Framing the complex rules, regulations for artworks, collectibles in an SMSF

“It’s not possible for an SMSF to acquire artworks or collectables from a member, trustee or their relatives – even if it’s at market price,” he said.

“But they can be purchased from a non-related third party, providing it’s done on a commercial basis.”

Mr Colley said there are strict rules that then apply once the SMSF has purchased artwork or collectibles, to everything from their acquisition, storage, insurance and use.

“These rules make sure members and their associates do not obtain a current-day benefit from artwork or collectibles and that it is there with the aim of providing superannuation benefits for members or for their dependants on the member’s death,” he said.

There are specific definitions for what constitutes an artwork or collectible.

Under the current legislation, an artwork includes a painting, sculpture, drawing, engraving, photograph or similar items including a reproduction.

Collectibles include jewellery, antiques and artefacts.

In regard to coins, medallions, or bank notes, these include coins and banknotes are collectibles if their market value exceeds their face value.

Bullion coins are collectibles if their market value exceeds their face value or nominal value and they are traded at a price above the spot price of their metal content.

Other items under the category of collectibles include postage stamps or first-day covers, rare folios, manuscripts or books, memorabilia, wine or spirits, motor vehicles, recreational boats and memberships in sporting or social clubs.

Mr Colley said gold or silver bullion comes in many forms, and whether it is considered to be an artwork or collectible depends on many factors.

“Some small quantities of bullion are mounted and can be worn as jewellery, while bullion is minted as a coin with a nominal value, and others are cast as ingots,” he said.

“If the bullion is mounted and can be ordinarily recognised as jewellery, then it is more likely to fall under the definition of an ‘artwork or collectible’. The same would occur with bullion minted as coins as it is reasonable to expect that their market value would exceed its face value.”

He added there is no requirement that the coin is intended to be circulated as currency to be treated as artwork or collectible.

“Gold and silver that are cast as ingots are unlikely to be artwork or collectible,” he said.

“The ingot will usually be stamped with a mark relating to the purity of the metal and another identifying the mint where it was cast.”

If a collectible is included in the assets of an SMSF, the way in which it is stored is paramount.

“Any SMSF that holds an artwork, a collection or a personal-use asset must comply with the rules that restrict where they are stored and how they are able to be used and accessed,” he said.

“An artwork or collectible cannot be displayed in a private residence of a member, trustee or any of their relatives (related party).”

For example, an artwork held within an SMSF cannot be stored or hung in the private residence of a related party. However, it can be stored, but not displayed, in the garage located on the property.

“Restrictions on the use of the SMSF’s assets also extend to a vintage car, which may be owned by the SMSF,” he said.

“This includes related parties driving the car, even to take it for servicing or to have restoration work undertaken. However, a non-related party is able to drive the vehicle to have it repaired or serviced if required.”

Trustees are required to retain written information concerning the storage of the artwork or collectible, which must be retained for at least 10 years after the trustees make the decision.

Like any asset of high-value, insurance must be purchased, however memberships in sporting and social clubs are an exception. The insurance must be in the name of the SMSF trustee within seven days of acquisition.

Assets may be insured under separate policies or collectively under one policy, but it must be in the name of the fund. It is not possible to insure the assets as part of a trustee’s home and contents insurance.

Mr Colley said it is therefore important for the trustee to determine if the cost of insurance outweighs the cost of the asset, or whether the asset can actually be insured.

When it comes to the sale of an artwork of collectible, Mr Colley said it must first be valued by an independent valuer and sold at its market price.

“It may seem that a collection, famous artwork or a personal-use asset can constitute a useful investment of an SMSF,” he said.

“However, trustees’ enthusiasm may be dampened by the restrictions placed on the acquisition, use and storage of the investment. Nevertheless, there are many funds that see the investment value of the asset and how it can diversify the fund’s investment portfolio.”