Investment Options for SMSFs
There are several investment options for SMSF or Superannuation Fund that you can consider investing in. This include:
- Direct investments in shares, ETF, cash, hybrids, term deposits, income securities, bonds and gold or silver.
- Coin offerings, Cryptocurrencies, Ethereum, and Bitcoin (not really recommended)
- Direct properties like residential homes, units, villas, commercial properties like warehouses, factory units, offices, shops and land.
- Domestic or international managed funds like retail or wholesale
- Private unit trusts
- Businesses or business property
- Non-traditional assets like antiques, coins, art, taxi plate licenses, to ATMs (some of which had major losses)
Before a trustee or member can make investments, you have to ensure that the Trust Deed allows you invest in the items you are considering to invest in. If there are items which the deed do not mention but you are interested to invest in, you should have the deed updated to allow you to make investments in them.
The kinds of investments that the SMSF holds are determined by the fund’s investment strategies. The strategies are usually formulated by the members and trustees of the fund. The strategy supports the objectives, liquidity needs, risk profile tolerance, and the investments the members intend to utilise. The investment strategy can be changed as often as the members wish to suit the changing circumstances and for the fund to take advantage of new investment opportunities. Different strategies are allowed to suit the needs of the fund’s members.
SMSFs, however, do not allow the acquisition of assets from related parties of the fund’s members. Investments in in-house assets are also not allowed. An example of an in-house asset is the fund purchasing your personal assets like a house or residential property. The fund cannot lend funds to members as well and to their relatives. The fund cannot also provide assets as security for personal borrowing.
Let us look into the details of the investment options for SMSF that members can invest in.
Can an SMSF invest in equipment and lease it to a member’s business?
Technically this is possible however there are many ways that can get the members in trouble because of this, which is why we do not really recommend it. It might not be worth the hassle considering the consequences.
Can the SMSF buy Classic or Vintage cars?
Yes you can consider buying classic and vintage cars as one of your investment options for SMSF. The SMSF can do this but it can be difficult and have a lot of pitfalls. You have to make sure that investments you make for the SMSF should generate income for the members’ retirement and not just for personal enjoyment at the present time. Be warned that you can own the cars but you or any related parties cannot drive them even for maintenance purposes. To make these investments earn and generate income, you have to rent them out or let them be hired out.
Can SMSF property be used by a member?
SMSFs are prohibited from investing in family or holiday homes for members’ personal use. But SMSF can invest in investment properties that are solely used for investment purposes. Properties within holiday resorts or golf courses may annoy ATO if the members are seen to benefiting from them at present times than providing for their retirement.
This means that members are not allowed to stay in the property or rent it out to family members. It should also be managed by a real estate agent unless you can prove that you are managing the property professionally on your own.
Can an SMSF invest in coins, antiques, jewellery, art, and wine?
Coins can be one of the investment options for SMSF but they cannot be displayed to satisfy the sole purpose test. They are considered collectibles once their value exceeds their face value. If an SMSF has bullion coins with values that exceeded their face value and are traded at a price above the spot price of their metal content, SMSF must comply with regulation 13.18AA.
Wine is another option but as an investor, you are not allowed to drink it unless you are retired and take the wine out as a lump sum pension payment. It cannot be stored in a member’s private residence as well.
Art investments cannot be displayed or hang in your home. However, you can rent them to non-related companies or art banks that rent out artworks.
Are Cryptocurrencies or Bitcoins included as investment options for SMSF?
It is possible, but we do not recommend it because the value of these investments is very volatile and the market for them is pretty illiquid.
It is best to get advice from an expert or an SMSF auditor before making these investments to make sure that you are on the right path. If you have more questions about investment options for SMSF talk to us.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.