Transferring assets in or out of your self-managed super fund (SMSF) is a common strategy used to retain that asset in its actual form, without having to convert it to cash. This type of transfer is commonly called an ‘in-specie transfer’ or an ‘off-market transfer’.
In this case study, we will consider the benefits of transferring personally held direct shares into an SMSF and the intricacies behind it.
Need to know: In-specie transfers can be complicated. So, it’s important to know how they work, when you might consider them, their tax impact and things you should watch out for.
Read SuperGuide article What on earth is an in-specie transfer? for more details.
Case study
Jim and Ann are 59 years old. They are planning to retire once they turn 60.
Their financial assets are as follows:
- J & A Super Fund (SMSF) = $900,000
- Jointly owned ASX-listed direct shares = $660,000
- Jim’s annual employment income = $200,000
- Ann’s annual employment income = $190,000
After they retire, Jim and Ann’s financial adviser is considering making an in-specie transfer (off-market transfer) of their direct shares into their SMSF.
First, let’s understand some of the benefits of this strategy:
- Jim and Ann won’t have to sell the shares and convert them to cash in order to transfer the funds into their SMSF.
- An in-specie transfer is considered a capital gains event as the shares are transferred from personal ownership to the SMSF’s ownership. So, by transferring their personal shares after they retire, any capital gains will be taxed at Jim and Ann’s marginal tax rate at that time, which will be minimal as they won’t have any employment income.
- While they are working, their SMSF is in the accumulation phase. Once they cease employment at 60, they will meet a condition of release allowing them to convert their super into the retirement phase.
- Currently, any income (such as dividends) and capital gains earned by the shares are taxed at Jim and Ann’s marginal tax rate (in their case, it is 45% plus Medicare). Once the shares are transferred into the SMSF, any income and capital gains will be taxed at a concessional rate of 15% while Jim and Ann are in accumulation phase and will be fully tax free once they are in retirement phase.
