Peter Johnson, chief executive of Advisers Digest, says if the fund members do not own the property, it cannot be contributed to the SMSF.
“If you’re going to move a property from a family trust to a super fund, who is contributing the property to the super fund? Is it a contribution from the family trust to the super fund, because the members aren’t contributing the money?” he said.
“The members don’t even own that property. How can the members contribute that property to the super fund? You’ve got to make the members presently entitled to that property, or at least presently entitled to enough value so that they can instruct the trust to pay them by contributing that property to the super fund.”
Johnson said it can be likened to salary sacrifice, where the ATO allows an employer to put the money into super before the employee is entitled to their bonus.
“However, if they make you entitled to the bonus, and then you say you want it in super, it’s a non-concessional contribution. It’s already your money, and you’ve got to do the same here with the family trust. You’ve got to make sure that it’s your money.”
Although there are methods to get a property out of a family trust into a super fund without paying stamp duty, steps need to be taken.
“One is it goes to the member, then to the super fund, or two, that trust makes you presently entitled to it.”
“My concern there is it may well be duty exempt going from the trust to the super fund, but [you need to ask] have you got a resettlement issue when you make the member presently entitled to that property?”
He said if that is not possible, it will be considered as a contribution from the trust, and if a trust makes a contribution on behalf of the member to a super fund, it is a concessional contribution, which is then subject to 15 per cent tax plus any excess concessional tax in the fund.
“If you happen to be an employee of the trust, then the trust gets a tax deduction, but if you’re just a beneficiary, if it’s an investment trust, there’s no tax deduction to the trust, and it’s a concessional contribution.”
“If that property is worth more than $1 million, you would be up for $500,000 tax, which would not be worth it. You need to get your ducks in a row and make sure you don’t end up with an excess concessional contribution.”
No argument regarding the points raised. In NSW at least you can make the contributed property only a nominal stamping fee but it’s dangerous. To do this you have to separate tax from accounting. The ATO will likely require the fund to be unsegregated unless it’s really small value fund. To be subject to nominal stamp duty, as opposed to ad valorem, you have to retain the property and allocate earnings for the member for the whole of their interest as contributed. This will be different to the tax payable. Failure to do this will result in a retrospective stamp duty assessment at ad valorem rates plus penalties, ie. nose bleed expensive.
A further problem arises when you move into pension phase. If the value of the members balance declines below the property value then you are forced into accounting not allocating all of the members interest in the property to the appropriate member and you are back with a stamp duty problem.
This issue remains until the property is removed from the fund.