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  1. if a residential property is transferred out of a SMSF as an in specie transfer, is it liable for capita lgains tax?

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    • Hi Margaret, if all members have their entire balances in the pension phase in the fund then the property transfer may be a CGT exempt event. So check with your Accountant / Administrator for the details of your balances as you may need to move some recent contributions to pension phase first. If there is a mix of accumulation and pension then there will most likely be some pro-rata CGT payable. You want this to be a partial rather than full commutation and your accountant or adviser can explain why. Please seek advice.

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      • margretteyoung

         /  February 7, 2022

        thanks for your reply liam. i have a further question arising your reply is”Hi Margaret, if all members have their entire balances in the pension phase in the fund then the property transfer becomes a CGT exempt event. So check with your Accountant / Administrator for the details of your balances as you may need to move some recent contributions to pension phase first. If there is a mix of accumulation and pension then there will most likely be some pro-rata CGT payable”.

        yes the entire balances are currentlyin pension phase.
        the question is – can the residential property simply be inspecie transferred out or do i have to contribute the market value in cash to the fund in exchange for the transfer to enable the transfer to be free of CGT?

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      • Hi Margaret, you would not have to contribute cash to take funds out but many people doing this strategy do contribute to ensure they keep as much in super as they can.

        I have concerns about your strategy and is somewhat complicated as it depends on whether the property makes up the full value of your pension accounts or not. If it is only part of your balance then the property can be in-specied out as a “partial lump sum commutation” tax-free if the entire fund is in pension phase and no pension is fully commuted. As the fund is tax-exempt on investments which are supporting the income stream, there will be no capital gains consequences on the partial transfer. However, if the property makes up the full value of your fund or one of the accounts in that fund, then you will have fully commuted the income stream and it is treated as having come to an end for tax purposes. In this situation, any fund investments transferred to you may have capital gains tax consequences as they are treated as being transferred from the accumulation phase assets of the fund before transfer.

        Example of Full Commutation and the effect it has on CGT.

        When an account based pension is fully commuted, it ends for exempt current pension income (ECPI) purposes as soon as:

        1. the member makes a valid request to commute, and
        2. the trustee agrees to do so.

        So in reality this happens before the actual payment or in-specie trasnfer is made.

        This can have some extremely important consequences for ECPI in a fund entirely in pension phase and using the segregated method to claim its exemption. A full commutation will mean the fund stops being entirely in pension phase and has a short period, potentially only days while you arrange the transfer paperwork, where the actuarial method applies for determining ECPI. When the commutation involves an in-specie transfer, this will occur precisely when the capital gains are realised.

        For example, Jed & Mary each have a $700,000 account-based pension (with a 60 per cent tax-free component) and Mary has a second account-based pension of $400,000 (with a nil tax-free component). They decide to transfer a property out of their fund in specie to use it as a holiday home for the family and it’s market appraisal shows it is worth $800,000.

        They want to do so in December by:

        1. fully commuting Mary’s second pension after making the required prorated minimum payment first (for example $20,000 for the 6 months forgetting about this year’s reduction in minimum pension amounts), and
        2. partially commuting Mary’s first pension.

        The result of fully commuting Mary’s pension means that for a short while the fund has $390,000 in accumulation phase in a fund worth nearly $1.8 million. And it’s at that time the capital gain on disposing of the property is triggered and realised.

        The result is that at least some of the capital gain will be subject to tax in that year.

        You should seek personal advice on this matter and the structuring as a full or partial lump sum because of tax consequences. You should also consider carefully taking funds/assets out of your SMSF as it may be a detriment to your retirement funding.

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      • margretteyoung

         /  February 7, 2022

        thank you so much for your detailed advice. i can see its complicated even more so with a tax free component and a taxable component.
        When you talk about ‘one of the accounts in the fund’, are you referring to tax fee compoonent as one account and taxable component as a separate account?

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      • Hi Margaret, no, in terms of accounts I was talking about you and your partner’s member accounts. Often each member will have more than one account. 1 in the accumulation phase receiving current contributions and 1 or more pension accounts. Any in the accumulation phase are not exempt from tax. That is also why you have to be careful of full commutations of a pension as it sends the funds back to the accumulation account.

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      • No, you can have multiple pension accounts in an SMSF. If timed properly you can keep new non-concessional contributions in one pension seperate to hers with mixed components.

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  2. Bill Coleman

     /  February 11, 2021

    Can I vender finance my son to purchase industrial shed held in my SMSF?

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    • Hi Bill I suggest you see a SMSF Specialist in your area to discuss your options. In general you cannot lend from your SMSF to a related party so the SMSF cannot vendor finance a sale to a member, relative or related entity. If you have equity in other non-super assets you might get advice on doing a private loan from you to your son to buy the property from the fund. Complex strategies so please seek personal specific advice. Liam

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  3. joanna Kunicka

     /  October 2, 2020

    If you transfer the property out of the SMSF (in specie lump sum), what day is the “sale” date? Is it a lodgment date or the date when the member had intention to transfer it?

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    • That’s a contract law question but I would assume it is the date you signed the transfer/contract of sale. I am always careful to recommend you speak to a conveyancer/lawyer in the state the property is situated to be certain. If you are trying to use “intention date” you will struggle as an auditor is always going to want to see documented evidence of a contract.

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  4. Eric Choong

     /  March 24, 2018

    I have sold my small business for retirement . I have put in $500,000 as in specie contribution to my SMSF. Is there a special form that I am required to complete and forward to ATO. I am 68 years old and satisfy the work test.
    Eric

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  5. Katherine

     /  September 8, 2017

    Hi Liam,

    Re one of the paragraph above “ The transfer of the asset will be deemed to be a disposal for the member and any gain realised by the member may be subject to CGT, though there may be some concessions, particularly where the property was used in their own business or that of an associate. If self-employed or able to claim a tax deduction for contributions then some of the transfer can be considered as a Concessional Contribution.” Is that means it’s able to split between CC & NCC for an in-specie (Business real property) contribution for members? How about in-specie listed shares contributions, is able to split between CC & NCC for members?

    Thanks!

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    • Your accountant or SMSF specialist should be able to give you a specific response but in general you can split the contribution of any in-specie asset across cc and NCC of various members except where you are Seeking small business cgt relief for s specific member or stamp duty relief for current owners. Please seek personal advice before proceeding.

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  6. Katherine

     /  September 7, 2017

    Hi Liam, I’ve got a question of if ATO allows to split the NCC?

    SIS Regulation 7.04(3) Prohibits the fund accepting any fund-capped contributions (single member contribution) in a financial year in respect of a member that exceed the members’ non-concessional contribution cap – is this only applicable for the single member fund?

    If two members fund as the example you’ve given above, it’s allowed to split the in-specie NCC between the 2 members to avoid the excessed cap issue?

    But why ATO says only CC can be split with spouse, but not NCC?

    Thanks,

    Katherine

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    • The rule just stops the fund accepting an amount above the NCC cap for any one member. You can split an in-specie asset contribution between 2 or more members to avoid breaching the Caps. The super splitting rules with CC is where you are using one persons caps to get the money in and then transferring to their spouse usually to improve the balance of a lower balance member, this was specifically designed to help women returning to work or out if the workforce to catch up with their balance. Often you see men with $500k in super and wife with $50k as she has been minding the family and the super splitting rules allow her to maintain some momentum in the growth of her balance. I advise all female clients to ensue their husbands are super splitting to show so,e good faith for them taking time out to raise a family.

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  7. Viral Shah

     /  August 1, 2017

    Hi Liam,
    There is a situation where a property needs to be removed from a SMSF in-specie. Have both pension as well as accumulation accounts. How can this be achieved? Is it mandatory to physically transfer the cash or can the property be transfer as just a pension drawdown?

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    • Viral, As always seek personal advice but in general a property can be transferred from the fund as a lump sum in-specie pension commutation (Lump sum withdrawal). It cannot be a normal pension payment as that must be on cash.

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  8. Vick

     /  July 28, 2017

    Im confussed on the contribuation one i know the salary sacrifice limit for example my husband earns 4000 .00 gross a wk. we get 400.00 taken out a wk for salary sacrifice that leaves 3600.00 left can we get his enployer to put fhat to our super as a conitrubuation every wk and does that get taxed at the full rate before it goes to super who taxes it the boss or super can u do this he is age 63 please explain

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  9. David More

     /  September 24, 2016

    Hi Liam,
    Can you transfer a parcel of shares out of the SMSF In Specie. I may need this with the new pension limits of $1.6M in pension mode.
    Thanks
    David

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  10. Elizabeth Christodoulou

     /  June 2, 2016

    Yes I have a further question about the in-specie contribution above. Does the contribution have to reflect in the accounts the exact % ownership of the tranferors. Case 1: Mum and Dad owned the factory Case 2: only Mum was the owner of the factory Both Mum and Dad are company directors of the business.

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    • Yes to,get the stamp duty concession. Then property must be transferred for the sole benefit of the transferring owner. Must be written in to the deed. Seek, legal advice for your state.

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