The Cooper Super System Review has
been looking at the issue of collectables held in SMSFs and has a preliminary
recommendation that:
a) the
acquisition of collectables and personal use assets by SMSF trustees be
prohibited;
b)
SMSFs that own collectables or personal use assets be provided a transitional
period,
up to
30 June 2020, in which to dispose of those assets; and
c)
APRA‐regulated funds be exempted from these
changes.
Their examples
include paintings, jewellery, antiques, stamp collections, wine, exotic cars,
golf club memberships, race horses and boats. The list is based on and makes
reference to the ATO's definition of
‘collectables’ and ‘personal use assets’ and this
definition includes “coins or medallions”.
The inclusion of
coins, stamps and medallions and the requirement they be sold within 10 years
has caused great concern within the numismatic community. It is the view of
coin dealers that the market cannot absorb disposal of the volume of
numismatic product held in SMSF over 10 years, resulting in a negative impact
on market prices.
Now it is
possible for a SMSF to “sell” their collection to the
individual(s) who benefit from the SMSF, thereby avoiding any impact in the
market. However this assumes that such individuals have the cash to pay their
SMSF. In addition, the book sale would result in tax consequences for the
SMSF.
I would note at
this point that those who hold bullion coins through their SMSF should not
have anything to worry about. The super review's reliance on the ATO's
definitions for tax purposes means that bullion should be excluded due to the
very clear difference the ATO makes between bullion and collectables for GST
purposes in this ruling. I
cannot see the super review going against this because it would result in the
super treatment conflicting and disagreeing with the ATO's arguments around
bullion/collectables, opening up all sorts of issues for the ATO. The primary
problem would be that individual bullion items under $500 would not attract
capital gains tax! I can't see the ATO letting that happen.
So on what basis
has the super review determined that collectables are not a suitable
investment? Initially they say that they believe “that there are
certain types of assets that should not be regarded as investments that build
retirement savings”.
Now this is
contradicted by the fact that their recommendation excludes APRA regulated
funds. If collectables were not good enough for SMSF to “build
retirement savings” then logically they should also not be good enough
for APRA regulated funds. The fact that they make this illogical statement
indicates to me they are clutching at justifications for their position.
Later in their
document they give the real reason: “The principal concern is that the
cumulative regulatory and compliance complexities outweigh the potential
benefits of allowing such a liberal investment menu to a sector that is not
directly prudentially regulated.”
Now what this is
really saying is that they suspect people are abusing the system but it is
too much trouble to enforce compliance with the rules so lets just punish
everyone and ban it all outright. But what really gets to me is that they are
making this ban retrospective. They could have recommended disallowing further
investment in collectables rather than forcing the liquidation of existing
collections. There is no justice in retrospective law.
The fact is that
it is bureaucrats who drafted the detailed legislation that allowed the
loophole but instead of admitting their mistake and living with it, they want
to perform a 1984 Orwellian expunging of
collectable from SMSFs so they can pretend the whole thing never happened.
And the result?
Forced sales that will depress prices and thus the value of those SMSFs. So
much for helping people “build retirement savings”, Mr Cooper.
Bron Suchecki
Goldchat.blogspot.com
Bron Suchecki has
worked in the precious metals markets since 1994, when he joined the Perth
Mint as an Administration Officer in their Sydney retail outlet. In 1998 he
moved to Perth to work in the then fledgling Depository division. He has held
a number of roles since then in the treasury, risk and governance areas of
the Mint.
All posts are Bron's personal opinion and not endorsed by the Perth Mint in
any way.
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