Q: My wife and I have long been wine enthusiasts. Can we use our SMSF to invest in wine?
A: The first thing to do is review your fund’s trust deed to ensure the relevant power to invest in wine is included in the deed. If the trust deed excludes, or does not contain, the relevant power to invest, then you would be unable to use your SMSF to invest in wine. You would need to make arrangements to have the deed amended.
You would also need to ensure that the investment is in line with the investment strategy outlined for the trust.
Consideration must also be given to Section 62 of the Superannuation Industry (Supervision) Act 1993, 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.
In your case, it could be argued that investing in good wine can provide retirement benefits to the fund’s members, as the value of good wine sometimes increases over time.
You will also need to satisfy Section 109 of the SIS Act, which requires that an investment transaction by an SMSF 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, Section 62A of the SIS Act states that certain investments, such as wine, art works and other collectables, may come under stricter rules prescribed by SIS Regulations. You must ensure that you are not deriving any personal use or enjoyment from the asset, such as drinking the wine.
You 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 July 2011, SMSF trustees who invest in collectables or personal use assets, including 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 the land, such as garages or sheds.
Further, the acquired asset must not be leased or used by a related party, the asset be insured within seven days of acquisition, be independently valued and there must be documentation setting out the reasons for deciding on the storage of the asset.
When investing collectables and personal use assets there is plenty for an SMSF trustee to consider, so tread carefully and seek advice if you are unsure.
Elizabeth Wang is a solicitor at Townsends Business & Corporate Lawyers