What assets can I sell to my super fund?

SMSF technical expert and columnist for The Australian newspaper
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In my last article, I dealt with the super law’s arm’s length rule and explained that it’s possible for you and other related parties to sell assets to your super fund for less than market value. (You can read that article here.)

The term ‘related parties’ includes your fund’s members and all their relatives. It also includes entities that the members and their relatives control or the super laws deem that they control.

Last week’s article didn’t deal with the type of assets related parties can actually sell or contribute in-specie in a super fund.

Types of assets

The main assets that can be acquired by super funds (either by actual sale or in specie contributions) are listed securities and business real property. There are some other exceptions that I’ll look at in a moment.

The reality is that very few people will be able to sell a house to their SMSF unless it is classified as business real property.

Listed securities

Listed securities are defined as a security quoted on most stock exchanges or licensed markets throughout the world. Over the years I’ve mostly seen investors wanting to sell or contribute ASX listed shares, but I’ve occasionally come across people wanting to sell or contribute something on the US, UK, French, German, Hong Kong or Japanese stock exchanges. I’ve never seen anything more exotic than this list of countries, but no doubt some of the roughly 1 million people who belong to SMSFs have sold or contributed companies listed from other countries.

Business property

The definition of business real property is a bit more complicated. At its most basic it means real estate used wholly and exclusively in the running of a business. Property law and super law don’t always go easily together and in 2009 the Tax Office released a Self Managed Super Fund Ruling (2009/1) on what is meant by the term ‘business real property’.

Believe it or not, the ruling is actually about 70 pages long and contains 37 examples. I personally think it’s a good document and well worth a read if you have nothing to do for several hours.

Exceptions

What other assets can a super fund acquire from a related party? There are six other categories:

1. assets held in a Limited Recourse Borrowing Arrangement holding trust once the loan has been repaid;

2. assets transferred to a super fund from another super fund as part of a marriage separation or relationship breakdown settlement;

3. an asset that is an in-house asset of a super fund;

4. an asset that would be an in-house asset of a super fund but is deemed to be exempt from these rules by the super laws. In the Tax Office’s view this only relates to investments in related parties. It doesn’t include super fund assets leased to a related party or an asset that will be leased to a related party as soon as it’s acquired;

5. a life insurance policy (but not from a member or relative of a member of your super fund); and

6. any asset deemed by the super laws not to be an in-house asset of a super fund – for example, investments in widely held trusts.

Please note, for the last four in the above list, the asset must be acquired at market value, that is, arm’s length. (In other words, the arm’s length rule as described last week doesn’t apply.)

Before you sell or contribute an asset to your super fund, think carefully about the acquisition of assets from the related parties rule as well as the super law arm’s length rule. It’s important to make sure you don’t breach either of these rules.

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.

Also in the Switzer Super Report

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