Deadline looms for collectibles and SMSFs

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Deadline looms for collectibles and SMSFs

Wind down

Wind down

Self-managed super fund members have until 1 July 2016 to ensure any collectible or personal use assets held in the fund meet new rules that come into force on that date.

The new rules were introduced to address concerns and tighten grey areas around how super funds can hold assets such as fine art, vintage cars, jewellery, and wine.

Before these rules were introduced some SMSF fund trustees had been storing assets such as paintings in members’ homes, arguing that any benefit they received by being able to view the works was incidental only.

The government was also concerned SMSF fund members were investing in assets that don’t produce sufficient income to fund members’ retirement needs. As a result, restrictions were introduced that tighten the way SMSFs can hold collectibles.

Grandfathered provisions

While the new rules applied immediately to any new collectible and personal use assets acquired by SMSFs on or after 1 July 2011, a five year transition period applied to existing assets held by SMSFs at 30 June 2011, which is coming to an end. So the same rules will apply to all collectible and personal use assets held by SMSFs from 1 July this year, regardless of when they were acquired.

What are the rules?

These rules and restrictions apply if your fund holds a previously grandfathered collectible or personal use asset on 1 July:

·         The asset can’t be leased or used by a member or relative.

·         The asset can’t be stored in a member or relative’s home.

·         The asset must be insured in the fund’s name within seven days of purchase.

·         Make sure you keep written records about how the asset is stored and insured.

If you decide to sell a previously grandfathered collectible or personal use asset after 1 July 2016 you will also need to arrange for the asset to be valued by a qualified independent valuer before it’s sold.

Now is the time to act

To avoid any potential breach, make sure you’re across the new rules if you hold a grandfathered collectible or personal use asset in an SMSF.

Finding appropriate storage facilities and an insurer willing to cover a precious and fragile asset at a reasonable cost can be both difficult and time consuming. Unless this is finalised before 1 July the fund may be not be able to meet the new rules by this deadline. So it may be prudent to consider whether selling the asset is the best decision, although this can also take time depending on the type of asset and the size of the market. An option could be to sell the asset to a related party or to transfer it as an in-specie benefit payment prior to 1 July. In both cases it’s important to ensure the asset is transferred at market value and that you have satisfied the relevant conditions of release requirements.

The important message is not to leave it until the end of the financial year to take action. Act now, talk to a financial adviser so your fund remains inside the rules and continues to assist you to achieve your retirement goals.

 

Source: Colonial.