[UPDATED FOR 2020]: Car storage & SMSF's have more in common than what you might think.
So you have yourself a hard-earned self-managed superfund (SMSF), and some uncertain economic times are steering your reliance away from conventional superfund investments. Unknown to some, investing in collectable assets is a common practice within the SMSF world. Such collectable assets can include wine, artwork, jewellery, right through to an array classic and collectable cars.
With regards to the latter, this blog article will touch on the general parameters of making such an investment, with a particular focus on the legislation surrounding use and car storage guidelines.
Can I Actually Buy a Car in My Superfund?
The answer is yes - so long as you pass the 'sole purpose' test, in which the car is purchased for the benefit of superfund members and does not provide a present day benefit to the superfund members or any of their related parties. A present-day benefit in this instance is driving or viewing the car for enjoyment purposes.
Why Invest In a Collectable Car?
Beyond the diversification of an SMSF portfolio, investing in an appreciating collectable car can be a very profitable exercise.
As a historical example, according to the Knight Frank Luxury Investment Index in the UK, in 2017 prestige wine offered investors a three per cent return over 12 months, with Watches at 4% and Coins at 10%. Classic cars came in at 28%. Furthermore, its not uncommon hearing about high-end collectable cars appreciating over 500% in value over longer timeframes.
Though please do note - like any investment, it can always go the other way, as collectable car markets are some of the hardest to predict. There is just something a certain element of sheer luck to a vehicle appreciating in value, but at the same time there is a degree of science to what you should be looking at purchasing in the first place.
If you don't have a healthy knowledge in this industry, engage with someone who does - whether it be a friend or family member, or a trust classic car dealer.
Thorough pre-purchase due diligence and verifications are absolutely imperative before transacting any vehicle, to ensure you are getting what you pay for.
What Kind of Car Should I Be Investing In?
Whether it be a current classic or future classic, the hardest part is usually choosing the right one that is most likely to appreciate in value. There is certainly no exact science relating to this, however beyond the type of car, the most common attributes to consider will normally include:
Physical Condition - has it been well-looked after?
Original Vs Restored - A nicely restored example can be attractive, but so can a well-kept original
Mileage - how high is it and can it be verified?
Quantity Manufactured - Simple supply & demand: Less made normally equals higher demand of certain models.
Quantity of Previous Owners - The lower the better
Colour - Usually subjective but some are more attractive than others
Country of Delivery - Can add to the value if it matches the country its being sold in
RHD vs LHD - Will be important based on what
History - Ownership, servicing, modifications, imports and exports etc
Level of Accompanying Documentation - The more the better here. Every seemingly meaningless document from the cars life can help tell its story.
Completeness of Originality - How complete is the car from when it came out of the factory? Specifically in relation to original books and issued documents, tool kit, radio
I've decided to purchase an SMSF investment vehicle - where can I keep it?
Certainly not in your garage at home, according to the ATO:
"Collectables and personal use assets can't provide a present day benefit, so they can't be used by members or related parties. Collectables and personal use assets must not be stored in the private residence of any related party".
This effectively means that you, or any related parties to you, cannot drive or 'enjoy benefit' of the car, nor store it in your private residence (or the residence of a related party). Even being able to view your car in your garage is considered a benefit, of which is prohibited under the legislation.
This means car storage must take place in a secure professional environment (such as a vehicle storage facility), or stored in privacy with a non-related party. If you do opt for the professional service, most of these operations can maintain the vehicle through battery charging, cleaning & detailing, tyre pressure management and regular engine start-up & runs. As this is an investment, it also means your storage and maintenance fee's will be tax deductible.
If you breach these provisions surrounding storage and use you can expect a fine of $2,100 per offence.
What if the car needs to be driven for maintenance or restoration purposes?
Needless to say, even a classic investment vehicle needs to be driven from time to time to ensure its mechanical health. The legislation stipulates:
If your SMSF owns a collectable 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. However, a person who is not a related party can drive the vehicle for such a purpose.
This means that a representative from the restoration shop or storage facility could drive the car for maintenance purposes, so long as the car carries valid registration and insurance.
What Are My Insurance Requirements?
The vehicle must carry comprehensive insurance in the name of the Superfund that owns it within 7 days of purchase, and carry a valid policy throughout ownership. Its a prudent idea to ensure you are able to obtain insurance before purchasing the vehicle. Companies such as Shannons and Famous tend to specialise in the insurance of prestige and classic vehicles.
Can I Lease the Vehicle Out?
The vehicle can be leased to an unrelated party, assuming the lease is on arm's length terms, and not to a related party. For example a classic car could be leased to a car museum for display purposes.
What If I Want to Sell The Vehicle to Related Party?
This is possible, however it must be sold at a market price as determined by an independent qualified Valuer.
Related Party Storage Exemption
You can store (but not display) collectables and personal use assets in premises owned by a related party, provided it is not their private residence. They cannot be 'displayed', as this will mean they are being 'used' for enjoyment.
How Can We Help?
Autohouse Storage Brisbane is considered as a 'professional vehicle storage environment', and is able to offer professional SMSF car storage. With specialised security systems, Autohouse can offer a safer and more secure storage environment than the typical family home garage, and also maintain the condition of the car with a range of additional services on offer.
Thanks for reading!
Disclaimer: The above is a general guide only - it is imperative to conduct your own research if you are looking to invest in a collectable car, and it is strongly advised you consult your Financial Planner for advice.