Kiss My Art. Don’t Get Your Art Kicked!
This is now the time to ensure your SMSF and your client’s SMSF is meeting the new rules for holding artworks or other collectables.
For those with an interest in art, the photo is a Brett Whitely water colour titled
“Bather in the Garden”. This piece currently owned by an SMSF.
I have covered the impending changes from 1 July 2016 in a previous post however the end of the 2016 financial year end is approaching and it is time to act and ensure that all the conditions have been met.
It will be more than likely to late if you address the issue when dealing with the 2016 compliance work or preparing for your 2016 audit
If you hold artwork or other collectibles in your self-managed super fund, be aware of the new rules that will come into full force in 2016. According to the Australian Taxation Office (ATO), in June 2013 about $440 million was invested in collectibles and artwork by self-managed super funds (SMSFs).
This actually represents a 25 per cent decline on the June 2010 figure of $581 million.
It’s difficult to know all the reasons for this decline but there seems no doubt the major cause is a change in 2011 to laws governing how SMSFs can invest in these types of assets.
These new rules apply for any artwork or collectibles that your super fund purchased after June 2011.
These rules don’t currently apply for any artwork or other collectibles your super fund purchased before July 2011. For these assets, these rules will have to be complied with from 1 July 2016.
What are considered to be artwork and collectibles?
Well, here’s the list:
- Postage stamps or first day covers
- Rare folios, manuscripts or books
- Motor vehicles
- Recreational boats
- Memberships of sporting or social clubs
- Anything, other than land, kept for personal use or enjoyment.
Rules applying to all SMSF artwork and collectible investments purchased after 30 June 2011
Under these rules, your super fund can’t lease any artwork or collectible it owns to a related party of the fund. A related party is all fund members, all their relatives (including in-laws) and companies and trusts these members and relatives control or are deemed to control.
Your fund’s artwork and collectibles can’t be stored at the “private residence” of any related party. This effectively means any related party’s home. It doesn’t mean any other location, such as a place of business or specially constructed storage facility.
Your super fund trustee must document why you’ve stored the investment at a particular location. This documentation must be kept for at least 10 years.
A fund must own a sporting or social club membership because it’s a good investment, not because it means the fund members can personally use the membership facilities. (Proof of this can only be provided via documentation about the potential for the membership to increase in value.)
The artwork and collectible assets must be insured and that insurance must be in the name of the superannuation fund.
Be careful here. A number of SMSFs have allowed the insurance to be put in the name of the organisation or business that leases the collectible or artwork, with the SMSF noted as the asset’s owner.
This isn’t adequate. The super fund must purchase its own insurance policy. That insurance must be in place within seven days after an asset has been purchased. Sporting or social club memberships are exempt from this rule.
When a superannuation fund sells any artwork or collectible to a related party, the superannuation fund must get an independent valuation on the item and the agreed sale price can’t be less than that valuation.
Collectibles have fines and penalties for non-compliance with these rules that are separate to the general administration penalties and you can be fined up to “10 penalty units” for each breach. Each unit is worth $170, which means each breach could be $1700 for a person and $8500 for a corporation.
If all these regulations are breached, the fines could be up to $10,200 for an individual or $51,000 for a corporation.
These penalties are “strict liabilities”, which means that if the breach can be proven, a court can immediately impose a penalty up to the above amounts and there is no need to examine why the trustee breached the rules.
Given the more onerous nature of these new rules, it’s reasonable to expect that many super funds that that hold collectibles and artwork purchased before 1 July 2011 will decide to offload their investments before July 2016. If you do, make sure the transaction is complying.
How can we help?
The SMSF Audit team’s extensive experience mean we can assist with advice regarding all SMSF issues. We have assisted a large number of Trustee of funds deal with compliance issues and still retain their complying status.
We have also assisted numerous Trustees negotiate a compliance plan with the ATO and have successfully had penalties reduced and remitted
Our website has a lot of useful information www.smsfaudits.com
We also have a tax specialist on our staff who can prepare and lodge private ruling requests for you or your clients and who can assist with any ATO tax review or audit.
SMSF Audits is about more than just cost effective audits. We provide complying, timely audits and offer support to solve potential problems. Let us be your competitive advantage.
Want to find out more? Call us on (07) 3368 2794 or see more on www.smsfaudits.com.au