SMSF owners cannot include artworks in their investment portfolios as of 30 June 2016. In 2011, SMSF laws changed so that SMSF owners are less likely to meet requirements for including ‘collectables and personal use assets’ in the SMSF portfolio. ‘Collectables and personal use assets’ include artwork, jewellery, vehicles, boats and wine.
This ruling has fall out for the art industry. According to ATO, in the five years leading up to 2015 financial New Year, the value of art in SMSFs has fallen by approximately 20 per cent.
WHY?
This is because ‘investments in such items must be made for genuine retirement purposes, not to provide any present-day benefit’ according to the ATO.
RULES FOR COMPLIANCE
In order for your collectable and personal use assets to comply with the ATO, they must comply with the 2 key rules.
RULE 1: ‘collectables and personal use assets’ cannot be leased or sold to a related party
For instance, Leasing and selling must be on arm’s lengths terms, in other words, you can lease artwork to a gallery as long as they aren’t a related party and are paying the expected market price. The expected market price must be as determined by an independent art valuer.
If you acquired the art before 1 July 2011 and plan to sell it before 1 July 2016, then the arm’s length transaction does not need to be validated by an independent art valuer.
RULE 2: ‘collectables and personal use assets’ cannot be used, stored or displayed by a related party
For instance, you cannot store art at a related party’s premises provided it is not their business residence whereby it can be seen by employees and clients. This is because it is being used by the related party.
If you have any queries about your SMSF or anything else investment or business related– please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
