New guidelines for share transfers

SMSF technical expert and columnist for The Australian newspaper
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If you‘re planning to transfer a large number of shares into your self-managed super fund, you may want to tread carefully because a new interpretative decision has shed light on how the Australian Tax Office (ATO) will treat any amounts that exceed your contributions cap.

The ATO interpretative decision (ID 2012/79) states that separate share transfers, even if they occur on the same day, will be counted as separate contributions and this is important because in a situation where your fund breaches its contributions limit, it could mean the difference with being charged excess contributions tax or receiving a refund of the excess amount.

It can often be difficult to know the precise value of a share transfer into super, officially known as an ‘in specie’ contribution, because you won’t know the exact day the transfer may occur and hence the value of those shares. If you are making large and numerous transfers that will, in total, scrape close to the $150,000 non-concessional contributions cap, you run the risk of breaching this limit.

In the past, many SMSFs assumed they could receive a refund of any excess amount, avoiding the tax penalty, but it now looks like this isn’t the case.

Adding up the rules

We’re all familiar with the rule that says SMSFs will be hit with a tax penalty if they break their contributions caps, so your fund shouldn’t accept contributions above the $150,000 non-concessional cap.

There’s another regulation that says if an SMSF receives an amount above the non-concessional cap, then the trustee must refund that excess amount within 30 days of becoming aware that the fund has broken the cap. So far, so good.

There’s an earlier interpretative decision (ID 2007/225) in which the ATO says your SMSF can’t aggregate contributions, either within the super fund or across other super funds.

If we take this interpretation together with the two regulations, the only conclusion we can make is that your SMSF can only refund excess non-concessional contributions when you contribute above the cap in a single contribution.

What’s a single contribution?

The latest interpretation (ID 2012/79), which was released in September, clarifies the ATO’s position on what constitutes a single contribution. The ATO says a single contribution isn’t made by transferring individual parcels of shares on the same day, but rather, each transfer is considered separate. Potentially, this means that no portion of a contribution that causes your fund to breach its non-concessional contribution cap can be returned to you if the contributed amount itself is less than $150,000, therefore the excess contributions will be hit with a penalty tax of 46.5%.

Example

The ATO provides the following example:

A person aged over 65 contributes the following parcels of shares to their SMSF in a single day:

  • 2,000 shares in ABC Ltd; total market value $42,000
  • 5,500 shares in DEF Ltd; total market value $78,000
  • 3,200 shares in XYZ Ltd; total market value $35,000

The total value of these contributions equals $155,000 – breaching the $150,000 non-concessional contributions cap by $5,000. However, as you can see, none of these contributions are above that cap when considered individually.

Since the breach didn’t occur in a single transaction, but as a result of multiple transactions, the excess amount can’t be refunded and a non-concessional contributions tax assessment will be issued. The end result is that the excess $5,000 will be subject to 46.5% tax equalling $2,325.

The new interpretation says this principle will apply regardless of whether shares are in the same company or different companies (for example, suppose you have shares in the same company, but some are broker sponsored and some are issuer sponsored, causing the transactions to occur separately).

This means your super fund will need to report to the ATO separate contributions made of the same day if the contributions involve different parcels of shares.

If an excess non-concessional contributions tax assessment is issued, there doesn’t appear to be many avenues for you to appeal this assessment.

Knowing the exact day your shares will be transferred may be tricky. You super fund trustee can deem that a contribution of shares has been made on the day you give the trustee an Off Market Share Transfer Form in registrable form. This date will apply as long as your administrator correctly records this date. If it’s not kept, then the transaction date will be the date that the share registry is officially changed.

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.

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