Draft regulations tipped to simplify property transfers
Draft regulations that propose removing the fund-capped contributions rules, if implemented, could open up new strategies for business real property assets and foreign fund rollovers, according to DBA Lawyers.
DBA Lawyers director Bryce Figot says there are currently proposals that put forward scrapping the fund-capped contribution rules.
The proposals are part of the draft regulations in Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2017.
In the exposure draft explanatory statement of the reforms, Treasury stated that they are “no longer required given the broader changes to the annual non‑concessional contributions cap, its related eligibility and bring forward cap rules”.
Depending on the age of a member, the fund-capped contributions rules place a limit on what the fund can accept in any single-capped contribution.
Mr Figot said that if the rules are abolished, it would be helpful for SMSF practitioners who have clients trying to do rollovers from foreign funds.
“They’ll often get caught by the fund-capped rules which can make their lives difficult,” Mr Figot told a seminar.
It could also help clients who want to transfer business real property into their fund, he said.
If an SMSF trustee wants to contribute a $400,000 property, under the current rules, Mr Figot said they have to transfer part of the property that has a market value of $100,000 in the first year, and in the second year contribute the rest of the $300,000.
Mr Figot said this would be a cumbersome process, but the removal of the fund-capped contribution limits would present a more viable strategy.
“The following may be a viable alternative. The fund receives everything but $100,000 which gets allocated to a member account, and $300,000 in June goes to a contribution reserve, and then in year two, the remaining $300,000 goes from the reserve to the member account,” he explained.
“The ATO were asked that question back in June 2012 and they said you can’t do it because of the fund-capped rules. Now, if we don’t have the fund-capped rules any more, then this suddenly becomes a viable alternative. It would still be wise to ask the ATO for their input first, but it may be an option moving forward.”