Case study: Transferring shares into your SMSF (an in-specie transfer)

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.

Secondly, let’s understand the trips and traps of this strategy:

As stated earlier, an in-specie transfer may trigger a capital gains event if the personal shares are sold at a higher purchase value to their SMSF. For example, if they personally bought CBA at $50 per share originally and are transferring their holding (by selling it) to their SMSF when CBA’s share price is $100, there will be a capital gain of $50 per share. However, say they personally bought BHP at $45 and are transferring it into their SMSF at $38 per share, there will be a capital loss of $7 per share.
The date of execution of the transfer form is of utmost importance as the market value of the shares on that date will be considered for capital gains/loss purposes.
Most share brokerage companies charge a fee per transfer. So, if Jim and Ann owned shares in 20 companies and the fee is $60 per transfer, they will incur a fee of $1,200.

Lastly, let’s understand the practicality of implementing this strategy:

Jim and Ann will trigger the bring-forward rule by making the maximum non-concessional contribution of $330,000 each into their SMSF. This will allow them to transfer the full $660,000 worth of shares.

For more information, see SuperGuide article A super guide to the bring-forward rule.

Jim and Ann will have to complete and sign a transfer form (usually called an off-market transfer form) and submit to their SMSF’s share broker/investment account manager.
The shares will be transferred into the SMSF’s broking account and will count towards Jim and Ann’s member balances in the SMSF. This in turn may affect their transfer balance caps (the maximum amount they can each transfer into retirement phase), currently $1.7 million.

For more information, see SuperGuide article Definitive guide to the transfer balance cap.

About the author

Aakash Mehta

Aakash Mehta is a financial adviser and has been working in the financial planning profession for more than 7 years. He has an undergraduate degree in commerce, a post-graduate degree in international finance and a diploma in financial planning. His day-to-day work exposes him to real life financial planning issues around superannuation, retirement, insurance and estate planning, and he contributes to SuperGuide by writing case studies and articles on various financial planning strategies.