Investing in jewellery is such a good investment, the ATO even has special rulings for Self Managed Super Funds
Only a few people would consider jewellery an investment and even fewer would consider investing in jewellery within their Self Managed Super Fund (SMSF).
Superannuation is a word that conjures the picture of building a nest egg for sometime ‘later’ which means that an investment strategy based on capital growth makes sense. That simply means that you want to purchase jewellery today that will be worth more in the future (several years from now) when you sell it.
This is a hard thing to achieve in the jewellery trade because when a piece of jewellery is purchased and is transferred to its new owner its resale value is instantly reduced by as much as 20%. However, special pieces of hand crafted jewellery designs can increase in value 5% to 10% over time. Not a good rate of return by any measure, but wait there is more to the idea of investing in jewellery.
Consider the purchase of a rare diamond or gemstone that already has or is becoming rarer because of reduced mining. Stockpiles around the world are being depleted increasing the value of existing stones as well as remaining stones in the stockpiles and the stones yet to be mined.
ONE STONE STANDS OUT
Australian Argyle Pink Diamonds
The value of investment in jewellery and more particularly in pink diamonds is that the upper end of the pink diamond market, is capable of fetching upwards of US$1M per carat, and, as supply declines over the coming years, their investment value is set to escalate inline with the decline in the availability of pink diamonds.
Pink diamond prices have increased exponentially over the past 20 years, at a rate of around 16-18% per year. This is a reflection of the fundamental economics of pink diamonds — increasing demand for a truly rarer and scarcer commodity.
The Argyle Diamond mine in the Kimberley’s in far northern Western Australia, has been averaging around 30 million carats in total production in the last decade, which represents approximately a quarter of the world’s volume of diamonds. The Argyle diamond mine, supplies 95% of the worlds pink diamonds, which equates to less than 0.1% of Argyle’s total annual diamond production. Argyle is not only the largest supplier but also the most consistent supplier of these rare and beautiful diamonds.
This is only the start of Pink Diamonds popularity, they will only become more and more popular. With production and supply already decreasing, the time is right to take action and invest now before the price rises escalate.
Remember, buy low, sell high.
To give you an idea of the kinds of gains we’re talking about, the price of coloured diamonds has risen more than 25% over the past two years alone!
According to the De Beers Diamond cartel, who anticipate, that if the rate of growth continues, an investment in coloured diamonds, today- particularly Pink Diamonds, could double in value in another 2 years…
The Sovereign Society, in Scotland provides legal strategies for wealthy people to protect their investments and assets. Last year, it advised its members that “coloured diamonds are the worlds most concentrated form of wealth.” A coloured diamond portfolio worth any amount of money can be transported legally and easily and it can be sold in most major cities around the world. “These facts alone make coloured diamonds a worthy consideration by wealthy individuals, seeking discreet investment opportunities.”
In 2009, nervous stock and property investors, along with the fall in the Aussie dollar helped to push the price for polished diamonds to record highs, with the biggest gains - of up to 40% on the previous 6 months – seen in the 5-10 carat white diamond category.
Investor interest in diamonds has been steadily growing, now that people are finding they have the capital to start investing again. With the expected cessation of production from the Argyle Diamond mine in 2018, along with the double whammy effect of production ALREADY beginning to slow – due solely to the global financial crisis – investor interest has been rightly placed in pink diamonds and large, rare white diamonds (3 carats plus) or the $50,000 to $300,000 range.
Combining the above facts about the production, along with the levels of demand in the world for pink diamonds, especially in Asia, we expect to see the price of these investment quality pink and white diamonds continue to grow exponentially over the next decade.
So, with that in mind, here are some ATO Tax Rulings that explain that YES you can invest in diamonds and jewellery within your Self Managed Super Fund, as long as you take the following into consideration:
INVESTING IN JEWELLERY THROUGH YOUR SELF MANAGED SUPERANNUATION FUND (SMSF)
Did you know you can invest in jewellery through your SMSF! The ATO states it themselves in SMSFR 2008/2 (15) as long you can show it a reasonable investment.
15. Investments consisting of collectables and other boutique items such as works of art, antiques, jewellery, classic cars and wine, pose particular issues in relation to the application of the sole purpose test. These kinds of assets lend themselves to personal enjoyment and therefore can involve significant current day benefits being derived by those using or accessing the asset. Trustees should be in a position to show (for example, by reference to independent expert opinion) how acquiring assets of this kind involves a reasonable investment for the SMSF.
Contact Eskae Jewellers for additional reports and supporting documentation when you decide to make your next investment.
There are no specific restrictions on a SMSF investing in jewellery but some areas of particular importance are the Sole Purpose Test and the fund’s investment strategy.
Section 62 of the Superannuation Industry (Supervision) 1993 Act requires that the sole purpose of the fund to be the provision of retirement benefits:- 62(1) Each trustee of a regulated superannuation fund must ensure that the fund is maintained solely:
(a) for one or more of the following purposes (the core purposes): (i) the provision of benefits for each member of the fund on or after the member’s retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged (whether the member’s retirement occurred before, or occurred after, the member joined the fund);
You can invest in jewellery but you cannot wear it as this would be a breach of the sole purpose test.
And section 52(2)(f) requires the Trustees formulate and give effect to an investment strategy to the whole circumstances of the fund including risk, diversification, liquidity and solvency.
Section 52(2) (f) to formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:
(i) the risk involved in making, holding and realising, and the likely return from, the entity’s investments having regard to its objectives and its expected cash flow requirements;
(ii) the composition of the entity’s investments as a whole including the extent to which the investments are diverse or involve the entity in being exposed to risks from inadequate diversification;
(iii) the liquidity of the entity’s investments having regard to its expected cash flow requirements;
(iv) the ability of the entity to discharge its existing and prospective liabilities;
Investing in jewellery through a SMSF can be a valid investment, it is important that the issues outlined above, and others, are considered. The penalties for a breach of the regulations can be harsh; therefore it is important to seek professional advice.
For additional advice, contact your financial advisor or tax accountant or Greg Thomas at
Greg Thomas
Professional National Accountant
Registered Tax Agent
ABN: 34 097 626 691
Mob: 0422 986 526
The Authors
This article was prepared by the following co-authors:
Dr Marc Dussault
Exponential Programs
www.exponentialprograms.com
Sam Kritsotakis
Eskae Jeweller
www.eskaeJeweller.com.au
Ken Murphy
Goldenlink Jewellers
Manufacturing Jewellers for 30 years.
Specializing in custom made Jewellery
Greg Thomas
Professional National Accountant
Registered Tax Agent
ABN: 34 097 626 691
Mob: 0422 986 526
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Diamond Images supplied by Eskae Jewellers
