Based on ATO statistics, SMSFs hold approximately $300 million worth of collectable and personal use assets. This represents one of the smallest but most emotional asset classes there is. Given many investors link these assets to some level of personal appreciation it’s important to review all SMSF collectables.
That is why the rules about SMSFs holding collectable and personal use assets, introduced in 2011, provide a certain level of protection for SMSFs to ensure that any investment is undertaken for the right reason, being retirement benefits not weekend pleasures!
Storing SMSF Collectables
My favourite of all SMSF collectables, or in my instance personal use asset, is wine! Wine is an asset that it is arguable has benefited significantly from the 2011 changes. Firstly, the requirement to store assets away from the members place of residence is a winner. It is more likely to result in collections being stored in professional storage facilities. This is likely to result in collections being stored in more temperature appropriate conditions, helping to maintain its condition. This in turn assists in the valuation of the wine as storage condition will be factored into the valuation process. Of course the other benefit of offsite storage is accessibility. Out of site is out of mind which reduces the current day benefit element and makes it easier to comply with the do not use the asset part of the regulations.
Acquiring SMSF Collectables
Acquiring collectable investments can be a risky venture particularly when the investment does have the emotional attachment element incorporated. Buying wine from a reputable source goes some way to ensuring you are getting what you paid for. Buying it directly from the winemaker goes further. I recently watched an interesting documentary called Sour Grapes, which exposed a wine collector in the US who was convicted of wine fraud after selling millions of dollars worth of re-labelled wine. Closer to home, the recent discovery by police of 14,000 fake bottles of Penfolds wine in China highlights that like any investment, the trustees of an SMSF must do their due diligence before outlaying their retirement funds.
I’ve always found the interesting element of investing in collectables is the disposal of the assets. It’s a little too convenient that there are 12 bottles in a dozen and 12 months in a year but of course we know that pensions must be paid in cash, but an in specie lump sum payment cannot be denied, subject of course to obtaining an appropriately qualified independent valuation. Would you like some cheese with that partial commutation?