Which assets are included?
Superannuation laws specify lists the following assets: artwork; jewellery; antiques; artefacts; coins, medallions or bank notes; postage stamps or first day covers; memorabilia; wine or spirits; motor vehicles; recreational boats and memberships to sporting or social clubs.
Investment requirements
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 years
- 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 control. Due to the wide-ranging definition, a comprehensive list cannot be included in this article.
Existing investments
The superannuation law contains transitional arrangements for existing investments. 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.
Failure to meet the requirements
Failing to meet the requirements above has two major implications. First, 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 per cent of the fund’s net asset value.
Second, the requirements 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 super laws
A number of other provisions of superannuation laws are relevant and must be considered. These include:
(a) 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.
(b) arm’s length: All transactions of the fund must be made and maintained at arm’s length. If not, the income from these assets will be taxed at 45 per cent instead of the concessional 15 per cent.
(c) in relation to artwork and collectibles, related party restrictions include:
- prohibition from acquiring the investment from a related party
- if the investment is leased to a related party, it will be considered to be an ‘in-house asset’ and must remain less than five per cent of total market value of the fund
- tax at 45 per cent if non-arm’s length income received as discussed above.
(d) investment strategy: each super fund must have an investment strategy, and all investments must meet the strategy. Before investing, trustees must assess whether the particular investment is an appropriate one and may need to update the investment strategy accordingly.
