SMSF Investing Education & Strategies

Collectables

According to Section 62A of the SIS Act, investments inside a SMSF that are labeled as Collectable's include:

(a) artwork (within the meaning of the Income Tax Assessment Act 1997); or
(b) jewellery; or
(c) antiques; or
(d) artefacts; or
(e) coins or medallions; or
(f) postage stamps or first day covers; or
(g) rare folios, manuscripts or books; or
(h) memorabilia; or
(i) wine; or
(j) cars; or
(k) recreational boats; or
(l) memberships of sporting or social clubs; or
(m) assets of a particular kind, if assets of that kind are ordinarily used or kept mainly for personal use or enjoyment (not including land).

These assets tend to be of a limited supply, and as such there is an assumption that over time they will increase in value, although they do go through their own value cycles. There is nothing in the SIS Act that prevents trustees from investing in these types of assets, however there are some regulations around how you invest and what you need to do to comply.

Specifically, SMSF trustees who invest in collectables or personal use assets must:

- Not lease this asset to a related party;
- Not store the asset in the private residence of a related party;
- Not permit use of the asset by a related party;
- Document the reasons for deciding on the storage of the asset;
- Insure the asset, unless the asset is a membership to a sporting or social club;
- Obtain a valuation, from a qualified independent valuer, should the fund later transfer the asset to a related party.

These rules will apply to all SMSFs where collectables or personal use assets were acquired on or after 1 July 2011, while existing assets (as at 1st July 2011) of this kind in a SMSF will have until 1 July 2016 to comply with the rules.

Above all, from an investment perspective you need to have a good understanding of the market for these types of investments, and have a sound rational reason as to why your investing in them and why they will appreciate in value over time. If not, they can turn into very high risk ventures that can decimate the value of your fund if you get it badly wrong.

If you are an industry expert in any of these investment areas, it actually makes sense that you would invest in an area you know well. But if your not, and you want to invest in these areas, then use an expert who can guide you and do as much research as you can.  

As aways, if your going to invest in this asset class, make sure your trust deed enables you to be able to do it, and ensure you have included it in your fund's written investment strategy.