When it comes to your SMSF, there are common mistakes regarding art and collectibles that can be avoided. If you are confused about the particular laws and regulations regarding art or collectibles, we will be discussing them, allowing you to keep your peace of mind and make any changes that need to be made, hopefully without any difficulty.
Assets (that are in your SMSF) that were bought before the 1st of July 2011 can be stored at your home, but not displayed until at least the 1st of July 2016. However, regulations are different for assets purchased post 1st of July 2011- those also cannot be displayed, nor can they be stored at your home. Keeping a clear account of what assets were bought when will help you avoid any chance of going against regulations, and this can be addressed in a split portfolio.
Also, make sure that for any art or collectibles bought after the 1st of July 2011 that they are insured by the fund within 7 days of acquiring the piece. If you do not have the proper insurance for your art or collectibles, this will be shown in the yearly audit, so correct any mistakes as soon as possible. If an item is left uninsured for too long, it can spark suspicion by the Australian Taxation Office, and there may be consequences as a result. But if you make a mistake in the area, but comply quickly with the learned knowledge, then you shouldn’t have too much of an issue.
Speaking of insurance, for your art and collectibles you need a specific kind of insurance that states they are for your SMSF (specifically, this is still only for assets post 1st of July 2011). That means you cannot rely on something like Home and Contents Insurance (even if this kind of insurance has the contents of your fund included-either way, this insurance is very inadequate for covering all the assets in your SMSF) or Group Policies Insurance (often offered by dealers and galleries). Group Policies Insurance is still okay for assets acquired before the 1st of July 2011 (until 5 years after that date), yet for anything acquired after the date be sure that you have stand-alone insurance for your assets. Insurance companies may tell you that they satisfy the Australian Taxation Office for SMSFs, but hold their advice loosely, and speak to your auditor or account for a second opinion. Most often the companies are just trying to sell you their insurance product.
You may think that placing your art or collectibles in an inexpensive storage facility is the best option, but this will often lead to your asset having a greater risk of damage (in some events this can be insured whereas in others it cannot), and your insurance rates will often increase as a result. Take the extra care and place the asset in a professional storage facility with higher security, and thus insurance rates will be manageable, and your asset itself will be maintained at a better condition, better for you as the holder of the investment, and better for the person who will receive the item in the end. Also, there is no need to use multiples policies to insure all of your different assets, even if the items are in different locations, different classes, or if the were acquired before or after the 1st of July 2011 (items bought before and after are in different asset ages). So, stick with one policy for simplicity’s sake, and for greater financial clarity. Other people make the mistake of have a variety of policies, which will cost them more, and provide less efficiency when you are dealing with multiple policies and insurers.