Pink diamonds are an item which are becoming more and more prevalent in the contemporary market, particularly in Australia where more than 90 percent of the world’s supply of natural pink diamonds are produced in the Argyle Mine in Western Australia.
From an SMSF viewpoint, holding an asset of this nature can be a lucrative proposition to potentially make significant profit, however, the key question to consider before buying pink diamonds is what category of asset class does it fall into – as the red tape to cut through for collectables in SMSF’s can be quite an onerous exercise.
Under r.13.18AA of the SIS Regulations, jewellery is considered a ‘collectable’ asset. Therefore, it would be reasonable to assume if an SMSF held pink diamonds, it must be considered as a collectable.
However, this isn’t necessarily the case…
GSTR 2003/10 gives us the ability to distinguish between what is considered “jewellery” and what is a “precious metal”.
Precious metal is defined as:
(A) gold (in an investment form) of at least 99.5% fineness; or
(B) silver (in an investment form) of at least 99.9% fineness; or
(C) platinum (in an investment form) of at least 99% fineness; or
(D) any other substance (in an investment form) specified in the regulations of a particular fineness specified in the regulations.
Where the asset in question isn’t identified with the above definition (for example, pink diamonds), we can then look at other factors.
If the asset is not being traded at a price determined by the prevailing spot price, it would lend itself to the notion it is not being exchanged for its metal content alone, leading further down the path of potentially being considered a jewellery item rather than a precious metal item.
Other factors that will assist in the determination include:
If the item is traded as a coin, medallion etc. In this case, the item has been changed from its original state. Therefore, it would not be considered a precious metal
Another example could be if a diamond was cut or altered once mined from the ground, therefore it would not be a precious metal
Bars, wafers, and bullion coins unaltered that can be tradeable on an international market would be deemed a precious metal
Jewellery marked with 18, 20, or 24 carats etc. are not a standard that would be traded on an international market; therefore, it would be more consistent in being classified as jewellery
If the price of an item is partly based upon rarity, condition, and beauty, rather than by reference to the metal value, it would be considered jewellery