While we’d certainly recommend working with our award-winning SMSF accountants, managing your own self-managed super fund (SMSF) can provide significant control and flexibility over your financial future. One of the strategies you might come across is in specie transfers, which allow you to move assets like shares or property into your SMSF without selling them first. But is this the right option for you?
In this blog, we’ll break down:
- What in specie transfers are and how they work within an SMSF
- The advantages and potential risks of transferring assets in specie
- Which assets are eligible for this type of transfer, including shares, property, and managed funds
- The capital gains tax (CGT) considerations and how to minimise your tax liability
- A step-by-step guide on how to transfer assets into your SMSF
- An interactive flowchart to help you determine if in specie transfers are the right choice for your financial strategy
By the end, you'll have a comprehensive understanding of how in specie transfers work, the potential benefits, and whether they’re suitable for your SMSF. Let’s dive in.
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First, let’s define in specie transfers
The literal meaning of ‘in specie’ in latin is ‘in like form’ (translation can be a finicky game but that’s about right). An in specie transfer allows you to transfer assets from one ownership structure to another without converting them to cash. Instead of selling shares, property, or managed funds and depositing the cash into your SMSF, you can directly move those assets into your fund. In essence, an in specie transfer gives you the freedom of transferring superannuation assets without the hassle of realising them.
This process is ideal for those wanting to avoid transaction costs and maintain ownership of valuable assets within the tax-efficient structure of an SMSF.
What can and can't be transferred in specie to an SMSF?
When it comes to in specie transfers into an SMSF, not all assets are eligible. The Australian Taxation Office (ATO) has specific guidelines that outline what can and can’t be moved into your fund. To ensure compliance and avoid potential penalties, it's essential to understand these rules before making any decisions. Here’s an overview of the types of assets that can and can’t be transferred in specie:
What can be transferred in specie to an SMSF?
- Shares: Shares listed on an approved stock exchange such as the Australian Securities Exchange (ASX) are common assets transferred into an SMSF in specie. By moving shares directly into your SMSF rather than selling them and repurchasing them within the fund, you can avoid transaction fees and maintain continuity in your investment strategy. However, you must ensure that the transfer complies with strict SMSF accounting and compliance standards to avoid any regulatory issues.
- Business real property: Property transfers into an SMSF are possible, but there are specific restrictions. Only business real property, such as commercial properties used solely for business purposes, can be transferred in specie. This provides a valuable opportunity to diversify your SMSF portfolio with property assets that offer long-term growth potential.
- Managed funds: Managed funds can also be transferred in specie into an SMSF. By keeping the investment intact during the transfer, you avoid disrupting your investment returns. However, compliance with ATO regulations is essential to ensure the transfer meets the legal requirements.
By the way, if you’d like to learn more about what you can and can’t do with your property, we’ve written a great guide on transferring property through your SMSF.
What can't be transferred in specie to an SMSF?
- Residential property: One major asset class that cannot be transferred into an SMSF is residential property unless it qualifies as business real property (e.g., used exclusively for business). Personal-use residential properties, including holiday homes and investment properties used for residential purposes, do not meet ATO standards.
- Collectibles and personal use assets: Items like artwork, vintage cars, and jewellery fall under personal-use assets and are prohibited from being transferred in specie into an SMSF. The ATO has strict rules about avoiding personal enjoyment of assets within an SMSF, and failure to comply can result in hefty penalties.
ATO guidelines for in specie transfers
To ensure your SMSF stays compliant, all in specie transfers must adhere to the ATO’s regulations. Not only must you follow rules around eligible assets, but transfers also need to be correctly documented, valued, and reported. Working with an SMSF expert is highly recommended to avoid costly mistakes. For tailored guidance on SMSF setup and asset transfers, explore Liston Newton’s SMSF setup and advice services.
What are the risks and benefits of an in specie transfer?
In specie transfers offer a range of benefits for SMSF members, allowing you to move assets like shares, property, and managed funds into your SMSF without the need to sell and repurchase them. This not only helps avoid transaction fees but also enables you to retain ownership of valuable assets within a tax-efficient environment. Whether you're looking to diversify your fund, consolidate your wealth, or create a streamlined long-term investment strategy, in specie transfers provide flexibility and control.
However, like any financial strategy, there are potential risks involved. It's crucial to weigh the pros and cons before making a decision. The table below outlines key considerations to help you assess whether an in specie transfer aligns with your financial goals.
While the benefits of in specie transfers can be substantial, navigating the tax implications and compliance requirements can be complex. To optimise your transfers and minimise risks, it’s recommended to consult with an expert. Liston Newton’s tax minimisation strategies are tailored to help you make the most of your SMSF while managing potential risks effectively.
Understanding capital gains tax (CGT) in in specie transfers
While in specie transfers can offer a number of advantages for managing your SMSF, they can also come with significant tax implications. One of the key concerns is capital gains tax (CGT), which can be triggered when assets such as shares, property, or managed funds are moved into your SMSF. Properly managing CGT liabilities can mean the difference between a tax-efficient transfer and an unexpected financial burden.
CGT implications in in specie transfers and determining market value
When you transfer assets in specie, you may be liable for CGT if the value of those assets has appreciated since you first acquired them. For example, if you’re transferring shares into your SMSF that have increased in value, the capital gain (the difference between the purchase price and the current value) will be taxed at the time of the transfer.
This can be particularly impactful with large or high-growth assets like property or shares, where significant appreciation has occurred over time. Depending on the asset and how long you’ve held it, CGT can eat into the value of the transfer.
Our tips:
- Valuation is key: Before initiating an in specie transfer, it’s important to have the assets professionally valued. This will give you a clear picture of the potential CGT liability.
- Consider timing: The timing of your transfer can influence your CGT liability. For example, holding assets for more than 12 months qualifies you for a 50% CGT discount. Plan your transfers accordingly to reduce the immediate tax burden.
- Consult tax professionals: CGT calculations can be complex, especially when dealing with large or diverse portfolios. Consulting a tax professional early in the process can help you better understand your potential liabilities and explore ways to mitigate them.
CGT rollover relief for in specie transfers
There are scenarios in which you may be eligible for CGT rollover relief, allowing you to defer CGT on your in specie transfers. Rollover relief can be particularly useful when you are transferring business real property or assets in specific situations, such as moving between two super funds or transitioning from individual ownership to an SMSF structure.
What is CGT rollover relief?
CGT rollover relief allows you to defer the tax on capital gains until a later event, such as when the asset is eventually sold. This can offer significant short-term financial relief, enabling you to move assets without immediately triggering a CGT event.
Who is eligible for CGT rollover relief?
While CGT rollover relief is available in some cases, not all transfers qualify. The most common scenarios where rollover relief applies include:
- Transfers involving business real property.
- Certain restructures or rollovers between super funds or SMSFs.
- Transfers following death or divorce, where assets are moved to beneficiaries or legal entities.
Our advice:
- Assess your eligibility: Speak to a financial advisor or SMSF specialist to determine whether your transfer qualifies for CGT rollover relief. Not all assets or transfers will be eligible, and it’s essential to understand the specific requirements.
- Understand the long-term impact: While deferring CGT can reduce your immediate tax liability, it does not eliminate the tax entirely. Make sure you factor in potential future tax events and understand when the deferred CGT will become due.
- Plan strategically: If you qualify for CGT rollover relief, consider using it as part of a broader strategy to manage your assets over time. Pairing this with a long-term wealth plan can ensure your transfers are both tax-efficient and aligned with your SMSF goals. To explore your eligibility and develop a tax-efficient plan, consult with Liston Newton’s SMSF accountants.
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Time to speak to Australia’s SMSF specialists
In specie transfers offer many advantages for SMSF holders, particularly in preserving the ownership of valuable assets and optimising your tax position. If you’re unsure whether an in specie transfer is right for you, consult with Liston Newton’s award-winning super fund accountants to explore your options.
For a more holistic approach to managing your wealth, book a free consultation with our wealth management accountants, and we’ll show you the path to safe and comfortable financial freedom.
FAQs about in specie transfers for SMSFs
What are the risks of undervaluing assets during an in specie transfer?
Undervaluing assets during an in specie transfer can lead to penalties from the Australian Taxation Office (ATO). The ATO requires accurate valuations to ensure compliance and correct reporting for CGT purposes. Using a qualified valuer to appraise the market value of your assets is crucial to avoiding these risks.
Are there fees associated with in specie transfers?
Yes, there are fees associated with in specie transfers. These may include brokerage fees, legal fees for transferring property, and administrative costs related to valuing the assets and completing the required paperwork. It’s essential to account for these costs when planning an in specie transfer to ensure it remains a cost-effective option.
Can I transfer my super into a self-managed fund?
Yes, you can. You’ll need to complete a rollover form to do that. Get in touch, and our award-winning SMSF specialists will explain the process.
