Changing times for super collectables
The fact that self-managed super funds (SMSFs) can invest in so-called collectables - such as exotic cars, fine paintings and handcrafted pottery - inevitably leads to investment "colour" stories in the media from time to time.
Certainly, some SMSF trustees may contemplate diversifying their portfolios by acquiring a Hans Heysen landscape of the Flinders Ranges or maybe a mid-sixties Aston Martin DB5 favoured by James Bond - if only their funds ever have the money.
Yet in practice, only a small percentage of the total assets in self-managed super has ever been invested in collectables. And that percentage has been clearly decreasing over the past four to five years or so, as confirmed by the tax office's Self-managed super fund statistical report - September 2015.
In September 2011, 0.19 per cent or $719 million of total SMSF assets were invested in collectables. And by September 2015 that percentage had fallen to 0.07 per cent or $407 million of the $576 billion then in self-managed super.
The decrease in the SMSF dollars being invested in collectables is largely attributable to amendments to the Superannuation Industry (Supervision) Act introducing strict and specific rules applying to funds investing in these assets. And some self-managed super advisers are now reminding their clients that these rules come into full force from July this year.
As editor Stuart Jones writes in the Thomson Reuters Australian Superannuation Handbook 2015-16, no specific restrictions previously applied to SMSF investments in collectables. The key word here is "specific". The general rules and investment restrictions on SMSFs (significantly, a fund must be maintained to provide retirement, not pre-retirement benefits) have always applied to collectables along with other fund assets.
Under the amendments to superannuation law, artwork and other collectables acquired by an SMSF from July 1, 2011 must not be leased or used by a related party or stored/displayed in a private residence of a related party. (Related parties to an SMSF include their members and members' relatives.)
Further under the specific rules, collectables must be insured in the name of the SMSF and can only be acquired from the SMSF by a related party at market value (based on an independent valuation).
And critically from July 1 this year, these rules will also apply to collectables held by an SMSF before July 2011. In other words, the transitional arrangement for the introduction of the new rules is drawing to a close.
So if you and your fellow SMSF trustees want to keep that long-held Australian colonial painting, valuable piece of Victorian silver or any other type of collectable, have a close read of the rules applying to "exotic" assets. (For an overview of the rules, see the tax office publication Collectables and personal use assets.)
By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
26 February 2016