In Specie transfer in to an SMSF
I get enquiries from so many people now with holdings from an employee share scheme or listings such as IAG (the old NRMA) , CBA, Telstra and now Medibank Private who wish to simplify the shares held in their own personal names as they approach 67 so they don’t have to do a tax return for themselves in retirement. One option often considered is making an in specie transfer to your SMSF.
In specie is the process of transferring shares, business real property or managed funds without selling the underlying investment.
An in-specie contribution occurs when a member transfers ownership of an asset they own to the SMSF. In this case, the capital value of the fund has increased and the increase in value is considered a contribution for the member whose member balance has grown.
While most superannuation funds can accept in-specie contributions, it occurs far more commonly with SMSFs than with industry or retail superannuation funds.
An in-specie contribution is considered an acquisition from a related party and such acquisitions are generally prohibited. Listed shares, managed funds and business real property are exceptions to the general prohibition for in-specie contributions.
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. you should run the strategy past your adviser before implementing it to work out the CGT and the best way to minimise it.
In addition, it is not necessary that the entire value of an asset transferred to an SMSF be considered a contribution and this is particularly beneficial where the value of the asset is greater than the contribution caps available to the contributors.
For example, if a commercial property, lets say a shop, valued at $1,200,000 was to be transferred to an SMSF by a husband and wife and its entire value was considered a contribution, it could result in an excess non-concessional contribution of $540,000. To avoid this outcome, we could treat 2 x $330,000 of the transfer as Non-Concessional contributions for the husband and wife using the full NCC cap of the 3-year Bring Forward Rule and the remainder as a sale. The SMSF would have to transfer $540,000 of cash or other assets to effect the purchase on that portion of the property or arrange borrowing and use an LRBA structure.
For shares most SMSF investors have a CHESS sponsored account so you should ask your broker for their Standard Transfer Form for Off Market Transactions.
Here is the link for the CommSec version of the form
In Specie transfer out of the Fund
In addition, assets can also be transferred out of the fund as in-specie payments though importantly, only lump sum payments can be made in-specie. Pension payments have to be made in cash. The rules on acquisitions from related parties do not apply to these transactions as the SMSF is disposing of the asset, not acquiring it.
Some clients buy a coastal house or city apartment in their SMSF as an investment while they are working but with a possible option to move in to it when they retire. To do so they must take it out of the fund on retirement. Often they will use the funds from the sale of their home on retirement to buy the property from the fund but the option is there to take the property out as a lump sum in specie transfer if timing makes a purchase strategy unsuitable.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 9899 3693, Mobile: 0413 936 299
- PO Box 6002 NORWEST NSW 2153
- Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
- Suite 4, 1 Dight St., Windsor NSW 2756
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net
The SMSF Coach 
Denver
/ August 26, 2023Hi Liam,
I own a warehouse as a joint tenant with my business partner. The property is valued at $500,000 and i’m assuming the best way to do an in-specie transfer would be to do a 250k NCC each? But why would this be considered better than just one of us doing it, say I contribute 330k and then treat the 170k as an asset sale. Is there any benefit to upholding that 500k value of the property in the SMSF rather than losing 170k of its value? Also does this trigger a CGT event? And what consequences apply if the property is audited is they consider the property value over/under the transfer vaue?
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SMSF Coach - Liam Shorte
/ August 28, 2023If you do not transfer for the same beneficial owners as currently then you risk paying full stamp duty on the transfer. Yes it is normally a CGT event but you should talk to your Tax Agent about exemptions that may be available and discuss the option of part of the contribution as a Concessional Contributon if there is CGT. As long as you have documented proof of an independent market valuation then the auditor should have no issue. Client have used http://www.localvaluers.com.au or https://duotax.com.au/ for independent valuations.
As always this is general advcie and you should seek advice based on your specific circumstances (and your business partner’s) before making any decision as this has tax, legal and superannuation implications.
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SMSF Coach - Liam Shorte
/ September 25, 2022You would treat this as a lump sum commutation which is tax free if you are over 60 and in pension phase. Yes it would trigger cgt and in many states stamp duty as well so check with a lawyer / conveyancer as I know Victoria has some exemptions for example. . The capital gains would be tax exempt in pension phase. Yes the CGT be calculated from the date of the in specie transfer so think about the market value you use for that transfer as you might like to ensure it is the top end of the range provided by the valuer to give you a higher base in your personal names but do not over inflate the value as that is illegal. A higher value for the debit to your Transfer Balance Cap
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Henriette Veit
/ September 10, 2022My husband and I would like to in specie transfer a property OUT of our SMSF, which is completely in pension mode.
Would this trigger CGT and stamp duty?
If we would sell this property later on, would CGT be calculated from the date of the in specie transfer?
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Ben A
/ August 23, 2022Hi Liam,
Great post – your website is a treasure trove of information! So thanks alot!!
General question – husband & wife are members of smsf – corp trustee. Husband owns international shares (NYSE listed) in his name. Can he inspecie $660k into the smsf and apply $330k each to he and his wife or is he limited to $330k to keep under the NCC cap? I’ve only ever seen case study’s of jointly owned assets, not individually owned assets being inspecied in….
Cheers,
Ben
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SMSF Coach - Liam Shorte
/ August 23, 2022Hi Ben, check the deed and always check with the fund’s auditor but in general:
If a client owns 100 per cent of an asset and the value exceeds their NCC cap, they could make:
– An in specie after-tax contribution for an amount equivalent to their NCC cap; and
– An in specie contribution for the remaining value on behalf of their spouse (provided they are also a fund member), which could be counted towards the spouse’s NCC cap.
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Ben
/ August 23, 2022Thanks for that information Liam – that makes sense!
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Jarek
/ April 9, 2022If SMSF has pension and accumulation assets segregated, and then decides to change assets allocation strategy and wants to move some shares from segregated pension assets to accumulation assets, how should this be achieved? Would the off market transfer be appropriate, so that on particular transfer day, certain shares are reallocated from pension to accumulation account and corresponding market value of cash is reallocated from accumulation to pension account?
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margretteyoung
/ February 7, 2022if 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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SMSF Coach - Liam Shorte
/ February 7, 2022Hi 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, 2022thanks 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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SMSF Coach - Liam Shorte
/ February 7, 2022Hi 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, 2022thank 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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SMSF Coach - Liam Shorte
/ February 7, 2022Hi 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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SMSF Coach - Liam Shorte
/ April 3, 2022No, 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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Bill Coleman
/ February 11, 2021Can I vender finance my son to purchase industrial shed held in my SMSF?
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SMSF Coach - Liam Shorte
/ February 11, 2021Hi 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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joanna Kunicka
/ October 2, 2020If 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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SMSF Coach - Liam Shorte
/ October 2, 2020That’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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Eric Choong
/ March 24, 2018I 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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SMSF Coach - Liam Shorte
/ March 24, 2018Eric you should work with your accountant on this straight away. Please refer to https://www.ato.gov.au/Forms/CGT-cap-election/
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Katherine
/ September 8, 2017Hi 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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SMSF Coach - Liam Shorte
/ September 8, 2017Your 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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Katherine
/ September 7, 2017Hi 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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SMSF Coach - Liam Shorte
/ September 7, 2017The 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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Viral Shah
/ August 1, 2017Hi 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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SMSF Coach - Liam Shorte
/ August 1, 2017Viral, 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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Vick
/ July 28, 2017Im 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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SMSF Coach - Liam Shorte
/ July 28, 2017Total that can be salary sacrificed per year to super is $25,000 less any employer SGC (usually 9.5%). You can also save an additional $100,000 per year after tax to super called non-concessional contributions. Your employer deducts the income tax at your marginal tax rate and then the amount net of tax can be contributed without and further tax on entry to the fund. More info here https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-my-super/Personal-super-contributions/
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David More
/ September 24, 2016Hi 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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SMSF Coach - Liam Shorte
/ September 24, 2016Yes but only as a lump sum payment not a regular pension payment
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Elizabeth Christodoulou
/ June 2, 2016Yes 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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SMSF Coach - Liam Shorte
/ June 2, 2016Yes 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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