Can my SMSF hold gold and silver
Once in a while, an SMSF member would come to us and ask, “Can my SMSF hold gold and silver?” The straightforward answer to this question is – yes, an SMSF can invest in precious metals such as gold, silver, platinum and palladium. Many trustees prefer to hold a portion of their SMSF in these metals as a hedge against inflation and equity markets.
If you’re considering having your SMSF invest in precious metals, you have to know and comply with several rules surrounding this type of investment.
Before anything else, you have to check if your trust deed and investment strategy allow you to hold this asset. If not, you’ll have to update these said documents to permit this acquisition.
How can an SMSF hold gold and silver?
There are three ways a superannuation fund can hold gold, silver and other precious metals:
- Exchange Traded Funds (ETFs)
- Gold or Silver Coins
- Gold or silver Bars/Bullion
Exchange Traded Funds or ETFs
You have the option to purchase an ETF for precious metals like gold and silver. ETFs consist of one principle asset, which is the metal itself and allows you to track the price of the acquisition. The said funds consist of a derivative contract that is backed by the metal.
In this option, you do not physically own the metal itself, but it is traded on major stock exchanges. If you decide to sell the asset, you can redeem it only for cash.
Note that storage is an important consideration when buying precious metals. Based on the rules of the ATO, collectables, such as gold coins, cannot be stored or displayed in your home or the residence of a related party. Therefore, if you don’t want to worry about this factor, investing in EFTs that hold precious metals would be a more suitable option.
Satisfying Audit Requirements: EFTs
It is easy to meet the annual audit requirements for the verification of the holding and the market value as it is a listed security. This is because ETFs are traded on the ASX, the holding is verified by the registry holding statement at 30 June, and the market value is the most transparent of all forms since it is listed on the ASX.
Gold or Silver Coins
An SMSF can also hold gold or silver coins; however, you will likely be paying a premium above the face value since coins are considered collectable assets. Also, buying in this format means that they fall under the rules concerning collectables held by SMSFs.
Some key rules on SMSF collectables to note:
- As mentioned earlier, collectable assets are not to be stored in the residence of an SMSF trustee or of any related party
- The SMSF trustee or related party is not allowed to lease, use or display any of the collectables
- The collectable should be insured within 7 days of acquisition under its own separate policy
- If the collectable will be sold to a trustee or related party, the valuation by a qualified independent valuer is required to determine the market value.
For more information on rules on collectables and personal use assets, you can visit the ATO website here.
Satisfying Audit Requirements: Gold or Silver Coins
Compared to EFTs, there are a stricter and additional set of rules for holding gold and silver in the form of coins. At the end of the financial year, the super fund is required to provide proof of the following:
- Where the asset is being stored
- An insurance certificate to verify that the coins were insured within 7 days the assets were acquired
- If the coins are sold during the year, a market valuation from a qualified independent valuer is required
- Even if they are not being sold, the coins should be revalued at a very minimum at least every 3 years or sooner if there are significant events that are likely to affect the value of the coins
Gold or Silver Bullion
Probably holding precious metal in the form of bullion (bars) is the most common form. The rules applying to holding gold or silver coins, do not cover gold or silver bullions as these are not considered collectables, therefore, these assets can be legally stored in a trustee’s residence. However, choosing to store these precious metals at home will require some documentation and will involve some risks. Most trustees opt to store their gold and silver bars in storage vaults or at the mint for security reasons.
Satisfying Audit Requirements: Gold or Silver Bullion
If a trustee decides to store their gold or silver bars in a storage vault or at the mint, the documentation provided by these third-party facilities will be proof of the holding to the auditor.
However, if a trustee chooses to store their bullion in their residence, they will be required by the auditor each year at 30 June to show a resolution confirming the following:
- The inventory listing the types of metal held and their quantities
- A confirmation that the asset is securely stored and is not available to be used by the SMSF members
- A confirmation that the metals are insured for their correct value.
Holding precious metals, like gold and silver can be achieved in different ways. Choosing which method to use depends on what the SMSF members and trustees deem the most appropriate for their investment strategy. If you have questions or want expert advice on how you go about doing this, you can always reach out to our team at SMSF Australia, and we will be more than glad to assist.