These rules cover the purpose of the asset, its storage, insurance, valuation, and dealings with related parties. For example, if a watch is owned by an SMSF, trustees must keep a close eye on the sole purpose test. They are relying on the item’s future capital growth, not the enjoyment of wearing it today.
Below is a practical guide for trustees and advisers who want the facts without the hype.
The law in a nutshell
- Collectables and personal use assets
Collectables and personal use assets, such as jewellery, artwork, memorabilia, wine or spirits, and motor vehicles, are allowed under Regulation 13.18AA. However, these items are subject to strict conditions that trustees must follow.
- The sole purpose test
The sole purpose test (found in s62 of the Superannuation Industry (Supervision) Act (SIS Act)) requires that an SMSF must be maintained for the sole purpose of providing retirement benefits or death benefits to its members. The asset must not be acquired to provide a present-day personal benefit or enjoyment.
- No related-party acquisition
Under s66 of the SIS Act, an SMSF generally cannot acquire collectables from a member or a related party. All acquisitions must be from arm’s-length third parties. There are limited exceptions, but these are not relevant to purchasing items like watches.
What you must not do
- No personal use. Members/related parties cannot wear or use the watch. That’s a present-day benefit and risks breaching s62 and Reg 13.18AA.
- No storage at a private residence. Trustees cannot store the item at the home of any related party (including garages/sheds on that property).
- No leasing to related parties. Trustees cannot lease the item to a member or related party.
What you must do (compliance checklist)
- Document the storage decision (write down where and why) and keep it for 10 years.
- Insure the item in the fund’s name within seven days of acquisition.
- Maintain arm’s-length terms. Make sure purchases are made in the trustee’s name, with proper invoices and insurance policy schedules. Auditors will ask for proof, so have it ready.
- Use independent market valuations on disposal. If the trustee sells/transfers to a related party, it must be at the market price set by a qualified independent valuer.
Storage: Can related-party business premises be used?
This is a possibility, but only if specific conditions are met.
The premises must not be a private residence, and the item must not be displayed or used. Appropriate security measures are essential, and the item must be separately insured in the SMSF’s name.
A compliant example we have seen involves a valuable watch held in a high-security safe at a related party’s retail premises. The watch was never worn or displayed, and all records and insurance were in the SMSF’s name. This approach ensures the asset’s security while following the rules.
Buying → owning → selling: a simple workflow
- Check your investment strategy. It should allow collectables, outline risk, diversification, liquidity and exit strategy. (ATO guidance: trustee obligations).
- Acquire from an unrelated seller on commercial terms; invoice in the trustee/fund name.
- Within seven days: arrange insurance in the fund’s name. Document place of storage (not a private residence) and reasons.
- During ownership: no wearing/using, keep audit-ready evidence, review strategy and liquidity (collectables can be illiquid).
- On disposal: if selling to a related party, obtain an independent valuation and transact at market price.
Valuation and market tracking
Unlike shares, there’s no exchange-quoted price. Auditors expect credible, up-to-date and independent valuations, not casual online “asks” or word of mouth. Trustees often monitor reputable sources to understand market context (e.g., major auction houses), but formal valuations are a separate matter and should be independent.
Risks and practical considerations
- Present-day benefit risk (wearing it once is still “use”).
- Insurance availability/cost for unique items within seven days.
- Liquidity and pricing (wide spreads; specialist markets).
- Penalties apply for breaches of Reg 13.18AA (civil penalties are measured in penalty units per contravention).
Collectables, including luxury watches, can be owned by an SMSF, but they demand disciplined compliance. If your goal is retirement outcomes, not personal enjoyment, and you can evidence every step (strategy → acquisition → storage → insurance → valuation → disposal), then you’re on the right track. As these assets rarely produce income, this means you are banking on capital growth and must prepare for periods of illiquidity and scrutiny.
