In this edition of ‘It depends’, senior associate Steven Jell talks about transferring assets to an SMSF.
Hi, during this edition of It Depends, we’re going to talk about transferring assets to an SMSF.
What are contributions?
Contributions are an amount transferred to an SMSF by a member or on behalf of a member. The considerations regarding contributions are relevant when we’re looking at transferring assets to an SMSF as the SMSF will need to treat the asset transferred as a contribution. There is a separate edition of It Depends on contributions, please have a look at it.
Can I transfer an asset to my SMSF as a contribution?
It depends. The transfer of an asset into an SMSF as compared to the transfer of cash is referred to as an ‘in specie transfer’. The value of the fund increases by the value of the asset transferred, and the asset is treated as a contribution for the member whose member balance has also grown.
Who can transfer assets?
Contributions can be made by a member or by someone else on their behalf. The super rules restrict the types of assets that can be transferred into an SMSF and also the way in which those assets are accounted for. Most commonly it’s the individual member who’s looking to transfer an asset that they own into their own SMSF. This creates some compliance issues for the fund, because each member will be treated as a related party of the fund and the SMSF has some restrictions on the assets that it can acquire from a related party.
What types of assets can be transferred?
Broadly, there are three types of assets that can be transferred to an SMSF. We’ve got listed securities such as ASX listed shares, managed funds, which are a type of investment where the member is one of a large number of investors or real estate used in a business such as commercial property.
What do I need to do before transferring an asset in specie?
So, it depends and we need to look at the individual circumstances as well as the asset that we’re looking to transfer in. So, first, look at the trust deed. Does it allow in specie transfers? Does it require a particular process which must be followed? The asset itself must be transferred at market value. So, when we’re looking at market value transfers, we need to consider well, does the member have sufficient space in their contributions limits to allow them to have the allocation of that asset to their member balance? If the individual member is transferring it from their personal name, then we need to look at the tax consequences associated with them disposing of that asset personally, as it will likely be treated as a tax event for CGT purposes. If we’re transferring real estate, we need to consider the transfer duty consequences of transferring the real estate into the SMSF as a beneficial ownership of the asset will have changed. What documents do we need to prepare? And they will depend upon the circumstances associated with the individual transaction. The key thing to look at in all these situations is, once the asset is in the fund, it may be very difficult to get it back out. So, we need to consider whether the members want to retain that asset in the SMSF for an extended period of time.
If you or one of your clients have any questions, please feel free to reach out and contact me or one of the team. Thank you for watching this edition of It depends.