Q: How should an SMSF starting an account-based pension value cash deposits or fixed deposits?
A: Cash and fixed term deposits are typically valued at their face value (principal amount) when an SMSF is starting an account-based pension.
Interest income is taxable when it is received (i.e., on a cash basis), so SMSFs tend to recognise interest income on a cash basis.
Q: Are share transfers counted in my $150,000 non-concessional cap?
We want to transfer shares my wife and I hold outside the super to our SMSF. We understand this is called an “in specie” transfer and we have until the end of this financial year to do so.
Will the value of the shares transferred be counted as part of the non-concessional cap?
We hold shares in a stock that were accumulated over12 years and that stock price has risen. Would this trigger capital gains tax (CGT) on transfer?
A: An “in-specie” contribution is effectively just making a superannuation contribution in the form of assets rather than cash. The changes to the rules haven’t actually become law yet – they may ban listed shares from being transferred via “off market transfer”, but at this stage completing an off market transfer form to move listed shares into your SMSF is still allowed.
The market value of the shares at the date of transfer will be counted towards your non concessional caps unless you are able to claim a tax deduction for personal super contributions.
Transferring shares to your SMSF does trigger a CGT event for you personally. Remember to claim the 50% CGT discount to reduce the gain as you’ve held the shares for more than 12mths. It may be possible for you to consider claiming a deduction for part of your in specie contribution to offset the expected capital gain and save some tax that way, but I recommend seeking further advice about this.
Q: Can a temporary resident run an SMSF?
My wife and I are expats of four years and our super is in a generic scheme. We would like to open up an SMSF, but our accountants keep telling us that we can’t because it contravenes being an expat and may have tax implications. We have no immediate plans to return overseas. All we wish to do is manage our own investments. Can I set up an SMSF?
A: To open up an SMSF which qualifies as a complying fund from day one, you need to make sure your SMSF can meet the following tests:
- the fund is established in Australia or any asset of the fund is situated in Australia
- the central management and control of the fund is ordinarily in Australia; AND
- either the fund had no active member (which means a member making contributions), OR at least 50% of the total market value of the fund’s assets is attributable to superannuation interests held by active members who are Australian residents.
A fund that fails to satisfy any one of these tests at a particular time is not an Australian superannuation fund at that time, even if the other tests are met.
You might like to take a look at Tax Ruling TR 2008/9 which contains some very valuable guidance and case studies as to what will and won’t cause residency problems for an SMSF. If you set-up an SMSF and transfer all your super into it, but then fail the above definition of an Australian fund, unfortunately the ATO will hit the fund with a tax rate of 45% on income and assets. So getting it right is extremely important.
Q: Do contributions made to an overseas retirement fund count towards contributions caps?
No, only contributions made to an Australian regulated superannuation fund count towards contributions caps. So contributions to an overseas retirement fund do not count for the purposes of contribution caps.
On the other hand, generally, if you transfer overseas super and pension money to an Australian super fund, the transfer amount will be counted as a non-concessional (after tax) contribution.
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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.
