What can I purchase with my SMSF?
A self-managed super fund (SMSF) can invest in a very wide range of assets. This is one of the reasons many people elect to establish a SMSF so they can control how their money is invested for their retirement.
Your SMSF can invest into:
- Listed shares and other listed equities
- Managed funds
- Private unit trusts and companies
- Property (residential and commercial)
- Cash including term deposits and bonds
- Exchange-traded funds (ETFs)
- Cryptocurrencies
- Foreign property
- Collectables and personal use assets
- Physical commodities including gold and silver
Investments can be limited by the fund’s trust deed and the superannuation laws and regulations. Particularly, related party investments or dealings with related parties are heavily scrutinised to ensure the transaction is allowed and it is undertaken on an arm’s length basis. Overall, investments must be made for the sole purpose of providing retirement benefits to the members or for their beneficiaries on their death.
SMSF Trust Deed
Ensure your SMSF trust deed permits investment in assets you want included in the fund’s portfolio. Generally, deeds allow a broad range of investments, but older ones may restrict higher risk investments such as foreign property or cryptocurrencies. If you are a client of SMSF Australia we will keep your deed up to date with broad clauses allowing trustees to invest without additional restrictions above and beyond those the ATO enforces.
Investment Strategy
The fund’s investment strategy is formulated by the trustees to reflect all of the members objectives, risk profile, liquidity needs and their insurance needs. The strategy must be reviewed and updated regularly and can include different strategies to suit each of the members or each group of members i.e. a SMSF with ageing parents and adult children can have separate investment strategies with the parents having a more conservative strategy versus a higher risk strategy for adult children.
Listed Australian and Foreign Shares
Listed shares are one of the most popular asset classes for a SMSF. They are easily traded, highly liquid and transparent. Diversity in a SMSF portfolio can be managed by investing into various sectors including banks, industry, retail and resources.
Cash, Term Deposits and Bonds
Cash is a conservative investment which is considered to be a safe investment. Interest can be earned monthly or for a fixed period. A bond is very similar to a term deposit with the capital plus interest to be returned at a pre-determined future date. Typically, it is a loan to the government or large companies.
Managed Funds
Professional fund managers select and manage investments on behalf of investors. There are a very wide variety of managed funds, and it allows a SMSF to invest in areas which they would otherwise be unable to do so due to the cost involved. Investments can include retail, residential or industrial property development, blue chip shares, global shares, fixed interest and infrastructure funds. Managed funds are generally unlisted investments but are public funds and the market value is provided to investors regularly. Managed funds can also be listed on the ASX.
Exchange-traded Funds (ETFs)
An ETF is a managed fund which can invest into many different securities including shares, bonds, international shares and cryptocurrencies. Each ETF is designed to track the performance of a specific share market index, sector or asset. ETFs can be purchased and sold on the ASX and offer diversity in various markets. An ETF is low cost compared to mainstream managed funds.
Private Unit Trusts and Companies
This is probably one of the most scrutinised investments an SMSF can acquire. An SMSF can purchase shares or units in an unrelated trust or company. However, as there is no public market it is more difficult to obtain evidence of the market value at the end of a financial year which is required for audit purposes. Investments in related private trusts and companies have very strict requirements.
Property
Residential and commercial property is very popular in SMSFs. A fund can borrow to purchase property using a limited recourse borrowing arrangement. Residential property leased to an unrelated party is an allowable SMSF investment but, generally, cannot be acquired from a SMSF member or another related party. However, commercial property can be acquired from a SMSF member and even leased to a related member provided the acquisition is made at arm’s length and it is leased on commercial terms.
Collectables
A collectable includes artwork, coins, jewellery, vintage cars, antiques and wine.
Very strict rules apply to a SMSF owning collectables. An example is a painting owned by a SMSF cannot be hung in the member’s living room, must be insured in the fund’s name within 7 days of acquiring it, cannot be displayed in your business premises (it can be stored at your business premises) and can’t be leased to you or another related party and you must keep a written record of the reason made in deciding where to store the painting. A painting can be rented to a third-party company or an art gallery.
Cryptocurrencies or other Digital Assets
A SMSF can invest into cryptocurrencies and is becoming a very common part of a lot of members investment portfolios, usually via exchanges such as CoinSpot. To trade in cryptocurrencies a SMSF requires a bank which allows it to make transfers to exchanges to buy and sell crypto. However, practically it is becoming more difficult to find a bank which is crypto-friendly which can cause delays in trustees putting funds to work in the market.
Frequently Asked Questions
- Can my SMSF buy gold?
Yes, gold bullion can be acquired by a SMSF. There may be some audit issues such as how it is stored and obtaining evidence of it being held at 30th June. Gold bullion stored with a reputable mint providing an annual statement is acceptable for audit purposes.
- Can I buy gold coins in my SMSF?
Gold coins are usually considered to be a collectable and subject to special rules.
- Is gold and silver a collectable asset?
Gold and silver are not considered to be a collectable in their raw form. Gold or silver bullion are not collectables. They may be a collectable if made into jewellery or added to in some way.
- Are pink diamonds a collectable asset?
No, they are not in their raw form and are an investment we see quite regularly in SMSFs. The rationale is similar to question 3 above.
- Can my SMSF purchase a holiday unit on the Gold Coast and rent it to my niece for a couple of days?
No as your SMSF cannot rent the property to a related party unless it is a commercial property.