Citizen Economists » collectibles

Unfair Coin Ban for SMSFs

Bron Suchecki — Wed, 07 Jul 2010 14:34:29 +0000

The Cooper Super System Review has been looking at the issue of collectables held in Self Managed Superannuation Funds (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.

Appreciating Collectibles

Eldon Mast — Tue, 01 Dec 2009 15:56:50 +0000

Some of the gifts you receive this holiday season may seem inexpensive, but that doesn’t mean they will not be incredibly valuable one day. In fact you might just have something valuable kicking around in the back corner of that old childhood closet.

Do you happen to own the first Superman comic book from the 1950s? It sold for 35c back then, but today is worth over $300,000. How about a 1943 penny made of solid copper? Today that one cent piece is worth well over $100,000.

Were you an early rocker? A signed copy of John Lennon and Yoko Ono’s Double Fantasy is now worth $120,000. Or perhaps you are a baseball card collector? Pull out that shoebox from 2006. The minor league card for Alex Gordon that year is trading for over $7,000 currently.

Chip Cutter and Kristen Girard who usually follow the performance of the S&P 500 by industry took time this Thanksgiving season to remind us that “building a collection of stuff may seem like a waste of cash, but if you happen to buy things that appreciate over time, you can actually make money.”

Happy Hunting…

What Can the Art Market Tell Us About Our Economy?

Lee Jamieson — Thu, 23 Oct 2008 18:20:47 +0000

When compared to more traditional investment options, the contemporary art market is highly inefficient – but this hasn’t dampened the enthusiasm of buyers and investors.

The contemporary art market has left its critics standing. Many presumed that it would be one of the crisis’ first victims as collectors tightened their purse strings and investors redirected their funds to safer areas. Yet somehow, the art market has boomed beyond expectation.

It is ironic that, in this period of economic turbulence, this inefficient little market has become more stable than the giant financial institutions. On the same day that Lehman Brothers filed for bankruptcy, Sotheby’s auction house raised nearly $100 million for the work of British artist Damien Hirst.

Many in the media have viewed the art market’s boom with suspicion since the start of the crisis, and they have been keen to pounce every time a market correction occurs – corrections are to be expected from any fast-growing market. They have presented the market’s success as a mystery and suggested that the market has somehow become disconnected from the underlying economy.

But the art market is not disconnected – it cannot be. Rather, it is a perfect reflection of the current state of the global economy.

New Art Investors

A new breed of collector is stalking the auction house: many corporate investors have increased their exposure to fine art in an attempt to diversify away from the financial markets. You would be forgiven for presuming that art is a high risk investment considering the subjective nature of art appreciation, yet corporate investors have brought with them more reliable valuation methods to an industry reliant on historical post-auction data.

A whole industry has sprung up around the needs of these corporate investors: there are now a number of fine art funds that trade artwork as you would any other commodity and indexes with which to more accurately anticipate future trends. Earlier this year, intelligence provider Artprice.com launched its Art Market Confidence Index, aimed at providing serious investors with more reliable metrics for the art market.

Many buyers are using art purely as a tool for financial gain which, in turn, has pushed up the price of the market. It is sad that the growth of the market has made it difficult for legitimate museums and public galleries to purchase new stock; a larger proportion of our international art heritage is finding its way into private collections. Of course, private collections are nothing new, but is the financial motivation behind the purchase (and therefore the price) changing the way we look at art? Should we be worried when art becomes nothing more than a commodity?

New Art Collectors

Salvation comes from an unlikely source. The image of the elitist western collector is slowly being eclipsed by the cash-rich Russian oligarch – reportedly, a third of the buyers at the Damien Hirst auction mentioned above were from the ex-Soviet Union.

These new Russian buyers have injected the art market with liquidity. Although the investment potential of art may influence their purchases, their primary interest is aesthetic – they are in search of unique and sophisticated items to complement their luxurious lifestyles and new-found wealth.

The art market has boomed because it has attracted these new breeds of investor and buyer. In this respect, the art market has not disconnected itself from the realities of the global economy – rather, it reflects the global shift in economic power: western capital is moving away from financial institutions into other areas, oil and gas-rich BRIC countries have a major economic advantage and investments from cash-rich countries are cushioning the downturn in certain sectors.

Perhaps the ultimate lesson to be learned about our economic system is that, given time, all bubbles burst. Time will tell.