Pink Diamonds as an Investment in an SMSF
Over 90% of the worlds pink diamonds ever found come from the now closed (in 2020) Argyle Diamond Mine located in the northern Kimberley region of Western Australia.* Now that the Argyle Diamond has closed, pink diamonds are seen as increasingly rare and this is driving investor’s appetites including in SMSFs.
Pink diamonds are an allowable investment in an SMSF, however there are important considerations when investing in any asset in an SMSF to make sure that the investment is compliant and does not contravene the legislation and is compliant for ATO and audit purposes.
The following must be considered when investing in any asset in an SMSF:
* Compliance with governing rules
* Ownership and separation of assets
* Valuation
* Storage
* Insurance
* Any Investment in an SMSF must satisfy the sole purpose test which is to provide retirement benefits to members.
Subject to complying with the Trust Deed, the Investment Strategy and the SIS Act an SMSF can invest in Pink Diamonds.
Investment strategy and a fund’s governing rules
The ATO states “An SMSF’s investment strategy outlines its investment objectives and specifies the types of investments it can make. Before investing in [investments like pink diamonds], SMSF trustees and members should consider the level of risk of the investment. Trustees and members may then review and if necessary, update their fund’s investment strategy to ensure the investment being considered is permitted.
Trustees and members also need to ensure that investments in [investments like pink diamonds] are allowed under the SMSF’s deed.”
According to the latest ATO guidance, Pink diamonds are not considered collectable or personal use assets within an SMSF, but should be stored and insured appropriately regardless.
“Natural diamonds (including pink diamonds), when held in loose form, are not considered collectable or personal use assets under the superannuation legislation and as such do not have specific storage and insurance requirements” states the ATO on their website.
Further “trustees and auditors should note these rules only apply for ‘diamonds held in loose form’. This means the diamond cannot in any way be mounted, integrated into or used as an item for adornment or other purposes which would be inconsistent with the holding of the diamond in loose form for investment purposes.”
Ownership and Separation of Assets
The pink diamonds must be owned in the SMSF name. This should include clearly identifying the diamonds on any purchase documentation and ensuring the diamonds are purchased in the SMSF name using SMSF funds. Storage documents should also clearly identify the diamonds being stored and should match the original purchase documentation and the yearly valuation documentation.
Valuation
In accordance with Superannuation legislation, SMSF Trustees are required to value super fund assets at market value at 30th June each year. This will require providing a valuation of the pink diamonds to the Auditor.
Storage and Insurance
The ATO guidance is as follows: “Despite not being subject to specific requirements, we would recommend trustees hold adequate insurance and consider appropriate storage arrangements for these types of assets. These are sound practices when protecting a fund’s assets.”
As an SMSF expert we have set out the rules for holding pink diamonds in an SMSF. We are not recommending investing in pink diamonds and we are not licensed to give investment advice. Please do your own research, consider the risks and obtain investment advice from a licensed professional before proceeding. We are providing general information only. We have not taken into account your personal circumstances or objectives.
This information is current as at 16th February 2024.
*Source: Most pink diamonds were birthed by a disintegrating supercontinent. Where can we find more? by Signe Deane 2023 published in The Conversation
