SMSFs have the ability to invest in a range of assets but what about gold? Eleanor Tjondro examines the intricacies of holding this commodity.
A recent client inquiry led us to take a closer examination of the types of assets an SMSF can invest in. The inquiry concerned the acquisition of gold as an allowable investment under superannuation laws.
To ascertain whether an SMSF can invest in gold, we firstly need to look at legislation governing SMSFs: the Superannuation Industry (Supervision) (SIS) Act 1993 and SIS Regulations 1994.
The investment must firstly comply with section 62 of the SIS Act. This section refers to the sole purpose test: that the sole purpose of the SMSF is to provide retirement benefits to its members. If an investment does not provide such benefits, it will not be an allowable SMSF investment under superannuation laws.
The value of gold has the ability to increase over time, similar to investing in shares, and therefore it can be argued it can provide retirement benefits for SMSF members.
Secondly, section 109 of the SIS Act states any investment transaction done by the SMSF must be at arm’s length, that is, on a commercial basis. For example, an asset acquired by the SMSF must be purchased at market value, and not lower, to comply.
Furthermore, section 62A of the SIS Act states certain investments made, held or realised by the SMSF may come under stricter rules as prescribed by the SIS Regulations. The investments listed under section 62A relate to items that are likely to be kept for personal use or enjoyment.
What is of interest here is the inclusion of ‘jewellery’ and ‘coins and medallions’ as gold can take those forms. Gold jewellery and gold coins/medallions will certainly come under the stricter rules prescribed by the SIS Regulations.
Gold in the form of jewellery is likely to be regarded as a personal use item and gold in the form of coins or medallions as a collectible. Both forms must comply with SIS regulation 13.18AA, which details how these items are to be to be stored if acquired as an SMSF investment. This is to ensure the acquisition of these items appears, to a third party, to be a commercial transaction.
Gold in its basic physical form, such as gold bars, however, is unlikely to be subject to those stricter regulations. The fundamental rule would appear to be that if the form of the precious metal has a value separate from the raw price of the metal itself, then it is most likely an item of personal use or a collectible.
If on the other hand the value of the item is simply the spot price of the precious metal constituting the item, then the item is not a personal use item or a collectible, but simply an investment in precious metal.
Although superannuation laws do not prohibit investing in gold, this does not necessarily mean your particular SMSF is able to. If your trust deed does not contain the relevant power to invest in precious metals, your SMSF is unable to invest in this type of asset.
It is extremely important you carefully review your trust deed to ensure the relevant investment power is there. If you find your trust deed is lacking in the relevant power, you need to arrange to have the deed amended.
Finally, as trustee of an SMSF, you need to be aware of whether this investment is in line with your SMSF’s investment strategy.''