It’s official: SMSF off-market share transfer ban deferred to July 2013

Note: Starting date for the potential ban on off-market share transfers has been delayed until July 2013 (from its original start date of 1 July 2012). The federal government quietly ‘announced’ the deferral on 13 July 2012, two weeks after the original proposed start date.

After months of speculation, the federal government has finally deferred the potential ban on off-market share transfers for SMSFs until July 2013. For the record, there was no official announcement about this deferral: just a vague sentence at the end of an unrelated media release stating: Information regarding planned commencement dates for other Stronger Super measures is available on the Stronger Super website. When you visit the website you will discover a table with lots of text and dates, and the fourth item (8.13) provides an amended start date, namely 1 July 2013, for the potential ban on SMSF off-market share transfers.

The federal government must be embarrassed by this policy implementation debacle for the Minister to not even make an official announcement about the deferral, especially since the date of commencement had already passed. Come on guys, this matter could have been handled a lot better.

Such last-minute decision-making is wreaking havoc on retirement planning and increasing the cost of advice for Australians. In the June SuperGuide Alert, I complained about the lack of information about the timing and detail of this proposed policy. Whispers about the deferral of the policy had been flying about, and the ATO had informed industry representatives regarding the timing of restrictions on off-market share transfers, but not the broader industry nor, importantly, SMSF trustees.

If the Federal Government decides to have these changes take effect from a later date, then they need to release this information publicly and in a timely fashion so that all SMSF trustees are properly informed months before the original commencement date.

Background: In December 2010, the Federal Government originally announced that the restrictions on off-market share transfers for SMSFs will commence 1 July 2012, but the Government had been strangely silent on this matter. The only date that was in the public space was 1 July 2012, until something was published on the Stronger Super website on 13 July 2012, and now the start date has been pushed back to 1 July 2013.

What does the proposed ban mean?

If any SMSF trustee is considering transferring personally held Australian shares into their self-managed super fund, then be aware that the rules are set to change in 12 months’ time (although may be the federal government will just let the proposed policy change disappear into the policy wilderness).  From 1 July 2013, where SMSFs sell or buy assets from a related party (typically a SMSF member/trustee), the sale/buy process needs to take place through an underlying market. Based on industry speculation, the

Currently shares and other listed securities can be transferred to a SMSF, and from a SMSF, without using a broker, and simply by filling in a standard form. From 1 July 2013, these types of share transfers will need to be done via a broker, and SMSFs may even be forced to sell the shares on the open market.

Note that it has not yet been confirmed what the exact requirements will be (because there has been virtually nothing released publicly on this change from the Government since last year).

Here’s my view: I don’t agree with this change to the rules because it has not yet been made clear whether the individual will be forced to sell the assets on the open market, which effectively bans off-market share transfers, or whether the transfer of the shares between individual and SMSF needs to be facilitated by a broker (price and timing is potentially determined by broker) but the shares are not transferred on the open market. If the outcome is the first scenario then the Government has misled the SMSF sector because in-specie contributions of shares, or purchases or sales of shares to SMSFs (by members) or to SMSF members (by SMSFs) will not be possible after 30 June 2013.

If you’re considering off-market transfers of personally held shares to your SMSF then seriously consider conducting those transfers before 30 June 2013, but perhaps wait for further guidance from the federal government just in case the policy is deferred again, or dropped.

Tip: Talk to your accountant and/or SMSF adviser if you are considering any off-market share transfers. Such transactions have tax implications, such as potential capital gains or capital losses in an individual’s name and the opportunities if any, to offset capital gains, such as making concessional contributions or other tax-effective strategies.

Note: From 1 July 2013, for asset transfers of allowable assets where an underlying market doesn’t exist, the sale/purchase price must be made at a price determined by a qualified independent valuer.

If an individual makes a contribution to a super fund in the form of an asset, this type of contribution is known as an in-specie contribution. The opportunity to make an in-specie contribution is generally only available via self-managed super funds (provided a fund’s trust deed permits such contributions). Most large super funds don’t allow such contributions from members.

Generally, a super fund cannot buy or use an asset that a member owns, which also would normally cover any in-specie contributions. One of the main exceptions to the restriction on purchasing assets from members relates to acquiring a listed security at market value from a member. A listed security is any security listed for quotation in the official list of an ‘approved stock exchange’ or licensed market. The tax legislation provides a list of approved stock exchanges, which includes the main Australian exchanges and many international exchanges.

Shares that are held in an individual’s name can be transferred into the name of the individuals as SMSF fund trustees. This type of transaction is called an off-market transfer. Whether you need to use your broker depends on whether the shares you hold are held centrally through the CHESS sub-register or directly via the company’s register.

If the shares are held on the company’s register this is known as an issuer-sponsored holding and you will be able to use the Australian Standard Transfer Form. You can obtain a copy of this form from the ASX website (www.asx.com.au) or from your fund’s administrator (if you have one).

If your shareholdings are CHESS-sponsored then you will need to go through your broker. Such a change in share ownership is simply completing some paperwork rather than selling the shares on the open market, so you’d hope an individual will only pay an administration fee (if any) rather than brokerage.

If your holding is CHESS-sponsored and you are using a full service broker, I would hope that a broker does not charge typical ‘brokerage’ on such a transaction. Check with your broker to ensure that you are merely charged a transfer fee (or no fee at all) before proceeding.

One strategy to avoid broker charges (administration or brokerage) on an off-market share transfer, is that the owner of the shares can request that the broker remove the shareholding from broker (CHESS) sponsorship and revert the shareholding to issuer sponsorship. The investor or fund can then do an off-market transfer using the standard form. This step however does lengthen the transfer process.