The Government announced in September 2011 that they will ban off market transfer of shares between self managed superannuation funds (SMSF) and related parties, commencing July 2012.

 

This procedure is commonly referred to as a transfer in specie.

 

It has been quite a common strategy that if a client owns shares individually, they are currently able to transfer the ownership of those shares to their Self Managed Superannuation Fund without actually having to sell those shares through a broker on the share market.

 

It has been a particularly useful strategy for a number of reasons:

 

·         Allows for consolidation of shares under one entity

·         Potentially allows for a tax deduction to be claimed for a  contribution into a SMSF without actual cash being contributed

·         Can be more tax effective to have shares owned by a SMSF than an individual because of the lower tax bracket of a SMSF – 
           either 0% tax for a SMSF in Pension mode or maximum of 15% for a SMSF in accumulation mode compared to 30% - 46% for an individual

 

Provided the investment strategy of the SMSF is structured to ratify ownership of the shares and that the value of the shares transferred reflects the true market value of the shares at the time of transfer, then all is in order.

 


However, like anything that may have an element of tax savings, the procedure has sometimes been abused by a minority so the Government has reacted by banning the strategy altogether.

 

So, if you want to transfer shares into a SMSF there is only a 9 month window of opportunity to do so, as July 2012 will rapidly be upon us.

 

From that date, the only way shares you own personally will be able to be owned by a SMSF is that you will have to sell the shares on the ASX through your broker, or an online broker, incur brokerage costs, contribute the cash proceeds into the fund and then rebuy the same shares incurring more broking costs.

 

Also, you will be subject to market movement in the share price due to the usual 3 day time delay for the cash proceeds to be received.

 

It is noted that APRA regulated Superannuation Funds can still conduct off market transfers, thereby placing SMSFs at a disadvantage – the government’s decision is disappointing to say the least.

 

 

Michael Ryan CPA CFP©