Can my SMSF's wine collection be stored at my home or at the private residence of a related party if that residence has a purpose built wine cellar?
If your fund acquired the wine on or after 1 July 2011 it must not be stored in the private residence of any related party. A private residence includes all parts of a private dwelling (above or below ground), the land on which the private residence is situated and all other buildings on that land, such as garages or sheds.
If your fund acquired the wine before 1 July 2011, you must ensure that the wine ceases to be stored at the private residence of a related party prior to 1 July 2016.
How can my SMSF record the reasons for the decision on where to store its collectables and personal use assets?
If your fund acquired the collectable or personal use asset on or after 1 July 2011, the regulations require a written record of the reasons for the decision relating to the storage of the item be kept for a period of 10 years after the decision is made.
This decision could, for example, be documented in the minutes of a meeting of the trustees. It must be recorded in writing, either in hard copy or electronically.
Your fund's approved auditor may ask for a copy of this record during their compliance audit on your fund.
Can my SMSF sell its artwork to a related party?
Yes. However, if your fund acquired the artwork on or after 1 July 2011, the sale must be made at a market price as determined by a qualified independent valuer. This ensures that a related party does not receive current day benefit from such a transaction - for example, by purchasing the item from the fund at below market value - and also that the transaction does not cause detriment to the fund by selling at below market value.
If your fund acquired the asset before 1 July 2011 and sells it to a related party on or after 1 July 2016, it also must comply with the new rules.
If your fund acquired the artwork before 1 July 2011 and sells it before 1 July 2016, the transaction does not need to be supported by a valuation determined by a qualified independent valuer. However, the transaction must still take place on arm's length terms.
Who is a qualified, independent valuer?
A valuer will be qualified either through holding formal valuation qualifications or by being considered to have specific knowledge, experience and judgment by their particular professional community.
This is best demonstrated by being a current member of a relevant professional body or trade association such as:
- Australian Antique and Art Dealers Association
- Auctioneers and Valuers Association of Australia
- National Council of Jewellery Valuers.
A valuer is independent if they are independent of the interests of the fund. This means that the valuer should not be a member of the fund or a related party of the fund (for example, an investment partner).
If your SMSF transfers a collectable or personal use asset which was acquired on or after 1 July 2011 to a related party of the fund, it is required to be done at market value as determined by a qualified independent valuer. Your valuer can seek guidance on acceptable valuation methods from the SMSF valuation guidelines when it is published.
Is my fund's investment in bullion coin considered to be a collectable and therefore required to comply with the restrictions contained in regulation 13.18AA?
Coins are collectables if their value exceeds their face value. Therefore, if bullion coins have a value that exceeds their face value and they are traded at a price above the spot price of their metal content, they will be a collectable and your SMSF must comply with regulation 13.18AA in relation to the investment.
What does my approved auditor need to do when checking my SMSF's compliance with the new rules?
An approved auditor is required to examine and form an opinion as to whether your fund has complied with all provisions of the SIS Act, including the sole purpose test and these regulations. In doing this, your auditor must conduct the audit in accordance with the Australian Auditing Standards and the Standards on Assurance Engagement.
In complying with these audit standards, the auditor must obtain sufficient appropriate evidence on which to base their audit opinion. This may include evidence on where the collectable or personal use asset is stored, documentation on the decision for storing it, insurance cover information and any lease documentation. Where a related party receives an interest in the item, the auditor may seek verification that the transaction was conducted at market price, as determined by a qualified independent valuer.
If my SMSF fails to comply with any of the regulations, what can happen?
Each trustee of the fund commits an offence if any of the collectable and personal use assets regulations are contravened and is liable to a fine of 10 penalty units. One penalty unit is currently $110. Breaches will also be considered by the ATO when determining the fund's complying status.
Don't get it wrong, you may end up with a $1,100 fine.
Thank you to the ATO website from which these questions and answers have been extracted. For further questions and explanation please visit the ATO website here.
