From 1 July 2011, investments in collectables and personal use assets have been subject to strict rules under regulation 13.18AA of the SISR. Investments held before 1 July 2011 have until 1 July 2016 to comply with the rules.
Under the new rules, there are a series of investment standards that need to be met by the SMSF holding the collectibles, including that the asset cannot be stored in a private residence of a related party. In addition, there must be a documented decision about asset storage.
Most significantly, the collectible must be insured in the fund’s name within seven days of the SMSF acquiring it.
Further, as of 1 July, all collectible assets will need to be valued at market value, with the valuation done by an independent valuer, SuperAuditors director Shelley Banton told SMSF Adviser.
However, obtaining market valuations for some assets can be challenging if there is no available and credible information on how they are valued, Ms Banton said.
She added: “For example, when you’ve got a painting, if you’ve got a reduced market for artworks, which has been the case over the last few years, how are they going to provide information about what the market value of that particular painting is?”
Further, extensive details might be required to prove the value of the asset, which may include extensive documentation and “proof of life” photographs.
Obtaining insurance may also be a significant hurdle, both in terms of proving the valuation to the insurer, and in terms of finding a suitably priced policy.
“For example, the asset may be worth $2,000, but if the insurance premium is $3,000 to get the asset insured in the fund’s name, it may not be worth the trouble,” Ms Banton said.
“At the end of the day you can put value on anything, but it’s only going to be worth what someone is going to actually buy it for.
“It depends what sort of market it is as well. For example, some assets can have a very tight market, like with certain cars – that is important to a very small number of people in Australia and they’re a very tight knit community. The only value for those cars is to that actual community.”
As the ATO has clearly expressed in recent months, trustees should not expect any leniency when the transitional period ends.
In late February, the ATO’s Kasey Macfarlane noted SMSF trustees have been given ample opportunity to reassess or restructure their collectibles holdings.
The ATO’s advanced levels of data intelligence means trustees are more likely to get caught under these new rules if they are non-complying, Ms Macfarlane added.
“It’s one of the things that the ATO is obviously wanting to get a bit more heavy about. It’s been five years in the making, and that’s why the ATO has said they’re not going to be lenient because everyone is going to be aware of it.”
Richard Smith, managing partner at ASF Audits, told SMSF Adviser that it appears trustees have, in the main, come to terms with the “writing on the wall” and are complying with their obligations.
A significant portion of collectibles holdings have been removed from the SMSF market, he noted, given the potential cost and complexity of keeping them in the fund.