Can I buy silver with my SMSF?
Physical silver bullion in the form of bars or standard bullion coins can be purchased by your self-managed super fund (SMSF). It can be purchased directly by your SMSF or via an exchange traded fund (ETF) which is gaining in popularity as an alternative investment.
Purchasing silver jewellery or silver coins are generally classified as a collectable. Whilst an SMSF can purchase silver in this form the Superannuation Industry (Supervision) Act 1993 (SISA) and Superannuation Industry (Supervision) Regulations 1994 (SISR) have much stricter controls to ensure SMSF members do not obtain a current day benefit.
An SMSF must always consider the following:
- does the fund’s investment strategy and trust deed allow for the investment?
- is the asset appropriately insured?
- where is the asset being held?
- market valuation at the 30th June and at other times such as starting a pension part way through a year or the death of a member
- is it properly secured?
- is there independent third-party evidence to support the purchase and maintenance of the asset on behalf of the SMSF?
- was the main purpose in acquiring the asset made for the provision of the members retirement (or to the member’s dependents or beneficiaries on the member’s death) – sole purpose test
SMSF holding Collectables
Silver jewellery and silver coins which exceed their face value are caught under the rules relating to collectables and personal use assets. The above considerations apply to all SMSF investments but the rules for collectables also include additional rules which are prescribed under SISR r 13.18AA:
- prohibited from leasing to a related party or subject to a lease arrangement– silver jewellery could not be used by a member of the fund
- the asset cannot be stored in the private residence of a related party – the jewellery or coin collection could not be stored in a member’s home, garage or shed – it may be possible to store it at the business premises of a member or related party, but it could not be displayed at the member’s business premises
- the item cannot be acquired from a member or other related party
- a formal written record is required to explain how the trustee chose a particular storage option and it must be kept for 10 years
- the asset must be insured in the name of the SMSF and must be taken out within 7 days of acquiring the asset
- a related party can acquire the asset from the SMSF, but the sale price must be determined by a qualified independent valuer
SMSF Holding Silver via an ETF
An Exchange Traded Fund (ETF) is a professionally managed investment vehicle where funds from multiple investors are pooled together. These funds consist of a basket of securities or commodities and can be traded on a stock exchange in a manner similar to shares. Most ETFs are designed to track a specific index, with their value reflecting the performance of that index. Since ETFs are listed on exchanges such as the Australian Securities Exchange (ASX), determining market value is straightforward and there is an accessible public market for buying or selling these investments.
ETFs are not classified as collectables or personal-use assets. Investing in silver bullion through an ETF enables an SMSF to gain exposure to this asset class without the complexities associated with purchasing, storing, insuring, and valuing physical silver bullion.
Global X Physical Silver ETF (ETPMAG) is an example of an ETF backed by physical silver allowing investors exposure to silver prices. Other ETFs, like Betashares Australia Resources Sector (QRE) and SPDR S&P/ASX 200 Resources Fund (OZR), track the performance of mining and resources companies, including those involved in silver mining. A variety of options exist, and it is essential to carefully assess the risks associated with investing in ETFs.
Silver Bullion and Coins
The ATO have stated that silver coins which exceed their face value are a collectable. Examples of such collectable silver coins include:
- Kookaburra silver coins
- Koala silver coins
- Australian Lunar Series
SMSFs acquiring collectable silver coins must comply with the regulations governing collectables. Members of an SMSF are not permitted to store these coins at their residence, and the coins must be insured in the fund’s name within seven days of acquisition. Obtaining an independent valuation and verifiable evidence of the coins’ existence may present challenges.
Silver bullion purchased from reputable mints, such as the Perth Mint, can be securely stored at the Mint, which will provide documentation confirming the existence of the bullion. The market value of silver bullion is typically determined with reference to the prevailing silver spot price. When silver bullion is held in a private vault or a bank safety deposit box, it can be more challenging to supply independent verification to auditors regarding the existence of the bullion as at 30th June but not impossible!