There are myriad rules applying to superannuation. If this didn't make the job of being the trustee of a self-managed super fund hard enough, the rules are contained in two different pieces of legislation: the Superannuation Industry (Supervision) Act and the Income Tax Assessment Act.
Despite the complexity of these rules, trustees of an SMSF can avoid major breaches and penalties by being aware of the three areas where breaches carry the highest penalties. They are of the rules relating to contributions, accessing superannuation, and what a super fund can invest in.
The rules about contributions and allowable investments for SMSFs combine when it comes to making in specie contributions to a super fund. The most common investments where this occurs are shares and property.
For shares, the jury is still out on whether the proposed ban on in specie transfers will ever come into effect. If the Australian Securities and Investments Commission regulations that forbid the buying and selling of the share in effectively the one transaction are amended, so that the ban on in specie share transfers can be implemented, it could be a blessing for trustees of SMSFs.
The ability to transfer shares in specie into an SMSF appears to be attractive because of the saving on stockbroking fees. With online stockbroking fees often less than $30, and the amount of paperwork and time that must be spent in executing an in specie transfer, the ability for trustees to sell shares as individuals to the super fund without breaching ASIC's share trading rules will be a blessing.
Also, by buying and selling the shares in the market, all of the documentation needed to support the transfer is automatically produced. When in specie transfers of shares occurs, trustees must produce documentation to support the date of the transfer and the value placed on the shares.
At present there is no plan to ban in specie transfers of property into an SMSF. Under superannuation investment rules, only business property can be purchased by an SMSF from members. The transfer of residential property into an SMSF is banned.
Property transferred into an SMSF must have a market value placed on it at the time of the transfer. Problems have occurred for some people transferring property into an SMSF when the market value exceeds the contribution limits. For the 2013 financial year, an individual will pay penalty tax of 46.5 per cent on the excess if a property is valued at more than $475,000.
When it comes to an in specie transfer of property out of a superannuation fund, the rules relating to accessing superannuation must be considered.
Before a member can receive a payment in cash or in specie, they must have met a condition of release. The most common conditions of release are for retirement and commencing a pension.
Members receiving a pension from a super fund must have this paid in cash and cannot receive the pension as a specie transfer. This means the only time that property can be transferred in specie out of a superannuation fund is as part of a lump sum retirement benefit.
Just as is the case with transfers of property into a super fund, a valuation must be obtained at the time a property is transferred out. There is nothing in the superannuation rules that stops a super fund buying a residential property from a non-associated party and subsequently making a lump sum retirement payment to a member as an in specie transfer of the property.