Most superannuation funds, but more specifically self-managed super funds (SMSFs), allow for ‘in specie contributions’ – in specie meaning ‘in its present form’, occuring when a contribution of something other than cash is made to the fund. However, there are several restrictions and regulations regarding what can be transferred, as well as the tax ramifications of the contribution(s).
What assets can be used for an in specie contribution?
The ATO advises that generally speaking, funds and their trustees are not permitted to acquire assets from parties related to the fund. However, exceptions are made for the following assets:
- Listed securities (shares, units, or bonds which have been listed on an approved stock exchange)
- Business real property (land and properties used “wholly and exclusively in a business”)
- In-house assets (where the total value of the in-house assets isn’t more than 5% of the total market value of the fund’s assets)
- An asset specifically excluded from being an in-house asset
Furthermore, the above assets may not be contributed to a SMSF by a related party unless they are acquired by the fund at market value.
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Are in specie contributions treated differently to normal contributions?
According to the ATO, an in specie contribution will be treated as similar to a regular cash contribution, in the sense that:
- The standard work test for super still applies – e.g. the person making the contribution (and/or the person the contribution is being made on behalf of) must meet certain age and employment requirements in order to make the contribution
- The asset’s value will count towards any relevant contribution caps just as a cash contribution would
- The contribution may result in the individual who made it being able to claim a tax deduction based on certain criteria
However the area where in specie contributions tend to differ from standard cash contributions is their tax ramifications. Because an in specie contribution is the transfer of an asset from an individual to a super fund, and the asset is acquired by the super fund at its market value, the transfer will generally be considered a capital gains tax event. The transfer will likely result in either a capital gain or loss for the individual or related party making the contribution, and this can have capital gains tax implications.
This means that if you make an in-specie contribution, ir may lead to a change in the size of your tax liability for the financial year. In certain situations, an in specie contribution may represent an effective tax strategy but it’s important to check the ATO website for more detail and get professional tax advice before making any decisions.
For example, assume Jay transfers the Woolworths shares he has owned for more than 12 months as an in specie contribution to his SMSF on 1 May. The market value of his shares on that date is $10,000 and the transfer triggers an assessable capital gain of $5,000. According to the ATO, Jay will need to include this capital gain in his assessable income when he prepares his tax return. However, Jay also decides to claim a personal tax deduction for the entire contribution of $10,000, as he is within his concessional contribution cap for the financial year.
On top of the restrictions we’ve mentioned above, different super funds and SMSFs will have different rules and restrictions governing how and with what assets their members can make an in specie contribution, if they’re allowed to make in specie contributions at all. Make sure to check with your fund before attempting to make any sort of non-standard contribution.
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