Compliance / Jul 13, 2021

Collectables in SMSFs – Owning and Reporting

Alicia Thomson
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Congratulations on another year passed (and to Ash Barty for winning Wimbledon and Italy for winning the Euro in a thriller)! As we are now preparing our client’s end of year accounts, it is time to review the market values of their assets. One class of asset that requires more documentation than a simple market valuation are collectables.

Collectables include assets such as:

  • Artwork & jewellery
  • Antiques & artifacts
  • Coins, medallions or bank notes
  • Motor Vehicles, motorcycles & boats
  • Wine or spirits
  • Gold, silver other precious metals
  • Postage stamps & rare books

Cryptocurrency isn’t considered a collectable item and has other requirements. See SMSF investing in cryptocurrencies.

When investing in collectables, the trustees should ensure they are not:

  • Leased to, or part of a lease arrangement with, a related party;
  • Used by a related party; or
  • Stored or displayed in a private residence of a related party.

Therefore, before purchasing a collectable, the trustees should ensure that the investment passes the sole purpose test and satisfies their investment strategy.

When it comes time to complete the end of year accounts, the trustees will need to provide the following documentation for the collectable:

  • Market valuation;
  • Proof of insurance;
  • Proof held at a secure site; and
  • Proof of holding.

Market valuation

When requesting a market valuation, the trustees should ensure the valuer is independent to the SMSF. Market valuations can be conducted by trustees where they are an expert in valuing the asset but this needs to be supported by objective data which the auditor will likely request. If the trustees are going to sell the collectible to a related party, then the valuation must be conducted by a qualified, independent valuer.

Proof of insurance

Collectables must be insured within 7 days of acquisition and must be held in the SMSF’s name. The asset can be insured under separate policies or collectively under the one policy, but the owner and beneficiary of the policy must be the SMSF. This is to ensure that the SMSF’s assets are adequately protected and if a claim was to be made, the insurance proceeds would be payable directly to the SMSF.

Proof held at a secure site

The trustees should ensure that the SMSF’s collectable is stored appropriately. The decision about where to store the collectable should be documented, such as in a minute. It is important to consider if the SMSF can store the investment appropriately prior to purchase.

Proof of holding

An auditor may request that a photo is taken of the collectable with that day’s newspaper to confirm the investment is still held by the SMSF. We have found there have been instances where trustees have sold the collectable and continued to account for it in their SMSF or, the item wasn’t recorded accurately. For example, a light-yellow diamond was recorded as colourless.

Trustees should consider the extra effort of owning a collectable or personal use asset. It may be helpful to consult an expert prior to purchasing a collectible to ensure the requirements can be met.

If you believe your fund or a clients fund may have contravened the rules you should call us and we can assist you to rectify them as soon as possible. Early engagement and voluntary disclosure may help to reduce the penalties, for more information see here.

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