The simple answer is YES, SMSFs are allowed to invest in all manners of collectibles including but not limited to cars and other motor vehicles. The list would also include things like jewelry, art, stamps, wine and more…
The main challenge with these investments is to ensure that the SMSF owning them stays compliant and it has all to do with the sole purpose rule which according to the ATO:
“Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.
Contravening the sole purpose test is very serious. In addition to the fund losing its concessional tax treatment, trustees could face civil and criminal penalties.”
In practice, that means that there are to be no benefits or enjoyment for the trustees from the investments made by their SMSF.
Take the example of the car: it can not be driven under any circumstances, it must be insured and must be safely kept. Assume that the trustees decide to store the car in a different garage, it may seem innocent enough to drive the functioning car to the new location but that would be a breach of the sole purpose test! The car would have to be transported there.
Another classic example would be a painting, which has to be stored in a place where the trustees do not enjoy it i.e. not their living room. So to be compliant the artwork has to be either leased to a third, non related party to generate an income or kept in the dark in a safe place.
Can my SMSF borrow to purchase the car?
There is no compliance or legislative hurdle stopping an SMSF to borrow to purchase a car, however there are no third party lenders currently offering these loans as they must be Limited Recourse Borrowing Arrangements (LRBAs).
That limits the options available to trustees to an SMSF related party loan only. In this instance, trustees may either use some of their savings or some equity in the existing property and lend it to the SMSF themselves. The SMSF then starts to make repayments to the trustees for this loan, just like it would have to a normal bank.
For collectible purchases, in order to comfortably stay within the ATO’s guidelines, we usually suggest clients do not lend more than 50% of asset’s value, for no more than 15 years and at a commercial rate (currently circa. 5.5% p.a.).
If you are an SMSF trustee looking at investing in collectible using an SMSF loan, please contact us before committing to a specific asset on 1300 781 680. SMSF Loan Experts are a team of highly qualified and experienced specialists, with 12 years of providing SMSF setup and SMSF lending services throughout Australia.
* The information contained in this blog is general information only. No part of this blog is to be construed as a solicitation to buy or sell any security or financial product. The author, in preparing this blog, did not take into account the investment objectives, financial situation and particular needs of any particular person. Before acting on any information or advice in this document, you should consider the appropriateness of it (and any relevant product) having regard to your circumstances. You should also seek independent financial advice prior to acquiring a financial product.