SMSF trustees aiming to add a collectable or personal-use asset to their fund’s portfolio need to show how it fits into its investment strategy and should not solely rely on their own expertise or interest in documenting that information, an SMSF specialist has warned.
BDO superannuation national leader Paul Rafton said like any asset held by an SMSF, the fund’s trustees were required to demonstrate how a collectable fitted into the investment strategy and seeking expert opinion would assist in making that case.
“It is not mandatory to consult with an expert when seeking to purchase and hold a collectable or personal-use asset, but I am unsure if there is another way a trustee can then articulate the value of the asset and its place in the strategy,” Rafton told selfmanagedsuper.
“The ATO has stated it will be looking at the storage, insurance and determination of market value of collectable and personal-use assets.
“While its role is not to judge the asset, it will be seeking evidence a trustee has considered the place of the asset in the strategy and the likelihood it will increase in value and that this is based on more than just a gut feeling.”
He suggested trustees seek third-party independent expert advice even where they may have some insight or experience with the asset under consideration.
Trustees were unlikely to attract attention under non-arm’s-length dealings provisions if they provided their own expert opinion on an asset, but should look at it from the point of view of the fund members, he said.
“Using a third party makes sense from a good governance point of view and is in the best interests of the fund members and their money,” he said, noting a third-party expert opinion was also essential for moving an asset back into the hands of a trustee or member.
“Collectable and personal-use assets can be sold to a related party of the fund, provided the disposal is at market price as determined by a qualified independent valuer.
“A valuer is independent if they are independent of the fund’s interests, that is, the valuer must not be a member nor a related party of the fund.”
The ATO recently reminded SMSF trustees that where they did hold a collectable or personal-use asset in their fund, they were required to also hold insurance over the asset, with the cover paid for by the fund.