Head of Education & Content
My client’s SMSF owns residential property in a beachside location. The property is available for short-term rentals. Is the SMSF trustee permitted to purchase E-Bikes for use by tenants of the property?
As with any proposed SMSF investment, there are a number of issues the trustee should consider before purchasing E-Bikes for the fund.
Sole purpose test
Is the trustee’s reason for wanting to purchase the E-Bikes consistent with the sole purpose test? For example, purchasing the E-Bikes so the fund is able to charge more rent or secure more tenants for the fund’s rental property. This in turn provides retirement benefits to members and would be consistent with the sole purpose test.
The trustee would need to review, and if appropriate, update the fund’s investment strategy, so provision was made for investing in this type of asset AND outlining why this is an appropriate investment for the fund despite the E-Bikes depreciating in value over time.
Can’t acquire from, or lease to, related parties
The trustee must not purchase the E-Bikes from related parties (eg members, relatives or entities controlled by members or relatives). The rules which apply to the use of the residential property would also apply equally to the E-Bikes. That is, they can’t be leased to or otherwise used by related parties even if market rent was paid.
Personal use asset rules
As E-Bikes are assets normally kept for personal use and enjoyment, they may also be caught by the personal use asset rules. SMSFs aren’t prohibited from owning personal use assets but there are special rules which must be followed including:
- The E-Bikes must not be stored in the private residence of the members or other related parties. Storage at the fund’s residential property would be permitted.
- The trustees must keep a written record of the reasons for their choice of storage location and retain that record for 10 years.
- The E-Bikes must be insured in the name of the fund within seven days of purchase.
- If the E-Bikes are later sold, they may only be sold to related parties if a valuation is obtained by a qualified independent valuer.
Purchased in the name of the fund
As with all super fund investments, the E-Bikes will need to be purchased in the name of the trustee on account of the super fund.
Liability of trustees
Given the potential risks to users of the E-Bikes, the trustee should also seek legal advice on ways to mitigate the impact of any potential claims for damages (eg liability insurance, corporate trustee for SMSF rather than individual trustees).
So, yes, the purchase of E-Bikes by an SMSF trustee could be a permitted investment for the fund but there’s a few hurdles the trustee will need to jump over first.
Read more about SMSF investment rules by subscribing to our Super Companion. It's our go-to online resource and knowledge centre – we use it internally to support our staff as they navigate SMSF accounting and compliance for our clients. It's so good that we've opened it up for all – find out more and sign up here.