Un-packing in-specie super contributions
Written and accurate as at: Jun 11, 2020 Current Stats & Facts
Following on from our recent articles on EOFY super contribution considerations, if you haven’t managed to pull the cash together to make a transfer, don’t worry as there may be another way. The ATO allows you to transfer certain assets ‘in-specie’ into superannuation and to treat the transfer as a contribution.
What is ‘in-specie’?
An in-specie transfer (off-market transfer) is when you transfer an asset in or out of superannuation rather than a money transfer. The transfer can make up either concessional or non-concessional contribution types, subject to the usual limits and rules.
Related party rule
In making this type of contribution, you will have to be aware of the related party rule for SMSFs. According to the ATO, a related party of an SMSF includes:
- all members of the fund
- employers of fund members
- associates of fund members or employers including
- relatives (including spouses, children, parents, grandparents, uncles and aunts, siblings, or their children)
- business partners
- spouse or children of business partners
- any company controlled by the members or associates
- any trust controlled by members or associates
As expected, to retain the integrity of related party transactions, the ATO has set tight restrictions around which assets you can transfer. Additional restrictions include transferring the asset/s at market value.
Which assets apply?
The ATO bans transferring any non-cash assets into an SMSF via in-specie contributions from a related party. However, there are a few exempt assets as follows:
- ASX listed securities
- Widely held managed funds (i.e. unit trust)
- Business real (commercial) property
An in-specie asset contribution is an effective way to build your superannuation without transferring cash. It is also a taxing event for the transferred assets. In the case of current equities markets, this may result in a triggered capital loss when transferring into your SMSF. In the event of a commercial property transfer, you may benefit from small business capital gains tax concessions.
Both ASX listed securities, and widely held managed funds are cost-effective, quick, and straightforward processes while a property transfer will require more heavy lifting.
How to make the transfer
If transferring ASX listed securities from your name into your SMSF, you will need to complete an off-market transfer form which you can find with your broker or share registry. Use any of these links for the appropriate broker or registries form – Commsec, NAB Trade, Westpac Broking, Computershare, Linked Market Services and Boardroom Limited. Be aware that you will have to send originals and your receiving account will most likely be charged a fee for the transfer.
To transfer units in a widely held managed fund to your SMSF, you will need to complete an off-market transfer form with the fund or platform provider directly. Here is a standard off-market transfer form.
When transferring a business real (commercial) property to your SMSF, you should engage a solicitor to assist with the execution of a contract of sale, new lease documents, insurance changes, and preparation and lodging of the appropriate transfer documents with the relevant state revenue office. Note that such a transfer will incur stamp duties.
Key considerations
If you are currently cash poor but asset rich and able to contribute to superannuation, now may be the time to consider an in-specie transfer. Before proceeding, ensure to check the following key considerations:
- Review your trust deed to ensure that your fund can receive the asset you wish to transfer and that your fund will accept in-specie asset transfers
- Transfers must be at market value which is more straightforward for ASX listed securities or widely held managed funds based on transparent pricing. For property, you will need to have the property valued independently by a registered valuer or three real estate agents
- Check the cost base of your assets as you will be triggering a taxing point on your transferred assets. You may unlock a capital gain or loss in the current investment market.
- Double-check your paperwork as you will have to post originals and don’t want a missed signature to result in the transfer not taking place before 30 June.
- Keep good records as your accountant will be asking you for details of the contribution soon enough.
- Leave some breathing room with ASX listed share transfers. With the high volatility in the market, you don’t want to be caught out unintentionally breaching your cap.
- Review your SMSF investment strategy as the transfer will most likely change your fund investment strategy – refer to this simple guide for more information on your SMSF investment strategy.
- Get good advice from a financial adviser, accountant, and a lawyer in the event of a property transfer. Undertaking an in-specie transfer is subject to simple errors or complex implications which could cost you, and it should always be considered in the context of your broader plans.