Navigating in-specie traps when transferring assets to SMSF
An SMSF law firm has highlighted some of the tax consequences and compliance issues that need to be considered when SMSFs make in-specie transfers.
In a recent update, Cooper Grace Ward senior associate Steve Jell said that the considerations regarding contributions are relevant when looking at transferring assets to an SMSF as the SMSF will need to treat the asset transferred as a contribution.
“Contributions can be made by a member or by someone else on their behalf. The super rules restrict the types of assets that can be transferred into an SMSF and also the way in which those assets are accounted for,” Mr Jell said.
“Most commonly it’s the individual member who’s looking to transfer an asset that they own into their own SMSF. This creates some compliance issues for the fund, because each member will be treated as a related party of the fund and the SMSF has some restrictions on the assets that it can acquire from a related party.”
Broadly, there are three types of assets that can be transferred to an SMSF. Mr Jell noted this includes listed securities such as ASX-listed shares, managed funds, which are a type of investment where the member is one of a large number of investors or real estate used in a business, such as commercial property.
However, before transferring an asset, advisers will need to look at the individual circumstances as well as the asset that is looking to be transferred in, according to Mr Jell.
“So, first, look at the trust deed. Does it allow in specie transfers? Does it require a particular process which must be followed? The asset itself must be transferred at market value,” Mr Jell noted.
“So, when we’re looking at market value transfers, we need to consider well, does the member have sufficient space in their contributions limits to allow them to have the allocation of that asset to their member balance?
“If the individual member is transferring it from their personal name, then we need to look at the tax consequences associated with them disposing of that asset personally, as it will likely be treated as a tax event for CGT purposes.”
If the SMSF is transferring real estate, the fund needs to consider the transfer duty consequences of transferring the real estate into the SMSF as beneficial ownership of the asset will have changed, according to Mr Jell.
“What documents do we need to prepare? And they will depend upon the circumstances associated with the individual transaction,” he explained.
“The key thing to look at in all these situations is, once the asset is in the fund, it may be very difficult to get it back out. So, we need to consider whether the members want to retain that asset in the SMSF for an extended period of time.”
Tony Zhang is a Journalist at SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2020, Tony has covered various publications across the legal, financial and professional services sectors including Lawyers Weekly, Adviser Innovation, ifa and Accountants Daily.