Can I add my coin collection to my super fund?
ANDREW Heaven, an AMP financial planner at WealthPartners Financial Solutions, tells us about self-managed super funds and coin collections
Question: My wife has built an impressive coin collection in recent years and the idea has always been to put the collection into our Self Mmanaged Super Fund. I believe the rules have become very severe in this area and it may not be worth it, what do you think?
Answer: The rules that apply to collectibles and personal use assets owned by an SMSF, apply to assets purchased on or after July 1, 2011.
However, it is worth noting that from July 1, 2016, these rules apply to existing collectibles and personal use assets acquired by an SMSF prior to June 30, 2011.
It's essential that trustees who already own collectibles or propose to acquire collectibles ensure they understand the changes and their ongoing obligations to comply.
It is important to recognise that rules don't stop an SMSF trustee from investing in collectibles.
The types of assets that are covered are outlined in the superannuation law.
The definition of collectibles and personal use assets in superannuation law includes artwork, jewellery, antiques, artefacts, coins, postage stamps, manuscripts or books, memorabilia, wine or spirits, cars and boats.
Transferring ownership of the coin collection to the SMSF will be considered a personal in-specie contribution.
To be eligible to make the transfer, your wife needs to be eligible to make a contribution to super. She would need to be under 65 or, if older, be less than 75 and have satisfied the work test of 40 hours' work in a 30-day period in the financial year of making the contribution.
There will be a limit on the value of the collection that can be transferred.
From July 1, 2017, there are additional limitations if a member has more than $1.6 million in superannuation. If this is the case, you would be unable to make the in-specie contribution unless claiming a tax deduction.
The in-specie transfer would then count against her concessional contribution cap of $25,000 and a liability for contributions tax of 15%.
If you are not claiming a deduction, the value of the in-specie contribution will count towards her non-concessional contribution cap of $100,000 per financial year,or $300,000 every three years if under 65.
There are a range of restrictions that apply to owning collectibles within a SMSF that any trustee would want to ensure they are familiar with before making this decision. These are -
- The assets cannot be leased to a related party. Importantly, the asset cannot be stored in a private residence of a related party (a member of the fund or related party).
- The asset must be insured within seven days of acquisition in the SMSF's name.
- The asset cannot be used by a related party. If the asset is disposed of to a related party, it must occur at market price, assessed by a qualified independent valuer.
- The law applies a set of rules of how you must document ownership: proof of purchase, independent valuation and proof of ownership. Should you lease the collectibles to a third party, copies of the lease arrangement (when generating income) and evidence of investment returns to the fund must be maintained. Likewise, evidence of expenses incurred for the costs of maintaining the assets.
As a trustee, you need to confirm all super laws are satisfied, the investment in collectibles complies with the fund's investment strategy and an independent valuation is be obtained, at least every three years or when the asset is sold or transferred.
This is a complex area of advice. The rules may have become more severe, but not as severe as the penalties for making a mistake.
Along with the administration requirements, anyone who is looking to invest in collectibles and personal use assets within a SMSF should seek advice.
Given the recent broader application of the rules to assets acquired prior to June 30, 2011, SMSF auditors and the Australian Tax Office will likely be scrutinising this area very carefully.
Q&A with The Coach story first appeared on the WealthParners www.wealthpartners.net.au. They can followed on Facebook and Twitter. Any general advice in this story doesn't take account of your personal objectives, financial situation and needs.