Peter Johnson says many people think that if an SMSF invests in, for example, a houseboat, it is somehow different from investing in BHP shares.
“It could be anything [the fund invests in] – they may want to buy a camera in an SMSF, a pair of shoes, or get plastic surgery in their fund,” Johnson said.
“People keep thinking, well, if it’s a houseboat, it’s different from if it’s shares, it’s different to if it’s a pair of shoes, it’s different to if it’s a building – no, it’s not.”
Johnson said that although the Superannuation Industry (Supervision) Act mentions specific assets, the rules that apply are the same and must be complied with.
“There is no list of things at the back of the SIS Act that says prohibited investments. There are a few lists of things, admittedly, like collectables.”
“Someone asked me the other day about buying a barrel of whiskey, and so I had to look at the list to see if wine and spirits were on the list, and it was.”
Johnson continued that he had been asked about the rules that may apply to a fund buying a houseboat, which would be split 50/50 between the SMSF and the client in their own names and would be purchased outright with no borrowings.
“[In this scenario] it has not breached section 67 of the SIS Act as there is no borrowing to purchase the boat, it will not be used privately or by any associates. It is listed online as a rental, Airbnb and therefore it also hasn’t breached section 71 as it is to diversify the fund.”
“Currently, the fund invests in shares and earns minimal interest and this houseboat investment is probably okay under section 62 because the sole purpose is probably there. They want to diversify the fund and as they currently invest in shares that earn minimal interest, this purchase would probably give them a little bit of cash,” Johnson said.
“Also it will also diversify [the fund], provided they do an investment strategy that talks about investing in a boat and about the diversification for investing in a boat, then you’ve got regulation 4.09 covered as well.”
He said the fund has been able to overcome the investment restrictions, but there is still the question of whether investing in the houseboat breaches the SIS Act.
“Would it be considered a business? There’s nothing, again, in the SIS Act that says you can’t invest in a business, but what we have got to look at here is section 62 to see if it has covered financial benefit to a member.”
“Where it could have possibly breached that is that by buying half of the houseboat in their own name and half in the SMSF, where that might be breached is if, in five years, the individuals buy the houseboat off the super fund.”
If this happens, it could be seen as the SMSF effectively financing the members to provide financial benefit.
“If you read the rulings on provision of financial assistance, that could be one, because there was one where the fund bought the property off the members and then sold it back to them in five years’ time, and that was considered provision of financial assistance,” Johnson said.
“Under sections 65 and 66, they can’t buy the houseboat from a related party. And then there is regulation 13.14, provision of security over an asset – is the individual borrowing to buy their half of the boat, and are they offering a personal property securities registration on their interest in the boat that then secures the super fund’s interest?
“It’s important to remember, there’s nothing in the SIS Act that prohibits you from buying anything, provided you comply with every provision of the system.”
