Get ready for changes to personal use assets
Generally, you have a great deal of freedom when it comes to choosing your Self-Managed Super Fund investments.
You can invest in term deposits, managed investments, shares, gold bars, wine - anything that you deem suitable as long as it aligns with SMSF regulations; is documented within your Trust Deed and Investment Strategy; and meets the ‘sole purpose test’. The latter means that investments must be purchased for the sole purpose of providing retirement benefits to members.
If your Self-Managed Super Fund holds collectibles or other “personal use assets” then you should be aware of a law passed four years ago that will soon require you to change the way these assets are held.
What are collectibles and personal use assets?
Collectibles and personal use assets include items such as:
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Motor vehicles or recreational boats
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Artwork
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Antiques
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Coins and postage stamps
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Memorabilia
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Wine or spirits
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Jewellery
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Memberships to sporting or social clubs
For a complete list, visit the Australian Tax Office website, www.ato.gov.au.
From 1 July 2011, the laws surrounding collectibles and other personal use assets held within SMSFs have been tightened. The laws now state that these kinds of assets:
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cannot be leased to a related party;
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cannot be stored in a related party’s private residence; and
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must be insured in the name of the SMSF.
Furthermore, the decisions regarding the storage of the asset must be clearly documented.
These regulations seek to prevent members from receiving present-day benefits from personal use assets to ensure investments are held at ‘arms-length’ and meet the sole purpose test.
But the government gave a five-year transition period to assist fund members to prepare to meet this regulation – the end of which is fast approaching.
Personal use assets held prior to 1 July 2011
If your SMSF purchased personal use assets or collectibles prior to 1 July 2011, you have until 1 July 2016 to ensure your fund complies with the new laws. If it cannot comply, the trustee of the fund will be required to take the necessary steps to transfer these assets out of the fund. Should the fund wish to transfer these assets to a related party after 1 July 2016, you must obtain a valuation from a qualified independent valuer prior to doing so to ensure the transfer is carried out at market rates.
What if my fund doesn’t comply?
Should it not comply with the new SMSF laws, a fine of 10 penalty units may apply. One penalty unit is $180, which would equate to a fine of $1,800.
To ensure your SMSF continues to comply and you avoid any penalties it’s time to start preparing for this change now.
If you need guidance or advice on how to manage your SMSF’s collectibles or personal use assets before July 2016, contact us.
Sources: Australian Tax Office website www.ato.gov.au Super ‘Collectibles and personal use assets’