Precious metals and SMSFs can go hand in hand for trustees looking to diversify their superannuation investments beyond traditional assets such as shares, property and cash.

Physical gold and silver bullion can potentially be held within a Self-Managed Super Fund (SMSF), but purchasing precious metals through an SMSF is different from buying bullion personally. Trustees need to ensure their investment decisions, ownership, transactions, documentation and storage arrangements comply with Australian superannuation rules.

If you’re considering gold or silver for your SMSF, here are some of the key things to understand before you buy.

Can an SMSF invest in precious metals?

An SMSF can potentially invest in physical precious metals such as gold and silver, provided the investment complies with superannuation law and the fund’s investment strategy.

Like other SMSF investments, the decision should be made for the purpose of providing retirement benefits to fund members rather than providing a current-day personal benefit.

The fund’s trust deed and investment strategy should also support the investment.

Before purchasing bullion, trustees should consider obtaining independent financial, tax or SMSF advice appropriate to their circumstances.

Why do SMSFs invest in gold and silver?

One reason SMSF trustees consider precious metals is diversification.

An SMSF portfolio may contain assets such as Australian and international shares, property, cash and fixed-interest investments. Physical gold and silver provide exposure to a different asset class.

Precious metals are tangible assets whose value is influenced by factors including global supply and demand, currency movements, interest rates and investor sentiment.

Gold in particular has a long history as a store of value, which is one reason it can attract attention during periods of inflation, economic uncertainty and financial-market volatility.

However, precious metals can fluctuate in value and do not generate income in the same way as assets such as dividend-paying shares or investment property.

What precious metals can an SMSF buy?

SMSFs may be able to purchase investment-grade precious metal bullion, including gold and silver bars and certain bullion coins.

However, trustees need to pay attention to exactly what they are purchasing.

Certain coins and other precious-metal items may be considered collectables or personal-use assets rather than straightforward bullion investments. Different SMSF requirements can apply to collectables.

For this reason, trustees should understand the classification of a product before purchasing it through their fund.

The SMSF must own the bullion

When precious metals and SMSFs are involved, it is important to keep the fund’s assets clearly separate from the personal assets of its members.

The bullion should be purchased and owned by the SMSF, with invoices and transaction records correctly identifying the fund or trustee structure as appropriate.

Funds used to purchase the bullion should also come from the SMSF rather than a member’s personal bank account.

Maintaining clear records helps establish that the precious metals are an asset of the fund and assists with accounting, valuation and the SMSF’s annual audit.

How should SMSF gold and silver be stored?

Storage is an important consideration when an SMSF owns physical precious metals.

Trustees need to be able to demonstrate the fund’s ownership and control of its assets while ensuring those assets are appropriately protected.

Professional vault storage can provide a clear separation between personally owned valuables and bullion belonging to an SMSF. It can also provide documentation relating to the assets being held.

Whatever storage arrangement is chosen, trustees should ensure it is consistent with their obligations and can be appropriately documented and verified for audit purposes.

Can you keep SMSF bullion at home?

This is an area where trustees should seek professional advice before making a decision.

The fact that bullion is physically stored at a member’s home can raise practical questions around security, proof of ownership, separation from personal assets, insurance and verification by the fund’s auditor.

The fundamental issue is not simply where an asset is located. Trustees need to be able to demonstrate that it is genuinely an SMSF asset, appropriately held and managed for the fund’s permitted purposes.

For trustees wanting clearer separation between personal and SMSF assets, professional vault storage may be worth considering.

SMSF precious metals and the sole purpose test

SMSFs are required to be maintained for the purpose of providing retirement benefits to members, or their dependants if a member dies.

This is known as the sole purpose test.

An SMSF investment should therefore be made for the benefit of the fund rather than to provide members with personal use or enjoyment today.

This distinction can be particularly important with assets that could potentially have a personal or collectable purpose.

What about collectable gold and silver coins?

Not every gold or silver coin should automatically be treated in the same way as investment bullion.

The ATO has specific rules covering collectables and personal-use assets, which can include coins and medallions in certain circumstances.

Those rules can affect matters such as storage, insurance, use by related parties and disposal.

If an SMSF is considering purchasing rare, numismatic, commemorative or collectable coins, trustees should obtain professional advice about how the particular asset will be classified before proceeding.

Keep accurate records

Documentation is particularly important when an SMSF owns physical assets.

Trustees should maintain appropriate records relating to purchases, invoices, payments, ownership, storage and valuations.

SMSF assets are generally required to be valued at market value for financial reporting purposes, so trustees should also consider how an appropriate value for their precious-metal holdings will be established at reporting time.

Good record keeping can also make the fund’s annual audit considerably easier.

Buying precious metals for an SMSF

Buying bullion through an SMSF requires more care than making a personal gold or silver purchase.

Before proceeding, trustees should consider:

• whether precious metals are permitted under the fund’s trust deed and consistent with its investment strategy
• exactly which bullion products the SMSF will acquire
• ensuring the SMSF is correctly identified as the purchaser and owner
• maintaining appropriate purchase and transaction records
• how the bullion will be securely stored and verified
• how the investment will be valued and documented for SMSF reporting and audit purposes.

A qualified SMSF adviser, accountant or financial adviser can provide guidance on the fund’s individual circumstances.

Precious metals and SMSFs: understanding your options

For trustees considering precious metals and SMSFs, physical gold and silver can provide exposure to an asset class outside traditional financial investments.

However, the structure matters.

The bullion needs to be acquired, owned, documented and stored in a way that is appropriate for an SMSF, while trustees remain responsible for ensuring the investment complies with the fund’s strategy and Australian superannuation rules.

Sovereign Vault & Bullion provides access to physical gold and silver bullion on the Sunshine Coast, together with secure vault storage options.

If you’re considering purchasing bullion through your SMSF, our team can assist with the bullion purchase and storage process. For advice about whether precious metals are appropriate for your SMSF, speak with your qualified financial, tax or SMSF adviser.