One way to diversify your self-managed super fund (SMSF) portfolio is investing in Artwork. Artwork includes paintings, sculptures, drawings, engravings and photographs. Some trustees find this asset class more attractive as it is generally less volatile than shares.
Investments in Artwork held by SMSF’s must satisfy the ‘Sole Purpose Test’. The sole purpose of a SMSF is essentially to provide genuine retirement benefits and must not give any ‘present day benefit’ for the SMSF trustees and members.
Artwork held by a SMSF cannot be:
– Leased to a related party*
– Used by a related party*
– Stored or displayed in the private residence of a member or related party* (Trustees generally keep their artwork collection with trusted storage companies)
*A related party is defined under section 10 of the SIS Act 1993 as:
- a) A member of the fund;
b) A standard employer-sponsor of the fund;
c) A Part 8 associate of an entity referred to in paragraph a) or b)
In addition to the above, the following rules also apply:
– Trustees must document their decision on where the Artwork is to be stored (e.g. in the minutes of a meeting of trustees) and the written record kept for 10 years.
– The Artwork must be insured in the name of the SMSF trustee within seven days of the fund acquiring it.
– If the Artwork is sold to a related party, trustees must have the item valued by an independent, qualified valuer to ensure the transaction is a market rates.
- For any Artwork held before 1 July 2011, trustees had until 30 June 2016 to comply with these rules.
- The ATO can impose a range of penalties on SMSF trustees who breach their compliance obligations in relation to investments of Artwork in their fund. The extent of the penalty will depend on the seriousness of the breach.
Author: Natasha Piccoli