The strategy To buy art or other collectables for my self-managed superannuation fund.
Can I still do that? The Cooper Review into the super system raised questions about whether art and other collectables were appropriate investments for self-managed funds. But the government stopped short of banning such investments, preferring to tighten the rules to ensure they were bought as investments, not toys to enrich the lifestyle of trustee members. The new rules apply to all assets bought from July 1 last year, though funds with existing investments have until July 1, 2016, to put their houses in order.
What types of investments are covered? Art is the big one but the list also includes jewellery, antiques, artefacts, coins, medallions and banknotes, stamps, rare folios, manuscripts or books, memorabilia, wine or spirits, motor vehicles, recreational boats and memberships to sporting or social clubs.
I'm allowed to own all those? Not necessarily. Buying some of those assets, especially things such as club memberships or a weekender yacht, has always been dicey as they would probably put you on the wrong side of the "sole-purpose test", an overriding super requirement that says any investments by the fund must be made with the sole purpose of providing members with retirement benefits. The existing rules also require you to have an appropriate investment strategy for the fund and to manage it according to that strategy.
Those requirements will still exist. The new rules set standards for assets that fall into more of a grey area, such as that John Brack painting you've been hankering for that is arguably a great investment but would also look brilliant hanging on your office or dining-room wall.
So how do the rules work? They basically spell out what you must do to comply with the sole-purpose test.
According to a summary released last month by the Tax Office, these assets must not be leased to any party related to the funds and must not be stored or displayed in the private residence of any party related to the fund.
Trustees are required to keep a written record of the reasons for deciding where to store the assets and keep that record for 10 years.
They must also ensure collectables and assets for personal use - other than memberships to sporting or social clubs - are insured in the name of the fund within seven days of acquisition and that they can't be used by any related party.
If the fund wants to transfer ownership of the assets to a related party, it can be done but it must be at a market price determined by a qualified independent valuer.
Can I store the asset at my business premises? According to the Tax Office, it can be kept at the business premises of a related party, particularly if it is a purpose-built storage area, but keep in mind that it can't be on display. You will also run into problems if the business premises are part of the private residence of a related party.
If you own art, you can lease it for display in a gallery - but only if the gallery is not owned by a related party. And you will still need to have it insured in the fund's name.
What is a related party anyway? They include the fund's members, their relatives and any entities such as partnerships, companies or trusts that they control.
Relatives include not just immediate family but grandparents, parents, brothers, sisters, aunts, uncles, nieces, nephews, adopted children of relatives and the spouse of any member's relative.
Is gold bullion considered a collectable? The Tax Office says it is if its value exceeds the face value and it is traded at a price above the spot price of the metal content.
What happens if I break the rules? You'll be liable to a fine of 10 penalty units - a total of $1100.
More importantly, the Tax Office will take any breaches into account when determining your fund's complying status for tax purposes. If the breach is serious enough, your fund could lose its tax concessions.
For a full rundown on the rules, go to the super section at ato.gov.au.