Transfer crackdown

The strategy To prepare for the new rules on off-market transfers and self-managed super funds.

The strategy To prepare for the new rules on off-market transfers and self-managed super funds.

Huh? OK, if you don't have a self-managed fund you can relax. These rules won't affect you. But if you do, you may need to give some thought to the looming crackdown on off-market transactions between your fund and related parties. Because you and your fund are the same people (though separate legal entities), it is not uncommon for so-called "in-specie" transfers to occur between you.

For example, you might want to transfer shares that you own personally into your super fund rather than selling them to make a super contribution and then buying the same shares within the fund. Or you might want to transfer assets from the fund to you personally when you retire in the form of a retirement benefit.

The super rules currently limit in-specie contributions to business real property or listed securities such as shares, though you can pay all sorts of assets out as in-specie benefits.

But from July 1, it is proposed that such transfers must be made through an underlying market where one exists. Where a ready market does not exist, acquisitions or disposals of assets between self-managed funds and related parties should be supported by a valuation from a qualified, independent valuer.

An added complication is that draft legislation for this change has not yet been released, says the head of superannuation at the Institute of Chartered Accountants of Australia, Liz Westover. So there are still questions over how it will work, particularly in regard to valuations.

Westover says if you have assets you want to transfer into, or out of, your super fund you might want to consider doing so before the new rules take effect to save on costs and administration.

She says there are some circumstances whereby the new rules will make transfers particularly difficult for funds. One is where a poorly performing share investment has resulted in an unmarketable parcel of shares. She says it would be worth buying any such shares from your super fund before the new rules come in.

If you're considering switching to a corporate trustee, you might also want to consider doing so before June 30. While the beneficial ownership of the shares won't change, Westover says brokers require you to set up a new account in the new trustee's name and to transfer the shares off market to that new account. But unless the new rules provide an exception in these circumstances (she has raised this with both the Tax Office and Treasury), that may not be possible from July 1.

I don't get it. Why change the rules in the first place? Westover says the rationale is that the ban will prevent the "cherry-picking" of dates where transfers are attributed to a date that minimises capital gains tax or excess-contributions tax. However, she says there is no evidence that abuse is occurring, and argues the change will put self-managed funds at a relative disadvantage to other super funds, which will still be permitted to make off-market transfers and could arguably abuse the rules in exactly the same way.

How will the ban work? If you own shares or other listed investments, you'll be required to sell them and buy them back on the open market, rather than simply filling out an off-market transfer form to move them from your name to the fund's (or vice versa).

Both ways, you are disposing of an asset for capital gains tax purposes and could be liable for tax on any gains. But an off-market transfer avoids brokerage costs and the time gap between waiting for settlement on the sale, transferring the cash to the other party, and buying back the shares.

With assets for which there is no underlying market (such as property), the government has said it intends to require a valuation from an independent, qualified auditor.

Westover says the current rules require assets to be transferred at market value, but you may be able to justify the value by referring to recent sales in the area or obtaining an informal valuation from a real estate agent. Lobby groups have raised the issue of the extra costs of formal valuations and the Tax Office is due to release guidance on how they should be conducted, but no one yet knows how tough it will be.

Twitter: @sampsonsmh

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