Can you stuff your mattress with SMSF cash?

SMSF technical expert and columnist for The Australian newspaper
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Legions of investors love cash.

I don’t mean money deposited with the bank or old currency that’s classed as a collectible. I mean notes and coins that are current legal tender.

For some, their love of cash is cultural. For others, it might be the feeling of safety or power that piles of cash gives them. For example, they might think the financial system will imminently come crashing down and don’t want to lose their deposits if their bank collapses. Or alternatively, they might be keen to avoid a mooted bank deposit tax.

If you want your super fund to have “folders” or “readies”, as some London east-ender scallywags might say, can you store these SMSF cash holdings at home or at your business premises? Or do you need some other location?

Well, as with all these issues, the first place to look is your fund’s trust deed. I would be surprised if it didn’t allow you to hold currency but don’t assume I’m correct – just check this document!

In addition, there are several aspects of the super laws to consider:

1. Trustee covenants – these are over-arching attitudes that you’re expected to have when running your super fund; for example, act honestly, be prudent, create and implement an investment strategy and act without bias towards any fund members and so on.
Would most people think it prudent to have super fund money under your bed? I don’t think so, but maybe a fireproof safe or other similar storage facility might be more suitable.

Where would a prudent person think it best to hide the lock and/or its combination? I don’t think with all your fund’s paperwork would be a good place, or in typical places that thieves look, such as under a pot plant or your sock draw.

I would imagine a prudent person might think holding some sort of insurance policy on the loss of the money, due to fire or water damage or theft, would be a good idea.

Next comes the investment strategy – your fund’s investment strategy needs to cater for holding physical currency. Obviously, the lack of any return on this money needs to be considered.

There are no specific penalties for breaching trustee covenants, however, a breach of these might cause problems in defending any legal action taken against a trustee.

2. Sole purpose test – this says that any benefit you obtain from your fund prior to retirement must be incidental. I think some people would find the temptation not to use their fund’s cash holdings for personal reasons almost irresistible. Therefore, to help prevent problems, you might keep a listing of all serial numbers of the currency held by the fund. Despite the fact collating this information might be a painful exercise, especially if the notes are randomly numbered, it might be a job you’re effectively forced to complete. Each year, your fund’s auditor – as an easy way for them to confirm the notes still exist – may want to check that random numbers of notes are still in your possession and continue to be stored in an appropriate manner.

3. Is currency an asset under the super laws? – under the super laws, yes it is, but does the same apply in your fund’s trust deed (see above)?

4. Artwork and collectible rules – currency that is legal tender isn’t a collectible, like currency that has been withdrawn from circulation. Collectible assets purchased after June 2010 can’t be stored at your home. Given that current bank notes aren’t collectibles, this rule won’t apply in this case.

5. In-house assets test – this says that only a small portion of your fund’s assets can be personally used. Unless you use some of the fund’s bank notes for your own or business purposes, even on a temporary basis, I can’t see this rule applying to cash holdings.

6. Financial assistance to members or their relatives – this is generally prohibited so even using a small amount of money would be a breach of this rule.

7. Where can you store your fund’s cash? Here are two ideas – a fireproof safe in a storage facility or in a safety deposit box at the bank you think might be about to go bust!

There is one final aspect about notes and coins – if your fund wants to use more than $10,000 at any point in time, for example to purchase an asset, then that transaction will have to be reported to AUSTRAC because of anti-money laundering and terrorism financing rules.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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