SMSF off-market transfer ban delayed

SMSF technical expert and columnist for The Australian newspaper
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The Government has officially pushed back the start date for a ban on off-market transfers for self-managed super funds, meaning SMSFs have until 1 July 2013 if they plan to make a transfer under the old rules.

The ban – which would impact the sale of assets between SMSFs and related parties as well as in-specie contributions and benefit payments between SMSFs and related parties – was meant to come into force at the start of this financial year. However, with no official legislation announced before the 1 July 2012 start date, SMSFs were left to assume the old rules remained in force.

Treasury’s announcement via their website on Friday confirmed that the ban would be delayed until next financial year.

The change

The proposed change is that any asset transfers between an SMSF and a related party of the fund should occur through an underlying market; for example, the ASX for entities listed on that exchange. If a market doesn’t exist, then a valuation would have to be provided by a suitably qualified independent valuer.

In-specie benefit transfers and contributions involve the change in ownership of an asset. In the case of contributions, the market value of the asset is deemed to be the contribution.

Similarly, the value of the assets is deemed to be a benefit payment. Government regulators have expressed the view that you can’t use in-specie contributions to make pension payments, although many super lawyers disagree with this. Laws are always up to interpretation, but I’m not aware if this restriction has been tested in the Administrative Appeals Tribunal or a Court, so I suggest you abide by the wishes of the regulators.

Evolution

When I first began working over 25 years ago, in-specie contributions and benefits hardly ever occurred. They first began to be seen in the early 1990s and these days are very popular and even quite a few retail super funds allow some investors to use them.

The policy change has come about because of a recommendation of the Cooper Review – which was handed to the Government in mid-2010 – and a Government review of the Cooper Review, which said that the change should be made because of the “mischief (perceived or otherwise) of manipulation of capital gains tax … or excess contributions tax.”

Putting to one side whether this comment is valid, Minister Bill Shorten accepted this view and said in September 2011 that all in-specie transfers would be subject to these new rules from 1 July 2012. No one could argue that we didn’t have sufficient warning about this change. So why the delay?

Final legislation

Normally with proposed rules, the Government releases draft versions so that unintended consequences can be identified and removed before the rules are finalised.

However, legislation to put this new rule involving in-specie contributions or benefits into place hasn’t been introduced into Parliament.

Since Shorten’s official announcement that the Government would legislate, there has only been official silence. I had heard and read several rumours about a potential delay to the start date of these new rules due to legislative hurdles.

While the date has now been pushed back, I’m still hoping the Government has found the drafting of these rules too difficult and will quietly drop them.

Hurdles

This policy proposal apparently contravenes the Corporations Act, which forbids anyone – or their related parties such as their SMSF – from selling an asset and then quickly buying that security back. This policy proposal also has problems under the ASX market integrity rules, which prohibits the false or misleading appearance of active trading in a security.

Until these problems are sorted out, the current rules continue to apply.

This means that when dealing with related parties, you need to consider the super law arm’s length rule (discussed here in detail) as well as the acquisition from related parties rules (discussed here in detail). You will also need to consider the contribution caps.

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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