By Ian George - Principal

Time is running out to take advantage of in-specie (off-market) transfers to your SMSF. You’ve got just eight weeks left to move assets into your superannuation from related parties by way of off market transfer.  

At the moment, transferring your listed shares in-specie is as easy as completing an off market blank transfer form, finding out the market price on the day of transfer, and filling out details of vendor and purchaser details. For an individual, you will also need to provide a certified copy of your driver’s licence, while if a company is involved, then you will also need a certified copy of the ASIC statement listing directors and shareholders. You then forward the completed form to the relevant share registry office or broker. No money changes hands.

However, the Government asserts that non-market transactions are not transparent and are open to abuse. This abuse can occur through transaction date and asset value manipulation to achieve more favourable outcomes in terms of contributions caps and capital gains tax.

New rules

So from 1 July this year new rules require transactions to be conducted through the market where one exists. In the case of listed shares, this will mean the Australian Stock Exchange. If no market exists, in the case of business real property, the transaction must be supported by a valuation from a suitably qualified independent valuer.

What this means in practice is that to transfer listed shares to your SMSF, you must first sell the shares on market, contribute the cash into the fund and then organise for the fund to reacquire the shares on the market.

More risk

Of course if you haven’t got enough cash in your fund to repurchase the shares upfront, a lot can happen to the price of your shares from the time you sell them, to the time your SMSF has the funds to reacquire which may take up to four days. This of course can put your investment at risk. While you could benefit from any movement, you are just as likely to suffer a loss.

So the delay between the personal asset sale and the SMSF fund purchase could result in a capital gain or loss depending on how the price moves over the period. This uncertainty may encourage a lot of investors to become more prudent and pay greater attention to the assets being acquired by the fund.

Should you incur a loss, you can use this to offset gains made on other investments during the year while you still retain effective ownership of the assets. However, this silver lining should not be adopted as an investment practice. The best strategy for SMSF is to own assets with sound prospects for appreciation.

As a final point, with the new rules, you’ll also be up for stockbroking fees. If you’re planning to transfer a large number of thinly-traded stocks to your SMSF, there may be limits set on the number of shares you can transfer on a given day. In which case the entire transfer may take a number of days and you’ll be hit with a stockbroking fee for each and every transaction.

Complete documentation 

On a technical note, if you are considering taking advantage of in-specie transfers for listed shares over the coming weeks, it’s critical to ensure your documentation is flawless. For example, if the share registry or broker determines that the proof of identity documentation is incomplete then the transfer cannot proceed until documentation is fully in order. With 30 June 2012 fast approaching, you may be putting the transaction at risk of being delayed until the new financial year when in-specie asset transfers will no longer be allowed.

If you’d like further help with this area, please get in touch with our SMSF experts. We’ll look at the best options for you to leverage this opportunity.