ATO, Superannuation

Evidence central to related-party asset sale

SMSF collectables

An SMSF can sell a collectable asset to a related party, but must follow specific processes and document those actions to remain inside the law.

SMSFs can sell collectables to a related party, but should ensure the valuation process for the asset meets ATO requirements and retain all documentation related to the valuation and sale, an SMSF legal firm has advised.

Townsends Business and Corporate Lawyers solicitor Elizabeth Wang said an SMSF can sell a collectable, such as an artwork, to a related party, including family, but the key was to ensure the transaction took place at arm’s length and with a clear valuation process.

“Under superannuation law, an SMSF is permitted to invest in collectables and personal-use assets, such as artworks, jewellery, vehicles, wine and boats, provided that the investment is made for genuine retirement purposes and does not provide any present-day benefit for the members of the fund, and the trust deed of the fund permits the trustee of the fund to enter into such an investment,” Wang said.

She added that while a collectable or personal-use asset could be sold to a related party, prior to its sale the asset could not be leased, in part or in full, to a related party, used by a related party or stored or displayed in a private residence of a related party.

The sale of an asset from an SMSF to a related party would trigger section 109 of the Superannuation Industry (Supervision) Act, which requires a fund to deal with other parties, particularly related parties, on an arm’s-length basis and sell the asset at a market price as determined by a qualified, independent valuer, she said.

“The ATO has stated that it is usually the valuation process undertaken, rather than who conducted the valuation, that governs the acceptability of a valuation,” she said, adding a key requirement was to use a qualified independent valuer to obtain a valuation report if the asset was transferred or sold to a related party.

She added any person conducting a valuation must base it on objective and supportable data, and arrive at the valuation using a ‘fair and reasonable’ process that considers all factors that may affect the value of the asset and is capable of explanation to a third party.

“It would also be prudent for the trustee of [an] SMSF to keep all supporting evidentiary documentation in relation to the valuation of the artwork on the fund’s register in the event that the ATO decides to conduct a review on the valuation method used to determine whether the SMSF has met its valuation requirements in accordance with superannuation laws,” she said.

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