Question 1: Just back from another excellent Switzer Investor Conference. I have a question as to what assets an SMSF can invest in. I am considering establishing a small trust to invest in direct property. Is our SMSF eligible to be an investor in the Trust if my husband and I are also individual members? If all records are kept correctly, would this present a problem re the related party rules? And am I right in thinking all trust income and capital gains need to be distributed in line with proportional membership?
Answer: If your SMSF invests in a related party investment trust, it will most likely be deemed an “in-house” asset. While this is allowed, you can’t have more than 5% of the SMSF’s assets invested in “in-house” assets. You should read the ATO’s ruling on this (SMSFR 2009/4) – here is the link https://www.ato.gov.au/law/view/document?DocID=SFR/SMSFR20094/NAT/ATO/00001&PiT=99991231235958 [1] Distributions of income and capital would normally be made in accordance with proportionate shares. Your accountant can advise you further on this.
Question 2: I would be severely impacted by the changes to franking credits under a Labor government. My wife and I are both in pension phase and are considering winding up our SMSF to join an industry fund to take advantage of franking credits. Do you have any recommendation as to which Industry Super is best?
Answer: If you’re thinking of closing your SMSF and moving to an industry or retail fund because of the possible change to franking credits, I would counsel against it. I would wait. You can see my reasons in my article in Switzer Daily here. http://www.switzer.com.au/the-experts/paul-rickard/worried-about-franking-credits-stop-dont-do-anything-yet/ [2]. If the laws around franking credits change, there is no certainty that the Trustees of a large super fund, who by law must act in the best interests of all its members, will be allowed to “refund” that benefit to you. In relation to large super funds themselves, I would consider Australian Super, REST, Catholic Super, Q Super.
Question 3: What are the rules around off market transfer of ASX listed shares from an individual into an SMSF? I understand that capital gains tax applies and the price needs to be as listed on the date of transfer. What dates can be used to determine the price for transfer?
Answer (this question is answered by Graeme Colley from Super Concepts): Where a member makes a transfer of listed shares to their SMSF, section 66 of the SIS Act applies. Section 66 prohibits certain assets from being transferred to the fund but there are exceptions, such as shares and other investments that are listed on an approved stock exchange. The legislation requires that the transfer of these investments is made at its market value.
The market value of an investment can be determined for tax purposes in line with the ATO’s valuation of assets for taxation purposes, which can be found at: https://www.ato.gov.au/general/capital-gains-tax/in-detail/market-valuations/market-valuation-for-tax-purposes/ [3]. As an example of the valuation of listed shares, the ATO says: “we will accept a valuation based on the closing price of widely held shares listed on the Australian Securities Exchange (ASX) to derive the market value for a non-arm’s length transfer of such shares between a husband and wife, provided the price had not fluctuated materially on the day.”
When it comes to superannuation contributions that are made as a transfer of listed shares, the ATO has published TR 2010/1, which is when they consider a contribution has been made by the fund. In the case of listed shares that are transferred to the fund the contribution is considered to be made when the transfer document have been executed by both parties, in this case the member and the fund trustee.
Question 4. Besides “outright bastardy”, is there a financial gain for the NAB and ANZ not paying their dividends this financial year like Westpac? If Bill Shorten gets in and gets legislation passed, will the banks retain the franking credits giving them a boost as opposed to the shareholder?
Answer: I agree with your sentiment – “outright bastardry”. No financial incentive. I guess they were worried about “upsetting” an incoming ALP Government.
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 regard to your circumstances.