An SMSF Trustee can acquire listed securities, such as ASX-listed shares and business real property from a related party at its market value. This is known as off-market transfer. The market value requirement means the SMSF must pay the related party a value for the asset that would be paid in an arm’s length and at market price. Obtaining a current listed share value is extremely easy since share prices are listed daily on Stock Exchanges. In terms of the valuation of business real property , you might need to engage a qualified independent valuer. It’s also important to remember that off-market transfer might trigger capital gain tax in your personal capacity when selling the assets to the SMSF.
If an individual makes a super contribution to an SMSF in the form of an asset other than money, this type of contribution is known as an in-specie contribution. One of the key attractions to an SMSF is the ability to move certain assets from outside the superannuation environment into the Fund. Generally, an SMSF Trustee is not allowed to acquire assets from a related party but there are some important exceptions. The two key exceptions include:
Business real property generally means land and buildings used wholly and exclusively in a business. The underlying land must meet the business use test.
All of the entity’s activities are relevant to whether it constitutes a business being carried on, which includes:
- The keeping of business records separately to personal records.
- The size of the operation and the extent of capital investment involved.
- Whether activities are conducted continuously and systematically rather than on an ad hoc basis.
- The engagement of employees.
- A purpose and intention to carry on business.
- A level of repetition and regularity of activities constituting the business.
- Whether activities are carried on similarly to other like businesses.
- Whether activities are planned, organised and carried on in a businesslike manner.
- The scale and permanency of operations.
- The existence of a business plan
Listed securities or business real properties can be transferred into the SMSF by way of an in-specie contribution or off-market transfer. However, please be mindful of the annual contribution limits when making an in-specie contribution. For more information on the contribution caps, please refer to here.
Off-Market Transfers out of SMSF
Listed securities or business real properties can also be transferred out of an SMSF via an off-market transfer. To transfer assets out of the Fund, the Member must meet a condition of release such as retirement after preservation age, reaching age 65 or commencing certain pension payments. If the Member does not meet any conditions of release assets cannot be transferred out of the Fund to a related party or Member.
As there is a change in ownership of the specific asset (either from you to the SMSF or the SMSF to you), the asset being transferred is subject to Capital Gains Tax (CGT) as the cost base is reset. Please note that if you transfer listed securities to a Retail Fund and wind up the SMSF, this will also be a CGT event.
Bullion can also be paid out in an in-specie lumpsum and generally the SIS act allows most asset classes, however, you must meet a condition of release and it needs to have a proper audit trail and be sold at market value and commercial terms. This is the key difference between an off-market transfer in which only allows listed securities and business real property and an off-market transfer out which is more lenient provided your SMSF’s Trust Deed permits it.
For further guidance on in-specie transfers and the Taxation Ruling surrounding off-market transfers, please see here.
FAQ's
Are off-market transactions of property from an SMSF subject to stamp duty?
When you transfer property from a superannuation Fund to a Member it is possible to get a full exemption from stamp duty in Victoria. This is provided that certain conditions are met. The exemption is available under DUTIES ACT 2000 – SECT 41A Property passing to beneficiaries of superannuation funds
In South Australia there is potential for a stamp duty exemption provided you meet certain conditions, these conditions can be found under STAMP DUTIES ACT 1923 – SECT 71E
For the other states and territories, the stamp duty treatment is less clear and ambiguous. It is best to discuss with a property conveyancer for all states if your SMSF will be subject to Stamp duty.