ATO provides clarity on collectables

The ATO was recently asked whether pink diamonds are regarded as collectables— their response means fewer investments are caught in the net than previously thought. 

Recently, the ATO offered guidance concerning the treatment of loose pink diamonds within SMSFs [QC 101194]. The ATO confirmed that loose, natural pink diamonds are not regarded as a collectable for SIS purposes and are therefore not required to comply with the strict rules applying to these sorts of assets (such as the requirement for trustees to insure the asset in the name of the fund within 7 days of acquisition). 

Whilst this answer wasn’t unexpected, the ATO’s detailed reasoning did provide some important clarification for assets which look and feel like collectables – they’re ordinarily used or kept for personal use or enjoyment – but aren’t specifically listed. 

Importantly, the ATO confirmed only investments that fall into the specific categories listed in regulation 13.18AA of SIS, such as artwork, jewellery, antiques etc need to comply with the specific requirements of that provision (referred to here as “the collectable rules”). For example, an SMSF that owned a pink diamond set in a ring would need to comply with the collectable rules as jewellery is a specific category listed. 

The ATO also confirmed that an asset caught only by the “catch-all provision” in section 62A(m) of SIS, which captured “assets of a particular kind if assets of that kind are ordinarily used or kept mainly for personal use or enjoyment”, is not subject to the collectable rules. That is, only assets which fit into the specific categories defined in sub-regulation 13.18AA(1), need to comply with the collectable rules. Hence, investments, such as the loose, natural pink diamonds, won’t trigger the compliance requirements of the collectable rules. 

Of course, investments which aren’t collectables for the purposes of regulation 13.18AA will still need to comply with other rules (such as the sole purpose test), and it will also be prudent for the trustee to hold adequate insurance and consider appropriate storage arrangements for those assets. 

Wondering what other investments look and feel like collectables but aren’t? Be sure to join Leigh Mansell for her session on weird & wonderful investments at our Super Intensive Day where Leigh will consider which investments are caught as collectables as well as other “weird” investments, such as tiny homes and more.