Coming in 2016: New personal use asset rules

Investors have a great deal of freedom when it comes to selecting SMSF investments. Options include term deposits, managed investments, shares, gold bars and wine to name a few. Basically, anything deemed suitable as long as it is documented within the Trust Deed and Investment Strategy and meets the sole purpose test. The latter means that investments must be purchased for the sole purpose of providing retirement benefits to members. If your SMSF holds collectibles or other personal use assets then you should be aware of a law passed four years ago that will soon require you to change the way these assets are held.

Collectibles and personal use assets include items such as motor vehicles or recreational boats, artwork, antiques, coins and postage stamps, memorabilia, wine or spirits, jewellery, and memberships to sporting or social clubs.

For a complete list, check the Australian Tax Office website.

From 1 July 2011, the laws surrounding collectibles and other personal use assets held within SMSFs were tightened. The laws currently state that these assets:

  • Cannot be leased to a related party
  • Cannot be stored in a related partyĆ­s private residence
  • Must be insured in the name of the SMSF.

These regulations seek to prevent members from receiving present-day benefits from personal use assets and ensure investments meet the sole purpose test. A five-year transition period was stipulated by the government when the laws were introduced. This grace period is due to expire in 2016.

If your SMSF purchased personal use assets or collectibles prior to 1 July 2011, you have until 1 July 2016 to ensure your fund complies. If it cannot
comply, the trustee is required to take steps to transfer these assets out of the fund. Should the fund wish to transfer these assets to a related party after 1 July 2016, you must obtain a valuation from a qualified independent valuer prior to doing so to ensure the transfer is carried out at market rates.

For funds that do not comply with the new SMSF laws, a fine of 10 penalty units may apply. One penalty unit is $180, which would equate to a fine of $1,800.

It is wise to start preparing for these changes now to ensure your SMSF continues to comply. If you need SMSF guidance or advice, speak to a professional adviser.

Disclaimer: While every effort is made to provide accurate and complete information, Trilogy Funds does not warrant or represent that the information in this newsletter is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omissions or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated. This information is issued by Trilogy Funds Management Limited (AFSL 261425) and provides general information only. It does not provide financial product advice nor is it an offer of securities. Applications may only be accepted by completing the applicable application accompanying the relevant PDS. If you require personal advice on the suitability or other aspect of this investment, consult a licensed adviser, who will conduct an analysis based on your circumstances. Past performance is not a reliable indicator of future performance. Mortgage trusts are not bank deposits and are not government guaranteed.