Investing in Wine via SMSF

Financial Adviser's picture

An SMSF is an abbreviation for Self Managed Superannuation Fund. These funds are used to only invest in those assets that the members (trustees) will benefit with during their retirement. The number one priority assets for many investors who involve in SMSF are exotic investments, most in common includes; a yacht, fancy cars and artwork. I think this is so because they have never known the values in wine investments. Keep reading to find out how you can start a wine investment with an SMSF.

An SMSF comes with a few legal requirements that regulate rules to be followed. When determining whether your investment falls under an SMSF, the involved members have to check list whether it satisfies the test of sole purpose. The sole purpose in this case is to provide an income in retirement for the members and nothing less.  For instance, running a business with an SMSF or lending it out can’t be applicable. The Trust Deed and SIS restrictions have to be adhered to. This limits the type of asset that should be acquired and held.
 
This further brings out clearly that an SMSF must have an investment strategy rather than a trading strategy. The investment strategy has to be put down with all the concise transparency.  The strategy has to include aspects like cash flow management and provision of where your current asset allocation belongs to. For our wine investment, it is freely authorized to be involved, and for this case it will be noted down in the exotic investment class. On the other hand, if the asset is a non-financial asset with real property an exception, a good reason has to be noted down and a new sub-class created.
 
Why is property an exception in an SMSF? This fund is considered liable to buy property outright similar to buy any other type of investment. This means that the SMSF can purchase a property so long as the sole purpose test is retained. This means the property shouldn’t be your personal home or any other members home. Moreover, even after the property is constructed or bought the trustee can never leave in it whatsoever. For example, it has to be managed by a real estate agent.
 
There are number of considerations that have to be met in your SMSF wine investment strategy, and it involves:
 
Cash flow management: The members of the SMSF have to consider the implication of cash flow requirements which involves meeting all the expenses and benefits liability as they occur. In cases where the investment does not generate income, it has to be indicated how the asset in play will appreciate and liable income generated in the long- term. This therefore means that the risk and returns of the investment should be accounted for.
 
Diversification: Have the trustees spread their wings of risk across asset classes, countries, and industrial sectors? This speaks out the composition of your investments and willingness of the members to be liable.
 
Payment of Benefits: under lump sum payment of benefits, it will be required that the members liquidate the asset and the cash payment made. It may also be required to transfer title of the asset to another third party.
 Supporting documentations: This is evidence that shows the acquisition of the asset belongs to the SMSF trustees. These documentations can include records of dividends and distributions. Due to lack of central register of title, physical assets become hard to prove ownership. Furthermore, these assets are prone to degradation or depreciation in the long-run.
 
The bottom line of whether you can invest wine using SMSF is an absolute yes provided the above conditions are well laid and above all met. In brief these conditions are; SMSF members can invest in wine provided they will never drink it. This is similar to any art or jewellery. You can never brag by wearing the priceless watch or hanging a Picasso picture on your wall that was part of the investment.