by Abra Chowdhury

In-specie super contributions within an SMSF can be a compelling strategy to increase retirement benefits and in some cases manage personal tax liabilities.  Assets that can be transferred include ASX listed shares and Business Real Property.  Within the fund the contributions can be treated as either, or a combination of concessional and non-concessional, for any one or a number of members, as long as they all meet the eligibility criteria¹.

There are a number of key considerations when making in-specie contributions, including:

• That all assets be transferred at market value. Listed securities are straightforward, however for business real property it is recommended that an independent formal valuation be obtained prior to the transfer;
• Legal title must be transferred to the fund trustee. This is done as an off-market transfer for listed shares or a formal transfer of title for property;
• The transfer will be treated as a CGT disposal for the transferor. Any tax liability may be offset by claiming part of the value as a personal concessional contribution.  Such contributions can be maximised where the member has unused carried forward concessional contribution caps¹ from prior years;
• Stamp duty would normally apply on transfers of business real property. However it may be possible to apply for an exemption where property is transferred at nil consideration and there is no change in beneficial ownership.  It is recommended that professional advice be sought before initiating any transfer.

Let’s consider a possible scenario:

Jack is 60 years old with $300,000 in his own SMSF.  He has a gross salary of $70,000 and has only received standard concessional contributions of $6,650 per annum for the last 2 financial years. He has a personal share portfolio valued at $400,000 which he has held for over 12 months.  The portfolio has unrealised gains of $80,000 and is generating cash dividends of $18,000 per year with franking credits of $7,714. 

On a simple calculation Jack would pay personal tax of approximately $1,157 on the dividends after taking account of the franking credits, resulting in a net amount of $16,843.  However, if that same income was in a super fund, the net income including a tax refund of $3,856 would be $21,856, a difference of $5,013.

To get the shares into super, Jack could use a combination of the bring forward non-concessional contribution rules ($300,000), up to $40,000 from the balance of his current and previous years’ concessional contribution caps, (3 x ($25,000 – $6,650)) with the balance of $60,000 in shares sold to the SMSF at current market value.  Jack wouldn’t incur any personal tax liability from the transfer, as his concessional contributions would offset the discounted gain of $40,000.  The super fund would have a one-off tax liability of $6,000 on the additional concessional contributions.  Over the next five years Jack could be nearly $20,000 better off than if he had retained the shares in his own name.

Personal situations will always vary, and there are can be many possible solutions for the same problem, it’s just a matter of working through them to get the best outcome.

¹ Refer to previous SMSF Engine articles