Seek appropriate advice if an investment asset doesn’t seem to be ‘Vanilla’

The rules surrounding the Superannuation industry and particularly Self-Managed Superannuation Funds (SMSFs) seem to be ever-changing.  It is no wonder that clients who have established their own SMSF are often confused about what they can and cannot invest in, within the fund.

Whilst an SMSF, with its attractive tax rates, seems like a great structure to use as a long-term investment vehicle, there are some very specific rules in place to stop you from investing in just anything, and some harsh penalties in place if you get it wrong.

One area that has always been confusing for clients is around whether it is acceptable for an SMSF to invest in a collectable or personal use asset – think artwork, vehicles, jewellery etc.

Whilst you are not precluded from purchasing a collectable or personal use asset within your SMSF, there are some strict rules in place around how you acquire the asset and what you are able to do with it from there, including:

  • the asset cannot be purchased from a related party of the fund (e.g., members of the fund and their relatives)
  • the asset cannot be leased to a related party of the fund (including a related business)
  • the asset must not provide any present-day benefit to the members or their relatives, and as such, it cannot be:
    • stored at a private residence
    • used by a related party of the fund; or
    • viewed by a related party of the fund.
  • Documentation must be kept by the fund confirming the reasons for the decision on where to store the asset; and
  • Should you choose to sell the asset you need to ensure you can present appropriate support to prove the transaction occurred at an arm’s length basis and at market value.

Should you meet all the requirements above and choose to purchase a collectable or personal use asset within your SMSF, it is also important to ensure that the asset is properly insured and is purchased with consideration to, and in accordance with the fund’s investment strategy.

Our best advice – always seek appropriate advice if an asset you are considering investing in doesn’t seem to be “vanilla”.  It doesn’t mean that the investment is not a possibility, it just means there may be certain restrictions around how you hold the investment or that it might need to be structured in a certain way to ensure it meets the requirements of the superannuation legislation.

Jo Lowrie

Senior Finance Manager