In a recent blog post, the SMSF service provider’s executive manager of SMSF technical and private wealth, Graeme Colley, said the numerous rules around the transfer of employee shares to self-managed funds may mean professional financial advice was worth considering.
“If you are eligible for shares or options as part of an employee share plan, then nominating your SMSF will involve many things to consider,” Mr Colley said.
“The terms of the share plan are a good starting point, but you will also need to think about the type of shares or options, whether they can be accepted by your SMSF and the impact of complying with the superannuation rules before they can go ahead.”
Mr Colley noted that the ATO considered the transfer of shares to be a contribution to super, meaning SMSF members needed to take note of their total super balance to work out whether they would be able to transfer their shares without facing a penalty.
“If your total super balance is greater than $1.6 million, your non-concessional contributions cap is nil and penalties will apply,” he said.
“This means the transfer of shares or options to your SMSF may not be possible. But if your total super balance is less than $1.6 million and you are under 65, you may have access to the bring-forward rule that can allow you to make non-concessional contributions of up to $300,000 over a fixed three year period.”
Mr Colley added that the type of shares being transferred was also important, as only publicly listed shares or unlisted shares in a company controlled by the member or related parties could be transferred into an SMSF.
“Control of a private company is where the fund trustee or relatives own more than 50 per cent of the shares in a company either directly or indirectly,” he said.
“Even if you transfer the shares or options, you need to be careful that your SMSF doesn’t breach the in-house asset rule. This happens if the value of any related party investments held by your SMSF are greater than five per cent of the value of your SMSF.”
Would such a transfer have to be at market and therefore create a taxing point in the individual name?
What about the employee share scheme trust deed? Would that permit the on-sale of such shares? I would have thought the business would want to restrict transfers and/or the deed would prescribe who would be an eligible shareholder.
Mustn’t the company NOT be an associate?