Jason Hurst, technical superannuation adviser for the Knowledge Shop, said in a recent webinar for Accurium that in-specie contributions are most commonly made using listed securities or business real property.
“An SMSF can’t acquire an asset from a related party unless it beats one of those section 66 exceptions and the most common ones are business real property and listed securities, hence why they’re the most common in-specie contributions that we see,” Hurst said.
“We also need to consider the timing of the contribution. When we’re contributing cash, in most cases, it’s just whenever the amounts hit that SMSF bank account, but it gets a little bit more complex when we’re dealing with different types of assets.”
Hurst said general superannuation rules require transactions to be done at arm’s length, and section 66 adds the additional requirement that assets need to be acquired at market value.
“With a property, for example, there are some non-arm’s length implications if you get it wrong, which is why that ruling is being rewritten.”
Hurst gave an example of Graham and Valda, both 52, who own a $500,000 commercial property. They have an SMSF, and have not made any non-concessional contributions for the last three years and have a total super balance of approximately $300,000 each.
“Graham and Valda could use $250,000 of their respective NCC caps to contribute this property and document that there is a contract for the SMSF to receive it.”
“They may be eligible for CGT or small business CGT provisions. They may also need to consider stamp duty as well, although in some states, that may be a nominal exemption.”
Hurst said when it comes to property, the contribution is treated as being received when the trustee takes possession of the land transfer forms and title deed and that is usually going to be at settlement.
The above example of Graham and Valda deals with full in-specie transfer with no purchase by the SMSF, but there can also be situations where the fund may wish to do a part in-specie transfer and part purchase.
“For example, Zelda, 45, would like to transfer a personally owned retail property into her SMSF. The property is valued at $600,000 and Zelda has $300,000 in available cash in her fund that can be allocated to the purchase, as well as full access to the NCC bring forward,” Hurst said.
“She enters into a contract for her SMSF to purchase 50 per cent of the property for $300,000 and prepares all required paperwork for the remaining 50 per cent of the property to be in-specie transfer into the fund.”
Zelda’s SMSF would need to enter into a purchase contract that states it is acquiring the property at its market value of $600,000, but it would be documented that 50 per cent of that would be coming from cash from the SMSF and 50 per cent from an in-specie transfer.
“If it is documented that way, it will avoid non-arm’s length issues. As Zelda has received $600,000 in consideration for the property, which is market value – contribution and sale proceeds – NALI/NALE won’t apply,” Hurst added.
“However, the contribution can’t be an afterthought or NALI/NALE will apply. It can’t be half the thought anymore. It needs to be all dealt with and documented correctly at the time of contribution.”
