Is investing in Penfolds Grange good for your SMSF?

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A great article by Aaron Dunn of SMSF Academy:

The recent release of the 2008 Penfolds Grange is being regarded as one of the best ever. Some wine critics have already scored the wine 100/100, with the increased demand seeing prices for a bottle at around $700.

Could it be an investment for your self-managed superannuation fund (SMSF)? It certainly could, but there are a few things you need to know.

For trustees who look to invest in collectables and personal use assets, such as wine, they must adhere to stricter requirements from 1 July 2011. Should a fund trustee consider acquiring one or more bottles of this 2008 release, the following investment rules must be adhered to:

• The wine must not be leased to any related party of the fund (for example, for display),

• The wine must not be stored or displayed in the private residence of any related party of the fund (it can, however, be stored on business premises of a related party),

• You must make a written record of the reasons for the decisions about where to store the assets and keep the record for 10 years,

• You must ensure the wine is insured in the name of the fund within seven days of acquisition, and

• The wine cannot be used by any related party of the fund – while it may be tempting, you can’t drink it while it is an asset of the fund!

Failure to comply with these strict requirements will incur penalties of 10 penalty units ($1700).

Do you already have wine (or other collectables and personal use assets) in your SMSF before 1 July 2011? Transitional arrangements for these assets apply through to 30 June 2016.

See the Australian Taxation Office (ATO) website for further information about these transitional arrangements.

What if you eventually want to drink it?

It is possible, but you would need to acquire it from the fund at the current market rate. It would require a qualified independent valuation at the time, triggering a capital gain or loss for the SMSF.

Where the member(s) have retired or have access to their superannuation, the wine could be transferred from the fund as a super lump sum payment. It would still require a valuation to determine the disposal price for the SMSF.

And finally … it leads me to my favourite SMSF joke: A man in his 60s is having his SMSF audited by the ATO. As part of undertaking the audit, the ATO officer notes that his fund is made up almost entirely of a wine collection.

In requesting to see a copy of the fund’s investment strategy, the ATO officer asks about the appropriateness of the strategy given the fund is in pension phase. He discusses the need for liquidity to pay benefits as and when they fall due. “Easy,” the trustee replied, “I’ve calculated my minimum pension for the year, and it’s five bottles a month!”

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