SMSF Contributions | Specie Transfers

A  Guide  to SMSF In-Specie Transfers & Contributions

SMSF In-Specie Transfers & ContributionsThe following points are provided as a brief guide to help you understand some of the core issues when considering SMSF in species transfers. However, please note that advice should be obtained from your SMSF Accountant before looking to transfer an asset to your Self-Managed Super Fund to avoid any legal or compliance issues. It is important to remember that the transfer of assets to a superannuation fund can bring up a range of issues personally such as capital gains tax which are not covered by this guide. 

What can be an In-Specie Contribution to an SMSF?

It is not cash. It is an asset owned by you, being a member of an SMSF (Fund), which is transferred to your Fund. To balance the books one side is counted as a member contribution and the other is a purchase of an asset. When counting a transfer as a contribution this may be either a non-concessional contribution or a concessional contribution. For more information about what these types of contributions and the associated concessional and non-concessional contributions caps please checkout the tax office website

No cash is required to be paid by the Fund to the member as the purchase is satisfied by the member contribution.

Asset acquisitions by a Fund from a member (or a related party) are prohibited with some exceptions listed in the super laws. An In Specie Contribution, which is contributed by you, is an acquisition of an asset by the Fund directly from a member and thus the assets that can be transferred are restricted.

Assets that can be transferred in specie contribution 

As a general rule superannuation funds can accept in-specie contributions of listed shares or business real property. To complete an in specie share transfer to SMSF you will need to follow the ASX off market transfer rules and paperwork which can generally be completed by your broker or share trading platform. The in specie contribution of property to SMSF will generally involve a conveyancer  and government stamp duty may be applied on the value of the property at the relevant states stamp duty rate. Note this is not always the case, for example South Australia has no stamp duty applied on commercial property transfers so it is important to check how your unique property will be treated. Other 

  • Widely held Managed funds
  • Listed Securities (Usually ASX listed shares and funds)
  • Commercial Business Property
  • Non Geared Unit Trust (or Company) – Units in a Private Related Party Unit Trust colloquially known as a non-geared unit trust – Super Regulations 13.22C.
  • Other Assets – ie In-house assets (INHA) subject to 5% limit and cash investments such as bonds and debentures

Commercial business property must be Business Real Property (BRP) to be an asset which can be acquired by a member of the Fund. The definition includes a freehold or leasehold interest in “real property” and real property must be used “wholly and exclusively” in one or more businesses. In most cases business property transfers are quite obvious but can get a bit murky around property such as vacant land, farms  or a property which also contains a private residence. Keep in mind unless it can be counted as business real property the SMSF cannot accept residential property from an SMSF member or their associate (such as a relative) even if it is at market value. 

Managed Funds & Listed Shares

A widely held managed fund is a public fund which is not listed on a stock exchange and typically has a very large number of unitholders investing into property, shares, cash etc. Generally these can be used to make an in specie contribution to SMSF provided that the in specie transfer tax office rules are followed and that there is a market value available at the time of the transfer. Generally the first step is contacting the fund manager directly who should be able to assist you to understand the process of transferring the asset and what paperwork is required to be completed by the SMSF trustees and lodged with the fund manager. 

Listed Securities are typically public companies such as BHP Group Ltd, Woodside Energy Group Ltd, Rio Tinto Ltd etc. but can also include listed trusts. When ASX shares are moved to an SMSF in specie transfer then the off market share transfer paperwork will need to be completed and generally some off market transfer fee is charged by the broker or share trading platform. Any off-market transfer of shares must be completed using the off-market transfer price rules which basically require them to be transferred at market value based on the most recent price activity of the shares. 

Vacant Land v Residential Property

If vacant land is owned by a developer and forms part of his trading stock it will fit the definition of business real property (BRP) and could be transferred. Otherwise vacant land is usually not considered to be BRP and thus would count as residential property which cannot be transferred in specie due to it being unable to be counted under the BRP definition. Remember this definition explained above doesn’t just look at the property zoning but how the property was used to date particularly where the property has a dual aspect such as a portion of the property having a shopfront and the rest being more residential in nature. 

Farm from a Member to the SMSF

A farm can be transferred to the Fund provided a primary production business is being carried out by the member and less than two hectares is used for private residential use. The crop grown on the land or cattle do not form part of the land and cannot also be transferred or included in the acquisition by the Fund from a member. Keep in mind if the residence is under the two hectares then this is one of the few exceptions where a residential property from a member can be used as a contribution or an asset sale to the fund. 

Hotel with a private residence

A hotel may include a manager who also resides at the hotel whilst being on call. The use of the hotel would fall within the definition of being used wholly and exclusively in a business despite the private use by the manager and thus under the super laws can be transferred to the fund. Again this is a very narrow exemption where partly residential assets can also be transferred or contributed to the fund. The standard market value rules would apply meaning the SMSF pays you the market price for the asset or alternatively counts the asset transfer as a contribution. 

Non Geared Unit Trust (or Company)

The units in a related unit trust (typically mum and dad own 100% of the units) cannot be used for an in specie transfer SMSF  unless it is within the 5% in-house asset limit allowed. However, if the unit trust meets the definition under the Super Regulations 13.22C you can transfer those units to your Fund as a  contribution.

The basis behind the non geared unit trust is to allow mum and dad and other related parties to hold the family’s business property in a unit trust (or company) by pooling cash resources. Typically a non geared unit trust holds BRP and cash at bank and not much else.

There are a number of rules to ensure the unit trust complies and continues to comply with Regulation 13.22C. The conditions include:

  • No Borrowings
  • No charge over the unit trust’s assets
  • All transactions are at arms length
  • A lease to a related party can only apply to commercial business property
  • Cannot own shares, units or other equities, listed or not, and cannot lend money to other entities regardless if the entity is related or unrelated
  • Cannot acquire an asset from a related party which they owned in the previous 3 years except for business real property

Other Types of Assets

An INHA can be acquired by the Fund and contributed as a member contribution provided it does not exceed the 5% limit on INHA owned by the Fund at the time of purchase. The Fund cannot acquire an asset from a member unless it comes within one of the exceptions or it is an INHA. The Fund cannot acquire shares from a member when those shares are owned in an unrelated company. This doesn’t appear logical as the Fund can directly acquire shares in an unrelated company but if acquiring the unrelated shares from a member it is prohibited.

5% in-house asset limit (INHA)– A fund can only acquire an INHA if the existing INHA assets and the INHA to be purchased do not exceed 5% of the fund’s assets at the time of purchase. The In house assets rules are very complex and have a material effect on purchasing assets into your SMSF when connected with one of the members or their associates. 

TIP – Assets that cannot be acquired directly from a member include a loan to a member or a relative of a member.

A residential swelling owned by the member is unable to be transferred to the Fund unless it is being used for business purposes ie the property is held as part of a land developer’s business. It may be possible to transfer a residential dwelling subject to the 5% in-house asset limit BUT in most cases the Fund would exceed the limit prohibiting the acquisition.

A Fund cannot acquire shares from a member when the shares are from an unrelated company (the unrelated shares do not fit within one of the exceptions allowed under the Super Rules). Interestingly, if the shares are in a related company the shares could be purchased subject to the 5% limit for in-house assets.

Transfer of an Asset | Market Value Rules  

It is critical to ensure when you contribute or transfer assets it is allowed by the super rules and also that the asset transferred is valued immediately before it is transferred or contributed to an SMSF. Valuations can easily be obtained for listed securities and for most managed funds but property, and other assets are more problematic.

The market valuation of direct property and underlying property owned by a unit trust or a company receives a lot of attention by the tax office. Remember the in specie asset transfers must always be able to be proved to be at fair value. 

The ATO accept the following as evidence of market valuation for properties:

  • A real estate valuation from RP Data or similar valuation software which includes a couple of comparable sales
  • A recent arms length purchase between unrelated parties
  • A formal written valuation from a qualified valuer

It is important to look through a unit trust or a company which is being acquired to ensure it is valued prior to transferring from a member to the Fund. Underlying property can be valued as per the above but other assets and liabilities of the unit trust/company should be reviewed as well.

In-Specie Contribution vs In-Specie Transfer to your SMSF

An In Specie Contribution is a non cash transaction from the member to the Fund and a non cash purchase of an asset by the Fund.

An In Specie transfer of an asset to the Fund is a non cash transfer of an asset which can be made from a member, trustee, employer or other party to the Fund where cash is paid from the fund to purchase the asset. Of course the asset must be one which the Fund is able to purchase under the super rules.

An In Specie transfer of an asset/s can be made as part of a rollover of benefits from one SMSF to another super fund. Similar to previous discussions the asset must be valued at or near the date of transfer and represent the value of the rollover and is a non cash transaction between the two funds.

The Process of Transferring an Asset from A Member to the Fund

It is important to ensure the title of the asset is transferred from the member to the Fund. The legal title should be transferred to the trustee of the Fund. Where possible the title should also include the designation for the Fund. NSW land titles do not allow the Fund designation on the title but not all states have the same regulations.

Off market transfers are typically used to transfer shares. The form must be prepared correctly in accordance with the appropriate share registry and signed by the member and by the trustee of the Fund and show the number of shares and the date. The market valuation should be the valuation on the date indicated on the off market transfer form. Retain a copy of the form for the auditor.

Transfers of property should be prepared by a qualified solicitor or conveyancer who will assist in changing the title through the appropriate office of state revenue and have the transfer assessed for stamp duty.

To be transparent a request should be prepared by the member identifying what the asset is to be transferred and how the contribution is to be allocated as well as the amount and provide evidence of the market valuation. The trustee is required to have a meeting to table the request and resolve what to do. A confirmation letter should be sent to the member.

A member electing to make a member concessional contribution is required to prepare S290 paperwork which includes a notice of intent to claim a personal tax deduction. The trustee should minute this and send a confirmation letter to the member to acknowledge acceptance of the concessional contribution. Time frames exist to claim the tax deduction and if missed the contribution may be forfeited. Thus it is best to prepare and sign the paperwork on the date the contribution is made.

Other Compliance and Legal Considerations to make an in specie transfer

The following should be considered when thinking of transferring an asset to the Fund:

  • Consider contribution caps for the member. Consider maxing out the contribution caps via the asset purchase by the SMSF being partly treated as a contribution and the remainder using cash or other assets Particularly useful if the market value of a property is more than the available caps. As a reminder the types of contributions are called Non-Concessional which are not tax deductible personally and Concessional Contributions which are and each have their own individual caps under legislation. 
  • Tip The ATO’s view in LCR 2021/2 (ATO Law Companion Ruling) indicates the cash paid and the in specie contribution are 2 different interests in the property which should be shown via 2 separate transfer documents. It is critical to prepare paperwork which recognises the 2 interests to avoid the possibility of the ATO applying NALI (non arms length income) which could result in paying additional tax, at your marginal tax rate, on the income (including capital gains on sale) earned in relation to the property.
  • Total Superannuation Balance should always be considered when a member’s balance is increased.
  • Stamp Duty is required to be assessed and may be payable on transferring property assets into an SMSF.
  • GST to be reviewed as the Fund may need to be registered. An exemption may be available in relation to transfer of a property.
  • Land tax to be reviewed in relation to property transfers.
  • Consider the asset being transferred will be retained in the Fund until your preservation age and you satisfy a condition of release ie turning 65 is a condition of release.

Personal Taxes | Capital Gains Tax 

Capital Gains may be payable when transferring assets to your SMSF if the market value of the asset being transferred exceeds the cost base of the asset being transferred. For example an in specie property transfer to SMSF for half a million dollars when the commercial property was purchased for only quarter of a million means that the in specie transfer CGT event for the taxpayer would be the quarter of a million dollars of paper profit caused by the increase in value. In the event of the property is transferred to an SMSF as part of a contribution strategy then this may help reduce the tax depending on the concessional limits available to the taxpayer but otherwise this strategy may result in tax payable on paper profits while the taxpayer has no additional cash from the transaction. Keep in mind the transfer is deemed to occur at market value so trying to just complete the transfer of the asset for a lower value will not avoid the tax problem. 

 Contact Us 

If you are considering whether an in specie contribution is right for you and want to understand more about what is an off market transfer, the type of transfers permissible or the mechanics to make an in-specie transfer please reach out to one of our friendly team and we will be happy to help you understand what is involved in transferring assets, the savings by transferring and the rules and regulations. 

Do you want to learn more about SMSF In Specie Transfers?

Give us a call on 1300 392 544 or get in touch online.

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If you’re interested in learning more about SMSF In Specie Transfers? Please reach out for a confidential quote. Simply submit your details and one of our friendly team will be in touch as soon as possible.

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Do you want to learn more about SMSF In Specie Transfers?

Give us a call on 1300 392 544 or fill in the form above

Contact Us

If you’re interested in learning more about SMSF In Specie Transfers? Please reach out for a confidential quote. Simply submit your details and one of our friendly team will be in touch as soon as possible.

Contact Us