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5 rules SMSF trustees need to know

SUPERCentral  |  05 Jul 2016Text size  Decrease  Increase  |  

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"Old" collectables and 1 July 2016

The 1 July 2016 deadline has passed for those trustees with "old collectables".

This deadline relates to trustees having to satisfy the "five collectables" rules in respect of collectables which were purchased before 1 July 2011.

Trustees have had to comply with the "five collectables" rules since 1 July 2011 in respect of "new collectables"--those collectables acquired on or after 1 July 2011.

What is a collectable?

There is a detailed shopping list of things which are defined to be collectables set out in the SIS Regulations (13.18AA). The list includes:

  • Artworks
  • Jewellery
  • Antiques
  • Artefacts
  • Coins, medallions or bank notes
  • Postage stamps or first day covers
  • Rare folios, manuscripts or books
  • Memorabilia
  • Wine or spirits
  • Motor vehicles
  • Recreational boats
  • Memberships of sporting or social clubs.

What is not a collectable?

Both valuable metal (that is, gold or silver bullion ingots) and gemstones (that is, precious and semi-precious stones and minerals whether in a raw state or polished and cut state) which have no means by which they could be worn or attached to clothing.

What happened on 1 July 2016?

Essentially, collectable and personal-use assets which were acquired by a superannuation fund before 1 July 2011 (collectively called "old collectables") must from 1 July 2016 comply with the following five rules:

Rule 1) A collectable cannot be leased to or used by a related party;

Rule 2) A collectable cannot be stored or displayed in a private residence of a related party;

Rule 3) The decisions of the trustee as to the storage of collectables must be documented (that is, written down) and the written document kept;

Rule 4) Each collectable must be insured in the name of the superannuation fund and the insurance must be effected within seven days of 1 July 2016;

Rule 5) If a collectable is transferred to a related party (whether purchased or applied as an in-specie benefit payment) then the value used for the transaction must be a value provided by a qualified independent valuer.

While these rules were introduced in July 2011, a five-year transitional period was given before the rules applied to collectables which were acquired before July 2011.

This five-year transitional period ended on 1 July 2016.

Can collectables still be acquired?

While collectables can still be acquired their acquisition must satisfy the SIS investment rules--in particular the rule that they cannot be acquired from a related party and once acquired the "five collectables" rules must be satisfied.

Can collectables be acquired on a geared basis?

Yes--so long as the SIS asset acquisition rules are satisfied (that is, they cannot be acquired from a related party) and the gearing rules are satisfied (that is, the collectable is an individual asset or forms part of collection).

In short, any asset which could be acquired on an ungeared basis can be acquired on a geared basis (so long as the asset is a "single acquirable asset").

What happens if the any of the "five collectables rules" are contravened?

If a contravention occurs, then each individual trustee (and in the case of a corporate trustee, the company itself) is liable for an administrative penalty.

A contravention will not endanger the compliance status of the fund if the contravention was unintentional but may give rise to a "speeding ticket penalty" for the trustees.

Additionally, the ATO may issue a rectification direction.

However, if the ATO forms the view that the contravention was intentional or reckless, then the ATO is entitled to review the compliance status of the fund.

It seems that the rules which are most likely to be unintentionally breached are the "storage decision" rule and the "insurance rule".

The storage decision rule requires the trustee to document the decision or decisions relating to the storage of the collectables. The decision must be set out in a trustee resolution.

Additionally, the decision should not only cover collectables already acquired but should also be drafted to cover collectables which are acquired in the future.

The SIS Regulations do not specify the content of the decision, however, it is likely that the decision should:

• Acknowledge that the SIS Regulations impose specific rules relating to collectables (that is, the five rules set out above);

• Specify how the current (and any subsequently acquired collectables) are to be stored (for example, in a commercial storage facility);

• Specify the insurer and policy covering theft or damage to the collectables (and any subsequently acquired collectables);

• Specify the procedure to follow as to when a collectable is transferred or a new collectable is acquired (see below).

- If transferred to a related party (whether sold or transferred as an in-specie benefit payment) the valuation must be obtained from an independent qualified valuer;

- If sold to an unrelated party, then the collectable can be sold at the price the trustee considers to be a fair and reasonable price;

- If the insurance policy terms require notification to the insurer of the acquisition or disposal of a collectable, then notification at the relevant time specified in the policy terms; and

- If acquired, then the collectable must be stored in the trustee approved manner.

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