The most common reason Australians switch to a self-managed super fund is for the flexibility and control over how their super is invested.
For many, this can mean a venture into property investment, specific shares or a risk-averse term deposit. But there are a number of more unusual ways you can diversify your SMSF.
1. A property for your business
If you have a business, or are looking to start one, your SMSF can purchase a commercial property that your business can operate from.
But this isn’t a way for you to skimp on your rental payments; you will need to pay the rental market rate to your SMSF in order to pass the ATO’s strict sole purpose test of your SMSF only providing benefits for retirement.
Fortunately, when your SMSF owns the building and your business pays the rent into your SMSF, rather than a third-party landlord you’ll effectively get that rent back for yourself in retirement.
2. Whiskey or wine
Yep, it’s been known that some SMSFs have invested in barrels of whiskey or cases of collectable wine, which is great news if you are a wine connoisseur or whiskey enthusiast – although you can’t drink any of it, sorry.
If you know how to spot a good vintage that’s likely to give a good return on investment, then you could choose to invest your super in this rather exotic asset class with an SMSF.
However, to satisfy the sole purpose test, you have to make the investment on an arm’s length basis meaning that the wine or whiskey cannot be stored at your home or a place you would have access to it (such as a garage or shed). You also need the investment to be independently valued by a qualified third party.
3. Classic cars
While you are not allowed to use your SMSF to purchase a new ride, you could invest in a classic collectable car. Before you start envisioning yourself driving through vineyards in the convertible of your dreams, remember that your SMSF’s car cannot be used by the trustee or anyone related to the trustee.
This means neither you nor your family can take the car out for a ride or have restoration work done on the car. In addition, you are not allowed to store or display the car at your private residence as even looking at it in your garage could constitute benefiting from the investment before retirement.
As is the case with all collectable investments, you would need to have the car independently valued and make sure that it is appropriately insured within seven days of acquisition.
4. Corporate artwork
We have a number of clients who have invested in artwork through their SMSF and have found a unique way of making a return on their investments.
They are renting out their sculptures and paintings to corporate spaces, such as the large atriums in skyscraper office buildings or event spaces. Some are even making 10% returns a year.
There are very strict rules for investing in artwork with an SMSF, especially when it comes to insurance as specialist insurance policies are often necessary for these types of investments. The ATO also requires your decision to invest in art to be documented and kept for a period of 10 years.
5. A marina berth
A marina berth is another unusual asset that SMSFs could consider as a long-term investment plan. Investing in a marina berth does not actually give you direct ownership. Instead, your SMSF becomes the long-term leaseholder and makes a return by renting out the berth to short-term tenants at a higher rate.
Remember, you cannot use the berth for personal use such as storing your own boat – but if you’re a boat enthusiast, this is a creative and potentially lucrative way of diversifying your SMSF.
Whether you decide to invest in traditional assets such as shares or term deposits, or something a little more uncommon, it’s crucial to consider the long-term potential returns for your investments in your SMSF. After all, your retirement depends on it.