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I have a new client who has some $25k invested in racing horses and gambling in such activities. There are some income from winnings. The total value of the assets in the SMSF is more than $1m which is made up of shares, property and cash. Is such an investment in racing horses allowed, does it meet the sole purpose test and should I say something in my management letter or audit report?
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Hi Jan
I found an article on investing in racehorses with a SMSF at:
https://thoroughbredracing.com.au/can-i-invest-in-racehorses-with-my-self-managed-super-fund/
The answer in this article was:
In theory – yes, but in practice, the answer is no.
My view is that a SMSF could invest in racehorses directly or via a syndicate if:
1) It meets the sole purpose test.
2) Not acquired from a related party.
3) Invested on an "arm's length" basis.
4) Investment complies with the Fund's investment strategy.
5) The race horse is not rented to a related party.
6) There is no charge over the racehorse.
7) The SMSF deed allows for such an investment.
My view is also that preferably a SMSF (from an audit perspective) would not invest in racehorses as verifying that the above rules have been complied with may be difficult. It may also be difficult to value the investment on a yearly basis.
An investment in a racehorse would not normally be considered to be a collectable or personal use asset so is not impacted by these rules.
It may be prudent for the Trustees to obtain a private binding ruling in relation to the investment in racehorses.
In relation to whether a SMSF can gamble on racehorses my view is that it cannot be done on the basis that such activity would not comply with the sole purpose test.
Thanks
SMSF AAA