Sole purpose test drives SMSF investment in motor vehicles: expert
An SMSF can own a car but it must be a genuine investment made for genuine retirement purposes and not to provide present-day trustee benefits, says a leading industry expert.
David Busoli, director of SMSF Alliance, said a car can be owned by an SMSF but, as it’s classed as a personal use asset, it's subject to significant restrictions.
Mr Busoli said although a car can be purchased by an SMSF as a genuine investment, iit can’t be used by the trustees at all.
The overriding investment rules linked to SMSFs are driven by the sole purpose test, which requires all SMSF investment activities be conducted with the exclusive purpose of providing benefits to members once they have retired or reached 65. They can also provide financial support to beneficiaries if members pass away before retirement.
The regulations concerning motor vehicles even extend to prohibiting restoration work from taking place on the motor vehicle.
“If the SMSF owns a car, related parties can’t drive it for any reason – not even for maintenance purposes or to have restoration work done – because this constitutes use of the asset,” Mr Busoli said.
As with other special assets acquired by an SMSF, there are strict regulations on how a car purchased by and for a fund must be stored.
Superannuation law prohibits motor vehicles from being stored in the private residence of a member of a SMSF or of any related party of the fund including areas such as the garage of a private home or other areas that are considered a private dwelling.
However, according to the ATO, motor vehicles, as well as other personal use assets, are allowed to be stored in business premises owned by a related party of the fund. This does not extend to private residences, but rather business areas such as a purpose-built storage facility, car park or garage that is part of a business.
“Storage must be remote from the trustee’s residence which includes all parts of the dwelling, the land on which it is situated and all other buildings on that land, such as garages or sheds,” Mr Busoli said.
“It can be stored in premises owned by a related party, provided it’s not their private residence, but it can’t be displayed.”
He added that a record must be kept of the reasons for deciding where to store the vehicle and insurance requirements are also specific.
“If the vehicle is displayed by an unrelated party as part of a vintage or classic car display and covered by insurance arranged by that party, the car must be specified, and the fund must be noted on the policy as a named insured or beneficiary,” he said.
There are several other restrictions for personal use assets that may extend to motor vehicles as well including that SMSF trustees must ensure that the vehicle is insured in the name of the fund within seven days of acquisition. Trustees wishing to transfer ownership of personal use assets to a related party of the SMSF must do so at a market price as evaluated by a qualified independent valuer.
