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SMSF – Your questions answered, day nine – can I invest in exotic assets?

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I have a self-managed super fund and I was wondering about putting artwork into my portfolio of assets. I am told it is doable but what do you think about it for a super fund?

Yes it’s doable but I suggest if you’re doing it so you can look at your investment at dinnertime each night, you might think again. All self-managed super funds have to pass what is called the sole purpose test, which says your fund must be designed to provide retirement benefits for its members or even their dependents if the members die before retirement. So if one member imposes his love of art on the fund, that could set the fund up for failing the ATO tests, which means you lose the lighter taxing benefit on these funds. If you buy art and rent it to a business then this could be seen as a nice income spinner — the rent plus the capital gain. As you can see, artwork can be a goer and a good return play, however, you need to be able to pick great artists and be tapped into how you can rent it out. There are businesses that do this but I can’t vouch for their quality. You can display your artwork if it’s worth five per cent or less of the total value of investments in the fund. But there’s a catch. You will have to have a lease on commercial terms and that would mean the fund is paid by a member out of his personal funds for the right to show it.

A few other little pitfalls exist with artwork. First, you have to have the work valued each year and if this is not done you can be forced to sell the work. Secondly, a member can’t sell a pre-owned work into the fund. Also make sure you have a written down investment strategy which actually says that investing in art is a part of the overall strategy.

Clearly, doing some homework on this tricky subject and even getting advice is a very good idea.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, January 05, 2011

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer, Roger Montgomery, Paul Rickard and Charlie Aitken the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

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