SMSF collectables – don’t let your investment turn sour

By Tim Miller
(Miller Super Solutions)

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 that many investors link these assets to some level of personal appreciation for the product.

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!

My favourite collectable, or in my instance personal use asset, is wine! Wine is an asset that it is arguable has benefited significantly from the 2011 changes. The requirement to store assets away from the members place of residence, is more likely to result in collections being stored in professional storage facilities which is likely to result in collections being stored in more temperature appropriate conditions, helping to maintain the condition of the wine. 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 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?


About the Author:

Miller Super Solutions is the SMSF education & training creation of Tim Miller, assisting SMSF professionals and trustees with the practices associated with establishing, running and ultimately closing down SMSF’s. www.millersupersolutions.com.au

 


General Advice Warning:

The information provided is general in nature and represents the opinion of the author. It does not take into account the objectives, financial situation or needs of any particular person. It is not intended to be and does not constitute financial advice or any other advice. You need to consider your financial situation and needs and should seek professional advice before making any decisions based on this information.

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