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Does the display of a work of art, owned by an SMSF, in the member's residence give rise to an in-house asset?

Yes, the display of a work of art, owned by an SMSF, in the member's residence gives rise to an in-house asset.

An SMSF invests in works of art.

Some of the works of art are displayed in the residence of the members of the fund.

Subsection 71(1) of the Superannuation Industry (Supervision) Act 1993 (SISA) defines an in-house asset as 'an asset that is a loan to, or an investment in, a related party of the fund, an investment in a related trust of the fund, or an asset of the fund subject to a lease or a lease arrangement between the trustee of the fund and a related party of the fund'. A related party of the fund includes its members, its trustees and partners in a partnership where a member of the fund or a fund trustee is also a partner.

Subsection 10(1) of the SISA defines a lease arrangement as 'any agreement, or arrangement or understanding in the nature of a lease (other than a lease) between the trustee of the fund and another person under which the other person is to use, or control the use of, property owned by the fund, whether or not the agreement, arrangement or understanding is enforceable, or intended to be enforceable, by legal proceedings'. Australian Prudential Regulation Authority Superannuation (APRA) Circular No. II.D.6 also discusses the meaning of lease arrangement. The Circular notes at paragraph 21 that 'The concept encompasses informal arrangements that lack formal evidentiary documentation'. In the arrangement described it is considered that a lease arrangement would exist.

Accordingly, an asset, which is owned by an SMSF and utilised by a member, is an in-house asset of the SMSF.