18 April 2012 – Off-market transfers of certain assets, such as shares, between related parties and self managed superannuation funds (SMSFs) will cease to be allowed under Tax Office rules.
Frequently referred to as in-specie contributions, the government announced in 2011 that from July 1, 2012, non-market transactions that result in a contribution being made to an SMSF in the form of an asset will no longer be permitted.
The government's move came as a response to the growing trend of SMSF members making in-specie contributions of property into their SMSF, as on a practical level many people may not have had spare cash but may have had valuable assets they could contribute.
However there are restrictions imposed on the assets that can be acquired by funds from related parties (such as fund members or family members). The asset must be:
- business real property (property used exclusively in one or more businesses)
- listed securities (shares)
- certain in-house assets acquired at market value (where the value of those in-house assets do not exceed 5% of the value of the fund's total assets).
Off-market transfers that make in-specie contributions to an SMSF are, however, generally made without actually selling and re-purchasing the securities on the open market. Hence the government believed that such non-market transactions were not transparent, and were open to abuse — through transaction date and/or asset value manipulation to achieve more favourable results with regard to both contribution caps and capital gains tax outcomes.
Keeping such asset transfers at arm's length was also seen to more closely meet the sole-purpose test for SMSF activities.
Part of the Stronger Super package, the legislation was formed to ensure that related party transactions be conducted through a market, or accompanied by a valuation if no market exists. In the latter case, transactions must be supported by a valuation from a suitably qualified independent valuer.
For equities, for example, the underlying formal market is the Australian Securities Exchange. So if SMSF trustees want to contribute listed shares to their fund, these will be required to be sold onto the market and then subsequently repurchased.
For business real property, there is no underlying formal market, so transferring these assets will therefore require validation by a valuation from a qualified valuer. Under the existing rules, a real estate appraisal of the value is sufficient.
Speaking at the SMSF Professionals Association of Australia's 2012 conference in February, Tax Office assistant commissioner Stuart Forsyth said the Tax Office will provide guidelines, probably before the end of the financial year, to help trustees and their advisers with the valuation problems they may encounter.
'They'll promote a consistent approach to valuations across the sector and support the proposed new requirement for SMSFs to value their assets at net market value,' Forsyth said. 'We'll also talk directly to auditors and other stakeholders as we develop this product which will build on existing guidelines focused on taxation compliance.'
Source: Taxpayers Australia INC latest news