In-specie transfers – act now?

PORTFOLIO POINT: In-specie share transfers will become less appealing and more expensive for SMSFs post June 30. So you might want to act now.

Every time rules change, opportunities present themselves. And superannuation rules change constantly. The “opportunities” can flash by.

In February, I warned that gearing for SMSFs in property could end later this year. It would seem unlikely, but it’s possible. So, if geared property is something you’re considering, you might need to get your skates on.

Also closing is the ability to make concessional contributions of $50,000 a year to super for the over-50s. From July 1, the rules, as they stand, say that the concessional contribution limit will fall to $25,000 for everyone eligible to contribute.

(While the government announced the 50-50-500 policy in May 2010, and has recommitted itself to this policy twice, there is still no detail. Time is running out and it really is becoming a joke. The details on how it’s going to work are important for people to plan their contributions prior to and post 30 June, 2012. Please hurry up, Bill Shorten.)

The end of in-specie contributions?

But 30 June marks another deadline. From July 1, the rules change for in-specie transfers of many investments. This is particularly going to impact on those who intend to transfer particularly listed shares into their SMSF.

From July 1, all transfers of listed shares are going to have to be done through an “underlying market”.

This means that if if you have some shares that you want to transfer in to super (as either concessional or non-concessional contributions), you’ll have to go through an underlying market where one exists. For listed shares, this will largely be the Australian Stock Exchange.

For other assets, such as business real property, where there is no underlying market, a qualified independent valuation will be required from July 1.

The government has changed the rules for in-specie transfers because of the potential for “fraud” and the ability to abuse contributions limits. Last year, the government effectively accused some SMSF trustees of being “liars” over in-specie transfers.

What can be transferred?

In-specie transfers can be used to transfer assets into superannuation from “related parties”. Generally, SMSFs cannot purchase assets from related parties, but there are a few exceptions.

Those exceptions include business real property, cash and listed securities.

So, can you still do in-specie transfers? And how will it be done?

Yes, you can. But in many ways, it will look exactly like you bought it on market during the day, just with yourself as both buyer and seller.

From July 1, if you’ve got some shares (say 500 BHP shares) you want to get into your super fund, you’ll need to have it transferred through an existing market. That is, there will be something independent in between to make sure the transfer occurs on a given day at a market price.

That will mean that the ability to “manipulate” price will no longer be possible (which is the government’s point). It will go through at the price of the shares on the day it was transferred through the broking house.

However, until 1 July, you’ll be able to do it at no cost. It is still a legitimate way to get shares into super and can be worth taking advantage of.


Be particularly aware in regards to in-specie transfers that the ATO has extreme concern over this as a tax-minimisation strategy, particularly forms being backdated to reduce CGT and manipulate contribution limits.

Backdating forms is illegal, but almost impossible for the ATO to police, which is why this method of asset transferral into super is being closed off.

There is nothing to be concerned about for those who are correctly implementing this strategy. However, you would be advised to speak to a knowledgeable adviser before proceeding, just to make sure the rules are followed correctly.

The alternative …

The only other option is the one that the ATO/government would actually prefer you to use. That is, sell the shares, transfer the cash into the SMSF, then repurchase the shares. That’s not an in-specie transfer and falls outside of these new rules.

But this introduces two lots of transactions costs, plus timing risk. Share prices could move significantly in the time it takes to get the money into super (T+3 for the trading settlement, plus potentially overnight for the money transfer, so a minimum, really, of four days).

And, during volatile periods, where you don’t want to take the risk of being out of the market for a few days, and don’t have enough cash in the SMSF to purchase them at the same time, or on the same day, you sell them outside super, this still might make sense.

Capital gains tax

Don’t forget that the transfer of shares from outside super to inside your super fund will set off a capital gains tax event.

This will usually be the main cost of the transferral of shares into super. But also the main benefit.

If you bought 500 BHP shares several years ago at $17.50 and you transfer them in to your SMSF now at $35, then you will have a $4375 (500 shares x $17.50 x 50% discount for holding them for longer than a year) gain on which to pay tax at your marginal tax rate.

But the real point is also about CGT. If you transfer those shares into your SMSF and hold them until such time that your super fund is in pension phase, then there will be no tax to pay at the time of sale.

That is, if they double in price again, from $35 to $70 over a similar sort of period, then your gain of $17,500 will not be liable for CGT.


The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are highly complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking.