Key points
- The super laws allow your SMSF to acquire listed shares or business real property.
- Your fund can buy the asset or make an in-specie contribution.
- If you contribute the asset into your fund, then this must be done on an arm’s length basis.
“Can I transfer the asset my business, my family trust or I personally own into my SMSF”, is a question I come across often.
Put simply, the super laws only allow your fund to acquire specific types of assets from related parties including the following:
- Listed shares – that is, a security listed for quotation on the ASX and many international stock exchanges
- Business Real Property – that is, real estate used wholly and exclusively in the running of a business
What assets can’t I sell to my super fund?
Basically all assets not mentioned above including residential real estate such as your holiday home or rental property, gold bullion, artwork, stamp or coin collections etc.
Also excluded are private company shares – that is, shares of companies not listed on the ASX or other recognised international exchange.
One way around this is to sell the asset you own to a third party, contribute the proceeds into super and then your super fund acquires a similar asset. If your fund acquires the same asset that you used to own from the third party then this may be seen negatively by the Tax Office under the super laws (this might trigger anti-avoidance rules and penalties) and under the tax laws (this might trigger what are known as the wash sales penalties).
Why transfer assets into your SMSF?
There are lots of reasons – you’re attracted to the 15% tax rate in super before retirement, as well as the 0% tax rate after retirement.
You might also like the fact that, if you were to go bankrupt or your company insolvent, sometimes super can provide better protection for your assets and money than having these assets held personally or in your business.
Next, your super monies typically don’t form part of your deceased estate, which means your super proceeds can be directly paid to one of your dependants – typically your spouse or children.
And finally, you might want to use the CGT small business tax concessions, which can involve contributing the CGT exempt proceeds into super.
The how
Now for the how – how do you want your fund to acquire this asset? In other words, do you want your fund to buy the asset or do you want to make in-specie contributions?
If the fund is going to buy the asset from you then it needs to be holding sufficient cash to affect the purchase.
If you’re going to contribute the asset in-specie then you should think carefully about the various contribution caps that might apply, otherwise penalty taxes might apply.
If you contribute the asset in specie or have your super fund buy the asset then there will be a change of ownership of the asset.
The paper work
Before you do anything, you need to make sure that your fund’s trust deed will allow the fund to own the particular asset. You also need to make sure that the trust deed allows the fund to acquire the asset from you or entities that you or your relatives control or are deemed to control. Just so you know, all of these people and entities are called your super fund’s “related parties”.
Under the super laws your fund must have an investment strategy. You must make sure that this document allows you to acquire and hold the asset you intend to contribute into the fund or have the fund acquire from you.
If you contribute the asset into your fund, then this must be done on an arm’s length basis. That is, any tax deduction you might claim for the contribution needs to be based on the market value of the assets on the day the transaction took place. Equally, the super fund needs to record the transaction using the same valuation in its financial records as what it sends to the ATO as a contribution.
If your fund acquires the asset from you, then similarly the sale must be done based on an independently verifiable valuation.
Specific issues for listed shares
As your super fund will become owner of the shares then this needs to be officially registered either with your broker (if the shares are broker sponsored on the chess system) or with the share registry (if the shares are issuer sponsored).
Brokers and share registries will probably charge a fee for recording the change of name of an asset. Share registries will also demand you prove your identity however your broker should already have this.
Specific issues about real estate transactions
These transactions need to take place with appropriate documentation including a contract of sale. In addition, the title of the property must change to your super fund’s trustee. Your State or Territory revenue office will charge stamp duty (there are some exemptions or concessions for business property transfers in some States).
Important: 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. Consider the appropriateness of the information in regards to your circumstances.