Is the acquisition of gold as an allowable investment under superannuation laws?

Gold jewellery and gold coins/medallions will certainly 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 collectable.  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 that 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 that the relevant investment power is there. If you find that your trust deed is lacking in the relevant power, contact us and arrange 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.

By Eleanor Tjondro

The post Can an SMSF invest in gold? appeared first on AdviserVoice.

As the ATO regulates SMSFs and administers superannuation laws in relation to them, trustees need to keep abreast of possible changes as these may require them to adjust the way they address superannuation compliance responsibilities.

The ATO has, in the last year, altered its approach in encouraging trustee compliance by issuing non-compulsory guidelines. These contain a set of ATO accepted terms which, if trustees choose to adopt, will ensure that the ATO will not examine their superannuation-related transaction.

One such example was the Practical Compliance Guideline in relation to arm’s-length terms for limited recourse borrowing arrangements by SMSFs (“PCG 2016/5”). First published in April 2016, this guideline set out related party loans terms, and trustees who adhered to them were given the guarantee that they would not be at risk of coming under the non-arm’s length income provisions.The guidelines were updated in September 2016 to extend the deadline (to 31 January 2017) for complying with these terms as well as to incorporate the newly released taxation determination (“TD 2016/16”).  TD 2016/16 is to be regarded only when related party loan terms do not mirror those in PCG 2016/5 and discusses indicators that the ATO may rely upon when determining whether income earned by an SMSF will be

The guidelines were updated in September 2016 to extend the deadline (to 31 January 2017) for complying with these terms as well as to incorporate the newly released taxation determination (“TD 2016/16”).  TD 2016/16 is to be regarded only when related party loan terms do not mirror those in PCG 2016/5 and discusses indicators that the ATO may rely upon when determining whether income earned by an SMSF will be non-arm’s-length income. Examples listed included the presence of a zero interest rate and high loan-to-value ratios.

Unsurprisingly, PCG 2016/5 and TD 2016/16 garnered significant interest from our clients as a large proportion of their SMSFs had existing related party loan arrangements. Many requested an amendment to the terms of their loan to mirror PCG 2016/5’s terms and we promptly assisted by preparing necessary documentation to effect that.In an address to The Tax Institute in August 2016, the Assistant Commissioner at the ATO, Kasey MacFarlane, referred to the PCG 2016/5 and hinted that more of these guidelines would be issued by the ATO in relation to a number of superannuation transactions.

In an address to The Tax Institute in August 2016, the Assistant Commissioner at the ATO, Kasey MacFarlane, referred to the PCG 2016/5 and hinted that more of these guidelines would be issued by the ATO in relation to a number of superannuation transactions.Adhering to this non-compulsory guideline gives assurance that this transaction is within the parameters of the ATO’s rulings.

Adhering to this non-compulsory guideline gives assurance that this transaction is within the parameters of the ATO’s rulings.

By Eleanor Tjondro, Solicitor

The post Shedding light on the ATO’s new compliance approach appeared first on AdviserVoice.