The amazing world of exotic assets in SMSFs
SMSFs hold some of the most bizarre assets imaginable, challenging auditors required to value them and verify ownership. New rules and compliance obligations for trustees are fast approaching.
Despite being involved in auditing SMSFs for many years, I still sometimes pick up an SMSF for audit and just think ‘wow’ ….
Whether it be the creativity of some investments, the risk-seeking nature of some trustees or just trying to get my head around what the trustee(s) were thinking when they put their hard-earned retirement savings into a particular investment, I can assure you that auditing SMSFs never gets boring.
I’m going to share with you some of my favourite investments from my time as an SMSF auditor. It certainly has opened my eyes to a world outside of listed shares.
As an SMSF auditor, aside from the yes/no compliance aspects, I am primarily concerned with a few key assertions with respect to investments – being existence, rights and obligations, and valuation. As you will see below, sometimes getting comfortable over all of these can be very difficult.
Animals – yes, believe it or not, some trustees have placed their retirement savings into animals, bulls to be precise. In September 2015, the Australian record for a bull sale was smashed, with an Angus bull being sold in NSW for $150,000!
Memorabilia – I’ve seen a cricket cap, Back to the Future memorabilia and many others. The irony of retirement savings being ploughed into Back to the Future memorabilia was certainly not lost on me! Genuine baggy green cricket caps, when they go to auction, can do very well indeed. One sold for over $400,000 because it was a Sir Donald Bradman cap.
Transport – I’ve seen taxi plates, plane hangars, a marina berth and a caravan, to name a few! Unfortunately for trustees who invested in taxi plates a few years back, with the rise of Uber, market values of taxi plates have dropped significantly in recent years, from a high of around $425,000 in 2011 for a Sydney plate to around $230,000 in December 2015. In fact, they dropped from $300,000 to $230,000 in one month at the end of 2015! Since November 2014, the value of taxi plates in Sydney has fallen by 38% and is now at its lowest level since January 2002. Marina berths are an interesting investment – they are generally long-term leases (without an option to renew), not actually direct ownership. So, while an SMSF may pay a significant amount of cash (hundreds of thousands of dollars in many cases), it does not actually own the site. The money is, quite simply, rent in advance. The way that trustees generally try to make profit from a marina berth is by renting it out short term at higher than the rent prepaid, plus of course the interest paid on borrowings for 25 years’ rent up front.
Bible pages – one of the most interesting investments I have come across is pages from the original King James Bible! Rare antiquarian (antique) bibles that are investment-grade can often increase in value each year by 15 to 25% or more. The finite supply is continually bought-up by collectors and institutions.
Whisky – I’ve come across trustees investing in barrels of whisky, worth around $10,000 each! As the famous Irish playwright, George Bernard Shaw once famously said: “whisky is liquid sunshine!”. Here’s hoping the sun is shining on these investments!
ATMs – Most people think of their super as their own personal ATM for retirement – well, how about actually investing in an ATM! With many ATMs in Australia charging upwards of $2 per transaction, if only 50 people per day use the ATM that works out at $36,500 per year (less rent). Dependent on the location of the ATM, this could even be a conservative figure.
Moon rock – certainly one of the more unusual investments was a piece of moon rock, reportedly brought back from one of the moon landings.
There are many other exotic investments, including the infamous story of an SMSF that owned a pride of lions, which they leased back to a circus.
Compliance obligations of a trustee
Before you do decide to invest in some of the more exotic investments, always remember your compliance obligations as a trustee. The auditor of your SMSF will require evidence of the existence, rights and obligations, and valuation of your investment, as well as storage and insurance for collectables.
As the Australian Taxation Office advises, collectables and personal use assets are things like artworks, jewellery, vehicles, boats and wine. Investments in such items must be made for genuine retirement purposes, not to provide any present-day benefit. So collectables and personal use assets cannot be:
- leased to, or part of a lease arrangement with, a related party
- used by a related party
- stored or displayed in a private residence of a related party.
- the investment must comply with all other relevant investment restrictions, including the sole purpose test
- the decision on where the item is stored must be documented (for example, in the minutes of a meeting of trustees) and the written record kept
- the item must be insured in the fund’s name within seven days of the fund acquiring it
- if the item is transferred to a related party, this must be at market price as determined by a qualified, independent valuer.
For collectables and personal use assets held before 1 July 2011, remember that trustees have until 30 June 2016 to comply with these rules.
About the author
Will Munro is Manager of the SMSFs Audit team at Deloitte. This article appeared on Deloitte’s SMSF Inside blog. This article is general education and does not address the circumstances of any individual, nor is it taxation or investment advice.
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