Can fine wine help you retire?

Would you like to hold a wine collection, artworks, or a classic car in your SMSF? Well, you can if you follow some strict rules. Firstly, these collectables or personal use assets must be made for genuine retirement purposes and not to provide any present day benefit to either the members of the SMSF or related parties. Secondly, the assets cannot be used by members or related parties in any capacity. Thirdly, the asset must be insured in the fund’s name within 7 days acquisition. All these plus other rules need to be met to avoid falling afoul of super laws.

Contrary to popular belief, your SMSF can actually invest in collectables such as artworks, jewellery and wine as well as personal use assets such as boats, classic cars or other vehicles. However, investment in these assets must meet very strict and specific rules in order to qualify and thus care should be taken to avoid breaches of super rules in relation to owning collectables and personal use assets in SMSFs.

To start with, collectables and personal use assets encompass a wide range of assets including:

  • artworks (ie paintings, sculptures, drawings, engravings, photographs etc);

  • jewellery;

  • antiques;

  • artefacts;

  • coins, medallions or bank notes in certain circumstances (eg coins, bullion coins and bank notes are considered collectables if their value exceeds their face value);

  • postage stamps or first-day covers;

  • rare folios, manuscripts or books;

  • memorabilia;

  • wine/spirits etc;

  • motor vehicles and motorcycles;

  • recreational boats; and

  • memberships of sporting or social clubs.

The SMSF is allowed to invest in any of the above collectable or personal use assets provided such items are made for genuine retirement purposes and not to provide any present day benefit to either the members of the SMSF or related parties. In addition, the investment must also satisfy the following criteria:

  • comply with all other relevant investment restrictions including the sole purpose test;

  • the decision on where the item is stored must be documented and a written record kept;

  • the item(s) must be insured in the fund’s name within 7 days of the fund acquiring it;

  • where an item is subsequently transferred to a related party, it must be at the market value as determined by a qualified, independent valuer; and

  • the items must be unencumbered.

First and foremost, these rules mean that whatever collectable or personal use asset is purchased by the SMSF, they cannot be used by members or related parties in any capacity. To show how far this rule goes, the ATO cites an example of a classic car, if it is owned by the SMSF as an investment, it cannot be driven by a member or any related party for any reason. This holds true even if the only reason for driving the car is to maintain the car or to perform restoration work.

These rules also mean that any collectable or personal use asset owned by the SMSF cannot be stored on or in the private residence of any member or related party (this includes all parts of a private dwelling as well as the land on which the private residence is situated and all other buildings on that land such as garages or sheds). However, the asset can be stored, but not displayed in premises owned by a related party that is not their private residence.

For example, in relation to an artwork, it cannot be displayed in the business premises of a related party where it would be visible to clients and employees, but it could be stored in a cupboard or another similar storage area. Additionally, in relation to unrelated parties, the artwork (or other collectable/personal use asset) can be leased to them on arm’s length terms.

The ability to obtain insurance must also be considered if your SMSF decides to invest in collectables or personal use assets. It is a requirement that the items are insured within 7 days, under either separate or one collective policy. The owner and beneficiary of the policy must be the SMSF itself. If the SMSF has already made the investment but is unable to obtain insurance, the ATO will need to be notified.

Thinking of investing in collectables?

If you would like your SMSF to invest in a specific collectable or personal use asset, please contact us or Call us on 03 9088 4777 for detailed guidance on what needs to be done to ensure that superannuation laws and regulations are not breached.

Jenni Anderson