Have you ever wanted to buy a diamond and claim it as an investment?
Well now there is a way. The ATO will actually let you buy a diamond for an investment, provided you purchase it in a self managed super fund (SMSF) and meet their criteria. The best kind of diamond to buy as an investment is the Argyle pink diamonds from Western Australia.
To understand why Argyle pink diamonds make such a great investment, consider that of the 80,000,000 carats of rough diamond minded in the world each year, only about .001% is considered fancy pink coloured. The Argyle mine accounts for over 95% of the worlds pink diamond supply. However, less than 0.1% of the mine’s output are rare pink diamonds.
If a year of Argyle diamond production would fill a small truck, then the amount of pink diamonds producedwould fill only half of the ashtray!
The Argyle mine expects their production to last until 2018, however due to the lack of diamonds being found on or near the surface, Argyle has now had to dig deeper underground to find the illustrious pink diamonds. Experts agree that with underground mining, there will be fewer quality stones, average sizes will continue to decrease and the supply will drop by at least 40%. As a result, the quality of the pink diamonds coming out of the mine has gradually and consistently gone down.
All of these factors are likely to lead to a substantial increase in pink diamond prices and when the mine completely closes the prices of these diamonds may become unobtainable for the average wealthy person!
Pink diamonds like any commodity are affected by supply and demand. As the supply of pink diamonds decreases, prices continue to rise, making pink diamonds a solid investment. A ten point Argyle pink diamond purchased in 2006 for $5000 would now be worth $10000. Argyle pink diamonds on average have increased by 20% value every year. With an estimated four to ten years of production left, the rarity and price of these gems is sure to be compounded when the mine runs out.
So how can you invest in jewellery through your SMSF?
The ATO states 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.
The three main considerations that you have to keep in mind when buying a diamond for investment in your SMSF is that; it must be purchased after the fund is established, it must be for your retirement and it cannot be worn (as this would breach the sole purpose test).