ATO clarifies collectables insurance stance

SMSF collectables insurance

SMSFs must directly hold insurance for collectables, the ATO has stated after the SMSF Association sought clarity on the matter.

The ATO has said any SMSF that owns collectables and personal-use assets must also hold an insurance policy for those items in the name of the fund only and not under any other arrangements.

SMSF Association technical manager Mary Simmons said the industry body had sought the ATO’s view after finding industry practice regarding insurance varied and some items were being covered under general household insurance with premiums proportionally paid by the member and the fund, or covered by third parties, such as an art gallery displaying the asset.

In an update on the association’s website, Simmons said the issue of insurance was covered at its recent national conference, prompting the request to the ATO “to once and for all clear up any confusion and uncertainties about insuring collectables and personal-use assets”.

“We can confirm that it is the ATO’s view that to comply with the insurance requirements for collectables and personal-use assets, the insurance policy must be held in the name of the SMSF, with the trustee as the legal owner of the policy (in their capacity as trustee),” she said.

“As the obligation falls on the trustee to insure the item, a trustee cannot delegate or rely on a third party to source and maintain risk cover for an asset of the fund.”

She noted collectables and personal-use assets could be insured under one policy or under separate policies, but these had to be in the name of the fund, irrespective of the value of the asset.

This meant it was not acceptable for the assets to be insured under a policy held in the trustee’s own personal name, such as home and contents policies, or under a policy held by a third party that may be storing, displaying or leasing the asset, or for the fund to state its interest in the asset on a policy held by a third party, she said.

“It is important that the trustee is the legal owner of the policy to ensure the fund’s assets are adequately protected against financial loss or liability, the trustee can make a claim under the policy and any insurance proceeds are payable directly to the fund.

“This remains the case even if the item is also covered under a policy taken out by another party.”

The prevalence of collectable and personal-use assets inside SMSFs has declined in recent years, according to Colonial First State head of technical services Craig Day, who said the specific requirements to hold insurance made the assets less attractive to trustee investors.

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