Masterclass SMSF – What is In-Specie Transfer, does Capital Gains Tax apply, and what other issues apply to SMSFs?

What is In-Specie Transfer, does Capital Gains Tax apply, and what other issues apply to SMSFs?

What is In-Specie Transfer, does Capital Gains Tax apply, and what other issues apply to SMSFs?

The word “In-specie refers to “non-cash” and Capital Gains tax will apply (when you transfer ownership from one entity or individual) as well as several other issues that apply to Self-Managed super (SMSF) including certain restrictions when transferring assets that are non-cash into Self-Managed Super Funds (SMSFs). Generally an SMSF cannot acquire some assets from related parties, whether purchased or contributed in-specie. This includes residential and investment residential property, life insurance policies, units in widely-held trusts, bank notes, coins and collectables. But the exceptions are related-party owned business/commercial property and listed securities (shares) which CAN be transferred in-specie to an SMSF. We explain this further in our SMSF Roadmap seminar. There are Benefits and there are Issues to watch though –

The Benefits of In-Specie Transfer to your SMSF –

Tax Benefits

Owning assets within superannuation are significant and extremely appealing in accumulation and then particularly once a member moves into pension phase as in the table below.

  Non Super Super Accumulation Super Pension
Maximum tax on earnings (Marginal Rate) 45% plus Medicare 15% 0%
Maximum CGT (assets held < 12 months) 45% plus Medicare 15% 0%
Maximum CGT (assets held > 12 months) 22.5% plus Medicare 10% 0%

Centrelink Benefits

Before reaching pension age, superannuation accumulation funds are exempt from the Centrelink asset and income tests. Therefore, transfer of direct shares from an individual’s name into a superannuation accumulation account may result in additional Centrelink entitlements.

As an example, the greatest benefit is achieved where one member is of age pension age but their spouse is not. The super accumulation account of the non-age pension recipient will be excluded from the asset and income test, potentially meaning a greater age pension entitlement for the age pension recipient.

Commonly, the greater the age discrepancy the greater the benefit there is in transferring the shares into the younger member’s superannuation account.

Administration Benefits

Owning shares in an individual’s name involves separate accounting for dividends in annual tax returns, maintaining a CGT register (especially for dividend reinvestment plans) and keeping up-to-date on shareholding balances etc.

By in-specie transferring shares into an existing superannuation fund, you effectively consolidate investments and simplify ongoing administrative and tax responsibilities.

Spread contribution over time and avoid future contribution cap reduction?

In 2007 contribution caps were introduced restricting the amount of money that could be contributed into superannuation before excess contributions tax would apply. Prior to ‘Simple Super’ there was no limit on how much could be contributed into superannuation, although RBLs often reduced the incentive of contributing too much but no contribution caps existed.

These caps were tightened at one stage then the scheduled indexation increases for both concessional and non-concessional contributions being raised in 201411.

Avoiding a future problem of possible restriction to contribute funds into superannuation and being left with investments outside the tax effective environment of superannuation could be a reason to consider an in-specie transfer of shares now whilst share prices are still relatively low.

The Issues of In-Specie Transfer to your SMSF –

Capital Gains Tax (CGT)

For an in-specie transfer of shares from an individual to a superannuation fund is a CGT event. One needs to consider this when determining whether an in-specie transfer of shares into superannuation is appropriate.

It may never be a good time to pay tax, but there are two issues to consider:

  1. CGT is unavoidable and the longer an asset is held and the more it appreciates, the greater the CGT liability will eventually be. Even if the investor never sells an asset, the beneficiary of the client’s estate will inherit the CGT cost base and subsequent CGT liability when the asset is eventually sold. Therefore, realising a CGT liability now by in-specie transferring shares into superannuation is in many cases bringing forward the inevitable, but reducing future liabilities.
  2. If a share/asset price is low, an in-specie transfer of into superannuation at this time will result in a much lower CGT liability than would have occurred if the transfer had been actioned before the start of a bear market. However delaying an in-specie transfer, if the share price continues to rise, CGT liabilities will also increase.
  3. Preservation & Contribution Caps

Remember that any shares/assets transferred via in-specie into superannuation will be preserved until a condition of release is met.

The dollar value of an in-specie transfer must be clearly known and care taken to ensure the transfer will not result in breaching contribution caps which could result in excess contributions tax of up to 46.5%.

Want to learn the core issues of share investing? Our workshop “Navigate to Successful Share Investing” gives a 2.5 hour practical session to learn to easily understand Company Financial Statements, how to find healthy companies, what tools and ratios to use, work on examples, and also includes how to get better investment outcomes. Other Bonuses as well.

Check the next one see Share WORKSHOP or call 0407 361 596

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About SuperBenefitnews

Self-Managed Superannuation Service Providers in Australia. SuperBenefit will SET UP your SMSF and provide investment education for a better result. We take care of all your administration, accounting, ATO lodgement and audit of SMSFs, working with you and your advisors. If you want advice we can arrange one of our recommended advisors and accountants to meet with you, as we do not give advice, but take instruction only. Take control of your super, including property shares and other assets. Learn how to be your own advisor - make better decisions - by being mentored and coached to invest your own super wisely and strategically by qualified partners. Book to come to an event to find out more, or - Call us 0407 361 596, no obligation FREE strategy call.
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