Rules for SMSF investment in collectables and personal use assets

By Louise Chan

February 20 2020
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Self-managed super funds are given the freedom to manage their own investment portfolio so long as the assets are secured for the sole purpose of securing retirement benefits of its members.

SMSF investment in collectables and personal use assets

SMSFs are allowed to add collectables and personal-use assets in their portfolio, but the trust must strictly comply with existing and new rules of ownership.

What is a collectable investment?

Collectables and personal-use assets objects are items or assets of value to a collector with a current market value that is higher than its original value.

Popular examples of these assets are things like:

Motor vehicles
- Vintage cars
- Boats
Artworks
- Paintings
- Sculptures
Jewellery
- Antique jewellery
- Diamonds
Wine
- Vintage wines and spirits
Coins
- Local or foreign currency vintage coins
- Bank notes
Rare items
- Books
- Stamps
- Memorabilia

What are the rules for investing in collectables?

Items like the examples above may be added to an investment portfolio provided that the investment must be made for genuine retirement purposes.

The strategy should be allowed in the trust deed prior to purchasing the collectable assets and, if the strategy is updated to accommodate it, all trustees should be in agreement with the changes.

Furthermore, the assets must not be used or displayed – only stored – and they must not provide any present-day benefit to the trustees or any of their related parties.

ATO also enforced tighter regulation on these assets beginning 1 July 2016.

SMSF collectables new rules dictate further limitations with regard to insurance, storage, usage and disposal. These are:

Insurance: Collectables in SMSFs must be insured in the name of the fund within seven days of purchase. If you can’t acquire an SMSF collectables insurance, you must rectify the situation with the ATO and your fund’s auditor or the trust may risk being tagged as a non-complying fund.
Storage: The trust must decide where to store the collectable asset, and there should be documentation, such as a minutes of the meeting, to prove that everyone was in agreement about the storage location. The documentation must be kept for 10 years.

In addition, SMSFs are allowed to store the collectable assets in a related party’s property but only if it is not their private residence.
Usage: If the asset will be stored in a related party’s non-private residence (e.g. place of business), they remain disallowed from displaying the asset or showing it to other parties. Otherwise, it will be considered as being used for their present-day benefit.

In the case of motor vehicles, trustees and related parties remain disallowed from using the asset even if it is for the sake of taking it out to be restored or maintained. Only non-related parties (e.g. employees at a restoration company) are allowed to use the asset and take it to the appropriate facility.

The trust may only lease the asset to a non-related party on a commercial arm’s length basis.
Disposal: The SMSF may dispose of the collectable asset at any time and to a related or non-related party. However, collectables must be sold at the market price that is determined by an ATO-approved independent valuer.

What collectables are good investments?

Collectables may provide your portfolio with diversity and added stability, but there’s no single item that is recommended by experts because different items have different values.

Furthermore, while many collectables may be expected to appreciate over time, such as memorabilia and rare books, some are at the mercy of people’s sentiment, such as trending toys and the like.

Experts suggest that, if you really want to invest in collectables, it’s best to choose an asset that you have a genuine interest in to hold for the long term but don’t mind not being able to use.

Is gold a collectable for SMSF?

Gold may be considered as a collectable, but it depends on the form it takes.

If in the form of coins, then its value is influenced by the weight of the gold or other precious metals it contains, as well as the decorative art and volume of minted coins. Naturally, the fewer coins that are minted, the higher its price can appreciate.

If in the form of bullion or bullion coins, you’ll need documentation to prove its existence to the auditor who will then value them.

Bullion coins are only considered as collectable if their value exceeds their face value and their trade value is higher than the current market price of their metal content.

When it comes to gold as collectables, SMSFs need to be careful not to breach regulations.

Explore nestegg to know more about SMSF and investing.

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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Retirement