Can a super fund invest in artwork, collectibles or other
similar types of investments?
The short answer is "yes".
Although the Cooper Review recommended that investment in these
style of assets be prohibited, the Government legislated to enable
these to continue, but under specific guidelines. These guidelines
were set to ensure that the fund meets its obligations and remains
in compliance with superannuation laws, including a sole purpose of
providing retirement benefits to members.
Which assets are included?
Superannuation laws specify lists the following assets:
Coins, medallions or bank notes
Postage stamps or first day covers
Wine or spirits
Memberships to sporting or social clubs
In order to hold an investment in one of the assets listed
above, the super fund trustees must ensure that:
The item is not leased or under a lease arrangement with a
related party of the fund
The item must not be stored at the private residence of a
related party of the fund
The trustees must make a formal decision on where to store the
item. The decision must be in writing and kept for at least 10
The item (other than a membership) must be insured, with a
policy in the fund's name.
The item must not be used by a related party of the fund
The item (or any interest in it) cannot be sold to a related
party without a valuation from a qualified independent valuer.
Who is a related party?
A related party is very broadly defined under superannuation
laws. It includes (but is not limited to) the members themselves,
any relatives of members, and any entities that the related parties
Due to the wide ranging definition, a comprehensive list cannot
be included in this Super Hot Spot. Please contact your adviser
should you wish to discuss your particular circumstances.
Are existing investments subject to the restrictions?
superannuation law contains transitional arrangements for
Investments that fall into the categories above, which were
purchased before 30 June 2011, are not subject to the restrictions
discussed above until 30 June 2016.
What happens if you don't meet the requirements above?
Failing to meet the requirements above has two major
Firstly, the fund's status as a complying fund may be
revoked. This would have significant taxation consequences,
including loss of all tax concessions and a tax liability of 45% of
the fund's net asset value.
Secondly, the requirements above are strict liability
provisions, and as such, any trustee that fails to meet the
requirements may be held to have committed a criminal offence.
Interaction with other superannuation laws
A number of other provisions of superannuation laws are relevant
and must be considered. These include:
Sole purpose: The 'sole purpose' rule requires
that all trustee actions are undertaken with the sole purpose of
providing retirement benefits to the members. Conflicts arise with
issues such as appropriateness of the investment acquired, storage,
insurance, market liquidity, income generation and the
"enjoyment" of the investment. For example, displaying
artwork in the members' home may provide benefits earlier than
retirement and hence conflict with the sole purpose rule.
Arm's length: All transactions of the fund must be
made and maintained at arm's length. If you don't, the
income from these assets will be taxed at 45% (instead of the
Related party transactions: Superannuation laws
contain a few restrictions on transactions with related parties. In
relation to artwork & collectibles, these include:
prohibition from acquiring the investment from a related
if the investment is leased to a related party, it will be
considered to be an "in-house asset" and must remain less
than 5% of total market value of fund
tax at 45% if non-arm's length income received as discussed
Investment strategy: Each super fund must have an
investment strategy, and all investments must meet the strategy.
Prior to investing, trustees must assess whether the particular
investment is an appropriate one and may need to update investment
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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