By Graeme Colley
Executive Manager, SMSF Technical & Private Wealth

Rules and regulations for art and collectibles in your SMSF 

For anyone wishing to put their favourite painting or a collection of football jumpers in their SMSF, they need to understand what they can and can't do. It's not possible for an SMSF to acquire artworks or collectables from a member, trustee or their relatives – even if it's at market price. But the SMSF can purchase artworks or collectables from a non-related third party, providing it's done on a commercial basis.

There are strict rules applying once the SMSF has purchased the artwork or collectable, which applies to their acquisition, storage, insurance and use. These rules make sure members and their associates do not obtain a current-day benefit from artwork or collectables and that it is there with the aim of providing superannuation benefits for members or for their dependants on the member's death.

What is an artwork or collectable?

An artwork or collectable may mean different things to different people. For example, some people collect old bottles, while others may have an interest in stamps or coins. The legislation is quite specific and applies to the following:

• artwork, such as a painting, sculpture, drawing, engraving or photograph, or similar items, including a reproduction
• jewellery
• antiques
• artefacts
• Coins, medallions, or bank notes, such as:
     ⁃ Coins and banknotes are collectables if their market value exceeds their face value;
     ⁃ Bullion coins are collectables if their market value exceeds their face value or nominal value, and they are traded at a price above the spot price of their metal content.
• postage stamps or first-day covers
• rare folios, manuscripts or books
• memorabilia
• wine or spirits
• motor vehicles
• recreational boats
• memberships in sporting or social clubs

Gold or silver bullion comes in many forms, and whether it is considered to be an artwork or collectable depends on many factors. Some small quantities of bullion are mounted and can be worn as jewellery, while bullion is minted as a coin with a nominal value, and others are cast as ingots.

If the bullion is mounted and can be ordinarily recognised as jewellery, then it is more likely to fall under the definition of an 'artwork or collectable'. The same would occur with bullion minted as coins as it is reasonable to expect that their market value would exceed its face value.

There is no requirement that the coin is intended to be circulated as currency to be treated as artwork or collectable. Gold and silver that are cast as ingots are unlikely to be artwork or collectable.

The ingot will usually be stamped with a mark relating to the purity of the metal and another identifying the mint where it was cast. 

Storage, use and access

Any SMSF that holds an artwork, a collection or a personal-use asset must comply with the rules that restrict where they are stored and how they are able to be used and accessed.

An artwork or collectable cannot be displayed in a private residence of a member, trustee or any of their relatives (related party).

Examples

1. Artwork held within an SMSF cannot be stored or hung in the private residence of a related party. However, it can be stored, but not displayed, in the garage located on the property.
2. Restrictions on the use of the SMSF's assets also extend to a vintage car, which may be owned by the SMSF. This includes related parties driving the car, even to take it for servicing or to have restoration work undertaken. However, a non-related party is able to drive the vehicle to have it repaired or serviced if required.
 
The trustee of the SMSF is required to retain written information concerning the storage of the artwork or collectable, which must be retained for at least ten years after the trustees make the decision. This may help ensure that appropriate storage has been considered in line with the legislation and that the investment is directed towards producing retirement income or capital gains rather than one that provides current-day enjoyment for its members.

Insurance

Any artwork, collectables and personal-use assets, with the exception of memberships in sporting and social clubs, must be insured in the name of the SMSF trustee within seven days of acquisition. As part of the decision to invest in collectables and personal use assets, trustees need to consider the cost of insurance and whether the asset can be insured.

Assets may be insured under separate policies or collectively under one policy, but it must be in the name of the fund. It is not possible to insure the assets as part of a trustee's home and contents insurance.
 

Sale of the artwork or collectable

If the artwork or collectable is sold or transferred to a related party, it must be sold at its market price as determined by a qualified independent valuer. A valuer should be qualified by holding a formal valuation qualification or has specific knowledge, experience and judgment as recognised by their particular professional community. Independence means that the valuer should not be a member of the fund or a related party of the fund, such as an investment partner.

Artworks and collectables – not for every SMSF

It may seem that a collection, famous artwork or a personal-use asset can constitute a useful investment of an SMSF. However, trustees' enthusiasm may be dampened by the restrictions placed on the acquisition, use and storage of the investment. Nevertheless, there are many funds that see the investment value of the asset and how it can diversify the fund's investment portfolio.

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