Gold and Silver Bullion | Precious Metals
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 and platinum. Many trustees prefer to hold a portion of their SMSF in these metals as a hedge against inflation and equity markets. The theory behind this is that SMSF investors diversify their portfolio by using non-correlated asset classes such as physical bullion.
Our firm consist of lawyers and accountants who provide advice on the superannuation law and compliance side of investing including ongoing SMSF administration support and advice as to what is allowable in a superfund. However, we are not registered financial planners and do not hold an Australian Financial Services License (AFSL) and do not provide professional advice regarding the global financial demand and supply of gold, the likely long-term returns or whether it is an appropriate investment for your self-managed super fund. Our role is to provide compliance advice under the Superannuation Industry (Supervision) Act 1993. If you are looking for financial advice please feel free to contact us and we would be happy to refer you to a financial adviser who can provide detailed advice on diversification, asset allocation and the type of assets they recommend you holding as part of your self-managed super fund portfolio.
If you’re considering having your SMSF invest in precious metals, you have to know and comply with the rules surrounding this type of investment and understand when holding physical assets are considered a collectable, when a deposit box or dedicated vault service is appropriate and how to document your choices such as how assets are securely protected and whether the individual trustees should consider seeking insurance cover for the portfolio.
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 this documents to permit this acquisition and explain how it meets the trustees goals and will provide financial rewards for the members during retirement.
Super Fund investing in Gold and Silver Bullion
There are three ways a superannuation fund can hold gold, silver and other precious metals:
- Exchange Traded Funds (ETFs)
Exchange Traded Funds or ETFs in an SMSF
You have the option to purchase an ETF for precious metals like gold and silver in order to form part of your SMSF portfolio without the effort of physical gold using the Perth Mint or other bullion providers. ETFs consist of one principle asset, which is the metal itself and allows you to easily track the price of the acquisition and can be easily bought and sold once you open an account. The said, funds consist of a derivative contract that is backed by the metal as opposed to the metal content itself which does not suit all funds if a trustee wants to hold the physical SMSF gold as opposed to the paper. This is a personal decision and not one we can advise upon but we have certainly assisted many investors who have chosen this pathway to hold previous metals in the SMSF trust.
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. One of the advantages of the ETFs is that is allows you to diversify your portfolio without having to worry about these rules discussed in detail later in this article.
Satisfying Audit Requirements: EFTs
It is easy to meet the annual audit requirements including the verification of the exitance 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. You can also easily login to any brokerage platform and seem the past performance of the ETF and allows investors to buy in smaller quantities.
Buy Gold or Silver Coins in a Super Fund
An SMSF can also hold 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
- 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 each year in Australian Dollars to ensure that you meet the audit evidence requirements and that your self-managed superannuation fund can report correct member balances.
SMSF Gold or Silver Bullion
Probably holding precious metal in the form of bullion (bars) is the most common form of holding we see inside a self managed super fund. The rules applying to holding coins, do not cover bullion 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: Physical Gold
If a trustee decides to buy gold and store their gold bullion or silver bars in a storage vault or at the mint, the documentation provided by these third-party facilities will be acceptable proof of the holding to the auditor. This information provided by a third party such as the Perth Mint forms the proof required that the physical gold or bullion coins are still in existence and available to the self-managed super fund.
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 provided a statutory declaration confirming the following:
- The inventory listing the types of metal held and their quantities (eg. 24 gold bars)
- A confirmation that the asset is securely stored and is not available to be used by the SMSF members as the SMSF cannot allow members to receive any benefit in advance.
- A confirmation that the metals are insured for their correct value or that the trustee has decided against insurance.
- The core issues the auditor of your fund focusses on is:
- Whether the SMSF can purchase gold or other precious metals under its investment strategy
- Whether it was purchased in the name of the SMSF
- Whether the portfolio has been valued correctly at spot price or other allowance pricing mechanisms
- Whether the portfolio is intact and none of the physical precious metals have been used, sold or changed by the trustee during the financial year.
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.