Collectables squeezed out by insurance

SMSFs collectable assets

The holding of collectable and personal-use assets inside an SMSF has dropped away significantly due to strict restrictions about insuring the items.

The acquisition of collectable and personal-use assets inside an SMSF has been killed off by insurance requirements, with very few funds still holding these types of investments, according to a technical expert.

Colonial First State head of technical services Craig Day said how an SMSF could hold collectable and personal-use assets, such as artwork, stamps, coins or rare motor vehicles, changed seven years ago and had led to very few funds now being able to hold these assets.

“These assets used to be more popular than they are now because we saw some rule changes in 2013 that significantly impacted people’s ability to locate and hold collectables and personal assets in their SMSF,” Day said as part of a presentation at the recent Tax Institute National Superannuation Online Conference.

“There are some quite specific rules that apply there these days, which has essentially meant that for many SMSFs it is not worth the hassle or it’s not viable to go and locate those assets.”

He noted that while the rule changes, which took effect from 2016, had an impact on the inclusion of these items in an SMSF, it was the short time frames to secure insurance over the assets that had the most significant impact.

“The restrictive rules came in during 2013 and had a three-year transition period so all the rules apply to all collectables at the moment,” he said.

“You can’t lease an asset, regardless of in-house asset rules, so even if it was worth less than 5 per cent of the market value of the fund, it must not be leased or used.

“It can’t be stored in a private residence, which became an issue for the viability of these types of assets. People used to buy art and hang it on the wall, arguing it was the best place for it for the fund. Even if you could argue that point of view, this rule states you can’t do that and you will have to pay for it to be stored in special facilities and that has to be taken into account for the financial return for the asset.

“The asset must also be insured within seven days of acquisition and, from what I understand, this is the big killer for all types of collectable and personal-use assets.

“If you want to purchase something like a Brett Whiteley painting, it is very difficult to obtain insurance for this type of asset and you would not be obtaining it in seven days, so this has killed off a lot of this type of investment in these types of asset classes.”

He added any efforts to pass on the asset to a related party would also require an independent valuation from someone who was a qualified valuer or expert and who could not be a member of the fund or in any way related to a member.

In late 2019, the ATO stated it would use its data matching capabilities to ensure SMSFs that have acquired lifestyle assets and collectables were not using them for personal enjoyment.

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