The Cooper review included 29 recommendations for reforms of self managed superannuation funds (SMSFs).
The Government’s response (Stronger Super), supported all recommendations except 5. On of these exceptions was the removal of the 5% limit on in-house assets so that no in-house assets would be allowed. Another exception was the suggested ban on acquisition of collectables and personal use assets by a SMSF.
In relation to investing in collectibles, the Government did not support an outright ban, but said they would move to introduce new standards for holding these types of assets so that they did not give rise to a personal benefit (instead of a retirement benefit).
The list of assets considered to be collectables and personal use assets, include artwork, jewellery, antiques, artifacts, coins or medallions, postage stamps or first day covers, rare folios or memorabilia, manuscripts or books, wine, cars, recreational boats, memberships of sporting or social clubs; or assets for personal use or enjoyment.
The Explanatory Memorandum issued by the Government provided a couple of examples to illustrate what the new rules in the regulations may look like including:
• a requirement that collectables and personal use assets acquired on or after 1 July 2011 not be stored in premises owned by a related party of the SMSF.
• that where collectables or personal use assets were acquired before 1 July 2011, if the SMSF is unable to meet the storage requirements, it will have until 1 July 2016 to dispose of those assets.
It would appear that ‘collectables and personal use assets ‘must:
• not be stored in the private residence of a related party. Also, trustee decisions regarding storage of an item must be recorded in writing and kept for 10 years;
• not be leased to a related party;
• be insured in the fund’s name;
• only be transferred to a related party with the support of a qualified independent valuer; and
• jewellery, cars, recreational boats or memberships of sporting clubs must not be used by a related party at any stage.
These changes go quite a bit further than had originally been expected and will no doubt have an impact on how SMSFs go about investing in collectibles in the future. There will also some problems for existing investments in 2016.