to July 1, 2011, the Trustees have until July 1, 2016 to comply with the requirements.
Given the restrictions applying to collectibles, it would seem, only in special circumstances would collectibles be suitable investments for a SMSF. A SMSF is not meant to contain “lifestyle assets”. Also, such assets in a SMSF will often result in additional accounting and audit costs.
© David Saul – Saul SMSF
David was among the first professionals to be accredited through SPAA as an SMSF Specialist Advisor™. He is also a Chartered Accountant and holds a Bachelor of Financial Administration from the University of New England, Armidale NSW.
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