Did you know it’s possible to transfer shares you own to your self-managed superannuation fund (SMSF) and claim a tax deduction for the value transferred of up to $25,000? Of course, you do need to be eligible to make a contribution to super – under 65, or over 65 and meeting the work test.

From 1 July this year, the superannuation rules now allow anyone who is able to make personal superannuation contributions to claim a tax deduction of up to $25,000.  This amount also needs to take into account other tax deductible contributions such as those made by your employer as superannuation guarantee or salary sacrifice.  Of course, you need to make sure any amounts you wish to claim as a tax deduction are tax effective.

Superannuation contributions are usually made in cash, but for anyone who has an SMSF, it is possible to transfer other investments such as listed shares to the fund and claim the value transferred, up to $25,000, as a tax deduction. This is called making an in specie contribution to superannuation, which just means making a contribution other than in cash.

How do you make a contribution of shares to your SMSF? It’s relatively easy as the shares held in your name can be transferred to the fund as an off market transfer.  There are standard transfer forms available from the share registry that has a record of your shares or you can get a copy from the internet. Your adviser or stockbroker may be able to help you as well.

Once the form has been completed the form should be sent to the share registry to recognise the transfer to the fund.  The date that the form was completed in the case of shares is considered by the ATO to be the date on which the contribution has been made to the fund.   If real estate is transferred to the fund then it is the date of settlement that determines when the fund owns the property and in the case of a cash contribution it is when the amount has been received by the fund.  This is important, as there are different times when the fund is considered to have received the contributions. In the case of shares, if you are claiming a tax deduction for the contribution the date the form was completed will determine which year you are able to claim the tax deduction.

The investments transferred to your SMSF may be subject to CGT as the transfer to the SMSF is considered to be a disposal of your investment by you and an acquisition of it by your SMSF.  This may trigger a capital gains tax event and if there is a capital gain, the taxable amount will be included in your tax return.  If you have owned the investment for more than 12 months you may be eligible for a 50% CGT discount on the taxable amount of the capital gain.  If the transfer of the investment to your SMSF results in a capital loss, the amount of the loss can be offset against any other capital gains that you may have on your investments.

Claiming a tax deduction for in specie contributions to your SMSF is relatively simple.  After making the transfer of the investment to the fund you have up until the time you lodge your tax return or the end of the tax year after the contribution is made to decide whether you will claim a tax deduction.  If you wish to claim a tax deduction you will need to complete an election that you intend to claim a tax deduction and keep it with the records of your SMSF.  The amount you have elected to claim as a deduction will be taxed in your SMSF at 15%.  Your personal tax return will claim a deduction for the amount you have elected.

Case study

Let’s have a look at a small case study which illustrates how listed shares that Michelle, who is a 35 year old IT consultant, owns in BHP can be made as an in specie transfer to her SMSF. Michelle is on a maximum personal tax rate of 37% plus Medicare and wishes to claim a tax deduction of $25,000 as a result of the transfer.

On 16 January 2015 Michelle purchased 1000 BHP shares for $24,507 and transferred them to her SMSF on 15 September 2017 for $26,260.  This resulted in a net capital gain of $1753.00, however, as Michelle had held the shares for longer than 12 months the gain was eligible for a 50% discount.  Therefore, an amount of $876 would be included in her taxable income.

To allow the transfer to take place, Michelle completed an off market transfer form on 15 September 2017 and sent it to the share registry.  The transfer of the shares was recorded in the fund at its market value of $26,260 on that date.

The next thing to be done is Michelle’s tax position.  As she proposes to claim a tax deduction of $25,000, it will be necessary for her to make an election for that amount and keep it in the fund’s records.  There is no requirement for Michelle to make that election until just before she lodges her income tax return, which will not be until sometime after the end of the 2017/18 financial year.  However, the election must be lodged with the fund by 30 June 2018.  Once the election has been lodged the legislation requires it to be acknowledged.

The tax benefit of Michelle making the in specie contribution to her SMSF and claiming a tax deduction up to the maximum tax deductible contributions cap will be:

Therefore, by Michelle making an in specie transfer of her BHP shares to her SMSF, overall she will be $5,658.36 better off.  This allows her to take advantage of the new rules for superannuation contributions and will provide her with a personal tax benefit in her hand, if we ignore the tax payable by the superannuation fund, of $9,408.36.

It is always worthwhile to seek advice from a tax adviser with sound superannuation experience to ensure that if you do transfer listed shares or other investments to an SMSF that it is permissible under the rules.

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.