It’s quite common to use your SMSF to acquire a property or share portfolio but can you use it to acquire fine wine or a vintage car? The answer to that is, quite possibly, yes – but with caveats!
According to the SMSF rules, investments in so-called “collectables” and “personal use assets” is permitted provided the purpose of the investment is to genuinely boost your retirement savings and provided that you don’t enjoy any present day benefit from the assets.
What are collectables and personal use assets?
Collectables and personal use assets include any of the following:
- Artwork (such as paintings, sculptures, drawings and photographs)
- Jewellery (including diamonds)
- Cultural or historical artefacts
- Motor vehicles
- Motor cycles
- Recreational boats
- Sporting club memberships
- Social club memberships
- Coins, medallions or bank notes if their value exceeds their face value
- Rare books, manuscripts or folios
- Wine or spirits
- Postage stamps
The ATO reports that as of the end of 2018, Australian SMSFs held $366m in such collectables and personal use assets. That might sound like a lot, but it is actually just 0.05% of total SMSF assets.
What are the restrictions?
No present day benefit
The key reason why most investors are deterred from investing in collectables and personal use assets is the prohibition mentioned above on receiving any present day benefit from the asset acquired, a restriction that extends not just to the SMSF member but to their associates (such as the members spouse and other relatives). So, you can’t drink that bottle of fine wine, your spouse can’t wear the diamond necklace owned by the SMSF and you can’t drive the vintage car the fund owns, even if you’re simply driving it to the garage for a service.
The member of the fund also can’t store the collectable or personal use asset in their private residence, or the private residence of any associate. It is possible to store the asset in a non-private residence, but it can’t be displayed – so, for example, hanging a painting owned by the SMSF in the reception area of your business is not permitted.
Wherever you decide to store the asset, you need to document your decision (for example, in the minutes of a meeting of trustees) and that written record must be kept for compliance purposes.
You need to ensure that the fund takes out adequate insurance in relation to the collectable or personal use asset. This insurance needs to be taken out in the name of the fund within seven days of the purchase of the asset. You can’t simply add the collectable or personal use asset to your own home and contents policy – it must be separately insured in the name of the fund.
The fund can lease a collectable or personal use asset to an unrelated party provided the lease is on commercial terms. For example, you could lease a work of art to a gallery for public display provided the gallery is not owned by a related party.
The fund can sell a collectable or personal use asset, even to a related party, but the sale must be at market value and the fund must obtain an independent, written valuation from a qualified valuer to substantiate market value.
Penalties for getting it wrong
SMSF trustees have specific legal compliance obligations for any collectable or personal use assets that they have in their fund. If the trustees do not comply with the rules outlined above, the ATO can impose penalties, the extent of which will vary depending on the seriousness of the breach, but can include fines on the trustees and even imprisonment.