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Can your SMSF invest in gold?

Eleanor Tjondro  |  03 Apr 2017Text size  Decrease  Increase  |  

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Gold jewellery, and gold coins and medallions, are certain to come under the stricter rules prescribed by SIS Regulations.

 

A recent client enquiry led us to take a closer examination of the types of assets an SMSF can invest in. The enquiry 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. These are: The Superannuation Industry (Supervision) Act 1993 (the SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (the SIS Regulations). 

The investment must firstly comply with s62 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 that it can provide retirement benefits for the SMSF's member.

Secondly, s109 of the SIS Act states that 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, s62A of the SIS Act states that certain investments made, held, or realised by the SMSF may come under stricter rules as prescribed by the SIS Regulations. The investments listed under s62A 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 collectable. Both forms must comply with regulation 13.18AA of the SIS Regulations, which details how these items are to be to be stored if acquired as an SMSF investment.

This is to ensure that 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 collectable 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.

It is extremely important that you carefully review your trust deed to ensure the relevant investment power is there. If you find that your trust deed is lacking in the relevant power, arrangements need to be made to amend the deed.

Finally, as trustee of an SMSF, you need to be aware of whether this investment is in line with your SMSF's investment strategy.

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Eleanor Tjondro is a solicitor at Townsends Business & Corporate Lawyers. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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