31/07/2017

Donald and his wife Debra have always been wine enthusiasts, and heard from friends that an SMSF may purchase a collection of wine as an allowable investment under superannuation laws.

Even before Donald and Debra can start discussing what collection of wine to purchase, they need to review the trust deed of their SMSF and ensure that the relevant power to invest in wine is contained in their trust deed. If their trust deed excludes, or does not contain, the relevant power to invest, then they would be unable to use their SMSF to invest in wine and would need to make arrangements to have their trust deed amended.

As trustees of the SMSF, Donald and Debra would also need to ensure that the investment is in line with the investment strategy outlined for their trust deed.

Consideration must also be given to s62 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), which refers to the sole purpose test. The sole purpose test states that an SMSF is to be maintained for the purpose of providing benefits to its members upon their retirement. So, Donald and Debra’s investment won’t be permitted under s62 of the SIS Act if their investment does not provide such retirement benefits.

In Donald and Debra’s case, it is arguable that investing in good wine can provide retirement benefits for the SMSF’s member, as the value of good wine sometimes increases with age over time.

Donald and Debra will also need to satisfy s109 of the SIS Act, which requires an investment transaction by an SMSF to be conducted on an arm’s-length basis. In other words, the investment transaction must be conducted on a commercial basis with the asset being acquired at market value.

Additionally, s62A of the SIS Act states that certain investments, such as wine, that are made, held or realised by the SMSF, may come under stricter rules prescribed by the SIS Regulations. When it comes to the personal use or enjoyment from the acquired asset, Donald and Debra must ensure that they are not deriving any personal use or enjoyment from the asset, such as drinking the wine!

Donald and Debra must also comply with regulation 13.18AA of the SIS Regulations, which details how personal use assets and collectables are 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.

Since 1 July 2011, SMSF trustees that invest in collectables or personal use assets such as wine must not store the collection in the private residence of any related party of the SMSF. A private residence includes all parts of a private dwelling (above or below ground), the land on which the private residence is situated and all other buildings on that land, such as garages or sheds. Further requirements include that the acquired asset must not be leased or used by a related party; that the asset be insured within seven days of acquisition; be independently valued; and that there must be documentation setting out the reasons for deciding on the storage of the asset.

When investing in collectables, such as wine, there is plenty for an SMSF to consider so tread carefully and seek advice if you are unsure.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.