02 Mar Your SMSF and in-specie asset transfers
In specie is the process of transferring an asset other than cash into a superannuation fund without selling the underlying investment.
The benefits of carrying out an in specie transfer include:
- potential savings on buy and sell costs
- being able to remain invested in the market throughout the transfer
- potential savings on capital gains tax (CGT) provided there is no change in beneficial ownership.
If an asset is retained outside superannuation, CGT will generally be payable on capital gains made when the asset is eventually sold. However, if a client transfers the asset into their superfund now, while CGT will be payable on capital gains made up to this point, no CGT will be payable on future growth if the eventual sale occurs in the pension phase (provided the asset has been segregated to meet pension liabilities).
What can I transfer?
Superannuation fund trustees are generally prohibited from acquiring assets from related parties, such as fund members, their family and partners, related companies and trust.
There are, however, some exceptions outlined in section 66 of the SIS Act. These include business real property, listed securities, units in widely held unit trusts and ‘in-house assets’ where the value doesn’t exceed five per cent of the total market value of the fund’s assets. The value of an in specie contribution is taken to be the market value of the asset at the time the contribution is received by the super fund.
In specie contributions are subject to the same caps that apply to cash contributions. Any contributions over a contributions cap are subject to extra tax called excess contributions tax. Excess contributions tax is payable by the individual.
Whether the individual is liable for the extra tax will depend upon the amount of contributions made, their age and whether the contributions are concessional or non-concessional.
An alternative way to get certain assets into super is for the fund to purchase the asset using a combination of existing cash and money borrowed via an instalment warrant arrangement. Where this strategy is used, the transaction would be considered a purchase, not a contribution. As a result, the client’s contribution caps would not be affected in the financial year the arrangement is implemented. The client would, however, need to ensure sufficient contributions are made to enable the fund to meet the instalment payment(s) and would need to meet the asset test as outlined in section 66 of the SIS Act..