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What can my SMSF invest in?


Control over investment decisions lies with the Trustees of the Fund.

We find this is the main reason so many Australians are establishing their own Self-Managed Superannuation Fund or SMSF for short. The range of investments you can consider for your portfolio include almost anything you yourself could invest in as an individual including:

  • Direct investments  (such as shares, ETFs, cash, term deposits, hybrids, income securities, gold/silver bullion and bonds)
  • Direct property (Residential houses, villas, units, as well as Commercial property such as offices, warehouses, factory units, shops and land.)
  • Managed funds (retail or wholesale, domestic and/or international)
  • Private Unit Trusts
  • A business (non-related party to avoid hassle) and business property
  • Non-traditional assets such as coins, antiques, art , taxi plate licences, ATMs

The first step is to ensure your Trust Deed allows you to invest in the items you are considering. I know it is a long boring document but you need to know its contents so go through it regularly to get a handle on it.

Once satisfied the Trust deed does not exclude an investment, the types of investments the SMSF actually holds are determined by the fund’s investment strategy, which is formulated by you, along with the other members in the fund, and often advised by an SMSF Specialist Advisor™. The fund’s strategy should reflect your objectives, risk profile/tolerance, liquidity needs and the investments you intend to utilise. This is not set and forget or forged in stone. The investment strategy can be changed as often as you wish, to suit your changing circumstances and to take advantage of new investment opportunities. The fund can also incorporate different strategies to suit each of its members.

An important benefit of this having this ultimate control is that, during retirement phase, you can continue to invest in growth assets. This contrasts the approach of many retail providers, who lock ‘pension phase’ investors into income-producing assets such as cash and fixed interest, increasing the risk that the investor may outlive their retirement savings. This is coming back on the agenda now as many funds move to ”Lifecycle strategies” which I believe are dangerous in assuming that fixed interest is low risk when inflation is a real risk and bubbles can effect the capital value of even “conservative”options.

It is important to understand that there are certain regulatory limitations placed on SMSF; for example, a fund cannot borrow money to invest in assets such as property or shares unless the funds are provided through a Limited Recourse Borrowing Arrangement (LRBA) .

A fund cannot acquire assets from related parties of the fund or invest in in-house assets; for example the fund could not purchase your assets (such as your house or residential investment property) from you. Other restrictions placed on the fund include the inability to lend funds to members or their relatives or to provide the assets of the fund as security for personal borrowing.

As part of our service, we can provide you with access to a range of investments for your SMSF.

Can I invest in equipment and leased it to my business?

Technically yes but there are so many ways you can get in trouble it may not be worth the hassle. I went into this in more debt in this article.

Can I buy a Classic or Vintage Car within my SMSF?

Again technically and theoretically yes you can, but it would be very difficult with many pitfalls. You’d also have to be able to prove to the ATO that the investment meeting the sole purpose test and was going to generate income for your retirement and not for personal enjoyment now! You can own but you or a related party cannot drive it even for maintenance purposes! If you invest in classic cars, they would have to be hired out to generate income. It would be difficult for you to drive. Remember if you are driving you need to be covered by the vehicle’s insurance, and that would make it obvious to the ATO you are using the car for your own purposes.

Can I use a property within my SMSF?

SMSFs are expressly forbidden from investing in the family home or holiday home for your personal use. But they are able to invest in investment properties – as long as the property is only used for investment purposes. Likewise properties within holiday resorts or golf courses can draw the ire of the ATO as again you may be seen to benefitting members personally rather than providing for retirement

This means fund members can’t go and stay in the property or rent it out to family members. The property should generally be managed by a real estate agent to satisfy the sole purpose test regulations unless you can show genuine evidence that you are managing it professionally yourself.

If I want to push the limits! Coins, jewellery, antiques, wine and art?

You can invest in coins – but you can’t display them if you want to satisfy the sole purpose test. Coins are collectables if their value exceeds their face value. Therefore, if bullion coins have a value that exceeds their face value and they are traded at a price above the spot price of their metal content, they will be a collectable and your SMSF must comply with regulation 13.18AA in relation to the investment

Likewise, you can invest in wine but you can’t drink it unless you are in pension fully retired and taking it out as a lump sum pension payment! If your fund acquired the wine on or after 1 July 2011 it must not be stored in the private residence of any related party. A private residence includes all parts of a private dwelling (above or below ground), the land on which the private residence is situated and all other buildings on that land, such as garages or sheds.

SMSF investments in art operate in a similar way. You can’t hang it in the hall at home, but you can rent it to a non-related company or an art bank that rents out artworks on an ongoing basis.

Here is a link to the ATO’s guidance on leasing and selling artworks:

Although it might seem like a good idea to use your super to invest in exotic assets, the value of these types of investments is notoriously volatile and the market for these asset classes is generally pretty illiquid. If you have special or professional knowledge in a particular subject then you may be able to put forward a better case than an ordinary person for engaging in those assets as part of your funds strategy. Again make sure that you are not using your SMSF or its assets to prop up your own business.

I hope these thoughts  have been helpful and please take the time to comment if you know of other investments as I know this is not an exhaustive list. Would love some feedback as well.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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42 Comments

  1. Kym

     /  June 30, 2017

    Hi Liam,can my smsf purchase a large 1.3acre residential block with a existing 21×9 metre completed shed on it. I wish for my buisness to lease this shed at fair market value as a storage shed for the business, is this allowable. Also please I have 70% deposit, would it be better to pay off quickly or save some money in my SMSF and borrow more for the land.
    Kind regards
    Kym

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    Reply
    • Hi Kym, you will need personalised advice but as general advice I can say that property used predominantly for business use like storage will qualify as business real property and therefore can be bought in an SMSF AND LEASED BACK TO YOUR BUSINESS ON COMMERCIAL TERMS. you should discuss with your advisor the value of keeping your equity and borrowing a higher percentage to ensure you have funds for further development or diversification. Understand you can’t borrow against the equity you build up in this property later so you need to understand your future options before committing to much too early to the property. Seek advice on your whole situation.

      Like

      Reply
  2. Shaun

     /  June 16, 2017

    Hi,
    Am i able to purchase land (20 acres or more) with my smsf? At this stage i wasnt planning on running a business on it i was more interested in having it as investment and sell 10 years down the track for a profit.

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    Reply
  3. Richard Horne

     /  March 13, 2017

    Hi,

    Can two adjoining parcels of rural land be purchased within the SMSF, currently leased out to a farmer for sheep grazing, one of the parcels on a separate title is only accessible through the other title,

    Can the property in the future be leased back to a newly established family business at market rates as a shooting/riding/4×4 destination.

    thanks

    Like

    Reply
    • An SMSF is able to invest in rural property in most instances, providing it meets the fund’s investment strategy. Yes the fund can acquire 2 adjoining blocks on separate titles but if it is borrowing to do so then they would have to be 2 separate contracts and 2 separate mortgages or LRBAs. The purchase also needs to meet the sole-purpose test of providing retirement benefits for its members, or benefits to their dependants if a member dies before retirement.

      Rural property used in a primary production business will satisfy the definition of business real property even if not all the property is being used for commercial purposes.

      This means an SMSF can buy a rural property from a related party at market value, even if a member, or another related party of the fund, lives on the property. It also means that once the SMSF has acquired the property, it can be leased to a related party of the fund at market rates without breaching the rules, so this may suit your shooting/riding/4×4 destination venture. As these are your retirement savings you should think carefully before risking the funds supporting a business venture. You should get some personalised advice on the pros and cons of such a strategy.

      This concession applies as long as the area of the property being used for domestic or private purposes is no larger than two hectares and the property is not being used predominantly for domestic or private use. so if you had to build a caretakers cabin or home on the property, that would be ok but make sure the SMSF has the funds to do so or that you can make contributions to fund the building. Again an important question to ask is if the superannuation assets and additions are being invested to support your retirement or to support your current lifestyle.

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  4. Hi Liam
    Is it possible to contribute a classic car you already own into your SMSF if you get a market valuation by a suitably qualified valuer. I know this is possible if buying off a unrelated party, but I can’t find any information to suggest this is or isn’t allowed when dealing with related parties.
    If possible the contribution would be made as a non-concessional contribution.
    Thanks
    J

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    Reply
  5. Hi Liam.Is it possible to hold land within a SMSF for the purpose of grazing as in beef production.

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    • Hi Patrick, It should be ok but the land would have to be zoned properly and leased to the primary producer on market terms and in a written lease/agreement. If the SMSF intends to run cattle on the land itself then that can be complicated. Most buy the property and lease it to a related entity who actually runs the beef production Business. E.g. SMSF buys the land and leases to family trust / company that runs the farm business.

      You should run the specific details past a SMSF specialist to get personalised advice.

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      Reply
  6. Gary Day

     /  July 4, 2016

    Can an SMSF trade in short selling shares? That is selling shares it doesn’t own. I understand in short selling there is unlimited risk so it would seem a dangerous activity but is there something in SIS or the regulations or anywhere else that addresses this? Selling something you don’t own, is there a sort of borrowing? i know big funds lend stock to short sellers but do they undertake the activity themselves? I assume not since they are lending stock.

    Like

    Reply
  7. Lennie

     /  June 22, 2016

    Hi Liam. Great site …thank you!
    I was wondering if I am able to invest in some Bit Coin (A cryptocurrency) through my fund?
    Thank you for your time.

    Like

    Reply
    • Hi Lennie, the main question with having Bitcoin in your SMSF is proving that the fund is held on the name of the trustee as required by the regulations. An auditor will need to be satisfied that the Bitcoin are clearly owned sn recorded as owned by the fund. Also in your SMSF investment strategy you need to explain why they make a suitable investment for the fund as they don’t provide an income return so you need to explain the potential for capital appreciation and why they are a suitable for your portfolio. Here is a great article on the subject http://www.smsfadviseronline.com.au/strategy/14370-smsfs-audit-and-bitcoin

      Hope this helps

      Liam

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      Reply
  8. Lennie

     /  June 22, 2016

    Hi Liam, Fantastic site…thank you.
    Liam, am I permitted to invest a portion of my SMS Funds into Bit Coin?

    Like

    Reply
  9. Orhan Jasarov

     /  April 24, 2016

    Can you purchase a car

    Like

    Reply
  10. matt

     /  November 9, 2015

    Hi.

    Is it possible for a smsf to purchase a fishing licence and then lease it at market value to a company I set up?

    Thanks

    Matt

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    Reply
  11. Graham Upton

     /  April 28, 2015

    Hi Liam,

    Great article.
    Can we open an trading account with a foreign broker and invest 100% of smsf fund in overseas shares? What are the restrictions (if any)?

    Thank you.
    Graham Upton

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    Reply
    • Hi Graham, I can only offer General Advice on here but as long as the trustees have written an Investment Strategy for their SMSF that explains why they are investing overseas and that they have considered the pro and cons and put risk management in place then it is possible. Care should be taken with the naming of accounts, any charges over assets, where cash is held while not invested etc ensure the regulations are followed. You should approach your administrator and auditor with any prospective broker’s application form and financial services guide to ensure they will be happy to accept them.

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      Reply
  12. Excellent web site you have got here.. It’s difficult to find high quality
    writing like yours these days. I honestly appreciate people like you!

    Take care!!

    Like

    Reply
  13. Chad

     /  December 11, 2014

    If I had the SMSF as a company and not under an individual name as the trustee, can I then buy and sell cars and have them insured in the companies name or would the insurance have to go under someone elses name if possible as I am thinking of importing vehicles if it is possible under the SMSF?

    Like

    Reply
    • Chad

       /  December 11, 2014

      By the way thankyou for enlightening people with this information as it is quite difficult to find out straight forward information, that the general individuals need to know. The more areas we can invest in, the more successful we, as individuals can be, of course with doing alot of research before investing would be a smart choice.
      Thanks again.

      Like

      Reply
    • Chad

      I would be careful about running the strategy you are considering but it may be possible. You should get advice especially to ensure you are not using an overdraft or using the SMSF assets as a guarantee for payment etc. As far as insurance, all assets of the fund must be insured in the Trustee’s name (Company Trustee name with SMSF noted as the beneficial owner).

      Like

      Reply
  14. Wonderful Article

    Like

    Reply
  15. Very good written information. It will be helpful to anyone who usess it, including yours truly
    :). Keep doing what you are doing – can’r wait to read more posts.

    Like

    Reply
  16. Having read thi I beliieved it was extremely enlightening.
    I appreciate you spending some time and energy to put this informative article together.
    I once again find myself spending a llot of time both reading and commenting.

    But so what, it was still worthwhile!

    Like

    Reply
  17. Abhijit

     /  March 5, 2014

    Can I have an SMSF for investment overseas?
    My SMSF has got 30Ks; can I borrow money from my father to buy something worth 150-200 Ks paying him interest rate at market price off my super balance. Dont have have any bank offering SMSF for overseas transactions.

    Like

    Reply
    • Abhijit, as a general principle yes you may be able to do what you suggest but it requires a Limited Recourse Borrowing arrangement including a Bare Trust so the costs when you only have $30k may be prohibitive. I encourage you to get specific advice on the strategy and your circumstances before proceeding. Remember if investing overseas the investment must still meet the SIS Act requirements in terms of ownership which may not blend well with the local laws where the investment is held. You also need to consider exchange rate risks.

      Like

      Reply
  18. Hi, I do think this is an excellent blog. I
    stumbledupon it 😉 I may return once again since i have bookmarked it.

    Money and freedom is the greatest way to change, may you be rich and continue to help others.

    Like

    Reply
  19. Trevor McGowan

     /  December 12, 2013

    What is required for me to make a variation to the assets amy SMSF can invest in? i.e. do I type in the variation and have both parties in the Fund sign it. If so does anyone else need to witness it?

    Like

    Reply
    • Hi Terry

      Yes you can do a set of minutes but check your SMSF Investment Strategy document first to make sure the investment falls within the guidelines in your SMSF written Investment Strategy (you should have one of these from your accountant or administrator) If the new investment is outside those allocation then simply change that document to show you have considered the appropriateness of the new investment as part of your overall strategy and have each Trustee or Director sign that document.

      To do a minute for the new investment just state the name of the fund and the trustees and where the meeting was held, appoint a chairperson and then agree to the proposed investments. sign and date that document as Chairman

      Like

      Reply
  20. Trevor McGowan

     /  December 12, 2013

    Nice clear information.

    Like

    Reply
  1. SMSF Investment Decision Checklist | The SMSF Coach
  2. ATO SMSF Video: SMSF Investment Strategy Explained | The SMSF Coach
  3. How an SMSF purchases investments. 6 Steps to follow? | The SMSF Coach
  4. What can my SMSF invest in? | Platinum Incentive Services
  5. Using your SMSF to plan now for a future downsize and a seachange | The SMSF Coach
  6. Can My SMSF Buy And Lease Plant And Equipment To My Business | The SMSF Coach

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