Key points
- In specie contributions mean a contribution made with assets that aren’t money or things considered similar to it.
- You need to make sure your fund’s trust deed allows the transfer and your investment strategy caters for the new investment.
- If you’re contributing shares then there will be a charge to change the ownership of these assets from your name to your super fund’s trustee; if you’re contributing real estate then there will be stamp duty (a concessional rate is allowed in some States for commercial real estate) and legal fees.
Most super contributions are made with money or its near equivalents such as cheques, electronic funds transfers and even credit card payments.
But there are other ways of contributing to super. And these other ways are often an important financial planning tool leading up to 30 June.
Suppose you personally own some listed shares, you still think the company is a good investment but in an ideal world, you would prefer that this investment was held by your SMSF.
Well there is a way – it’s called in specie contributions. In specie is a term that typically means “in kind”. Effectively it means a contribution made with assets that aren’t money or things considered similar to it.
It’s not a difficult process, but you need to work through the following steps.
- Your fund’s trust deed – does it permit this type of transaction? If you’re unsure after checking this document then you should take some advice from an experienced superannuation lawyer.
- Your fund’s investment strategy – does your fund’s investment strategy cater for the new asset? If no, then you will either need to amend your investment strategy or dump the idea of making in specie contributions.
- Record keeping – your fund is acquiring an asset which will also be a contribution; this means additional financial accounting transactions, updating the fund’s asset register and completing a trustee minute that each trustee agreed with the acquisition; your fund trustee should also consider if it wants to segregate assets between members or between retirees and those still working (further details can be found here [1] and here [2]).
- Contribution caps – don’t forget the various contribution caps and the associated tax penalties that can apply if you don’t elect to withdraw any excess contributions in the time allowed by the Tax Office.
- Costs – if you’re contributing shares then there will be a charge to change the ownership of these assets from your name to your super fund’s trustee; if you’re contributing real estate then there will be stamp duty (a concessional rate is allowed in some States for commercial real estate) and legal fees.
- Super legislation restrictions – when you make an in specie contribution, your fund has acquired an asset from you; the super laws are quite restrictive in what assets your super fund can acquire and severe penalties apply for breaching these rules; this means you’re in specie contributions are effectively restricted to real estate that satisfies the “business real property” definition or shares and other securities listed on most stock exchanges throughout the world.
- Capital Gains Tax – when the contribution is made to super, the CGT laws deem this to be a disposal of an asset; this means you need to assess if you’ve made a profit on the sale of the asset and then declare that profit on your tax return and pay the appropriate tax.
- Tax concessions on the contribution – often investors who are self-employed will want to claim some, or all, of the in specie contribution as a tax deduction to reduce the amount of CGT owing on the disposal of the asset (further details about the necessary requirements to claim personal contributions can be found here [3]). Any contributions that you do claim as a tax deduction will be taxed at 15% in the year that they’re contributed and will count towards the concessional contribution cap. For most investors, however, the contribution will be classified as a non-concessional contribution.
In specie contributions first appeared more than two decades ago and are now quite common. They were first done in SMSFs but not large retail funds because many large super funds didn’t have the system in place to handle this type of transaction. It would be a surprise if all of them can’t do it now.
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.