Recent case law suggests that the first construction would be adopted. See Olesen v Eddy [2011] FCA 13 [32], Vivian v Fitzgeralds [2007] FCA 1602 [33] and Australian Prudential Regulation Authority v Derstepanian (2005) 60 ATR 518 [31].
Nevertheless, there is no guarantee of this and SMSF trustees should be very careful to ensure these new rules are met.
The recent case of Re International Art Holdings [2011] NSWSC 164 illustrates the risks that SMSF trustees investing in collectables and personal use assets face.
‘SMSF trustees must still be vigilant to ensure members’ savings are properly protected’
Ms Drolz was a trustee of an SMSF. She invested in artwork and leased it to a company called International Art Holdings. International Art Holdings, among other things, “on-lent” such artworks to third parties. International Art Holdings went into administration. The administrator asked the Supreme Court of New South Wales to place a lien (similar to a mortgage) over artworks in the possession of International Art Holdings, including artwork forming part of Ms Drolz’s SMSF. The lien was to ensure payment of the administrator’s fees. Ms Drolz objected to the lien. She drew the court’s attention to the fact that trustees of regulated superannuation funds must give charges (for example, the lien) over fund assets. She stressed that she was concerned that the charge could cause her SMSF to become non-complying.
The judge distinguished this situation (that is, a court imposed charge) from a charge that a trustee puts over a fund asset. Accordingly, the administrator was granted the lien that he had requested.
However, this timely case is noteworthy because it illustrates that even if the new laws are fully complied with, SMSF assets can still be jeopardised.
New, strict rules now apply to SMSF trustees investing in collectables and personal use assets.
However, even if these rules are complied with, SMSF trustees must still be vigilant to ensure their members’ retirement savings are properly protected.
Bryce Figot is a senior associate at SMSF law firm DBA Lawyers – www.dbalawyers.com.au. Bryce can be contacted at bfigot@dbalawyers.com.au
