Note: Starting date for the potential ban on off-market share transfers has now been deferred indefinitely (from its original start date of 1 July 2012, and then the later start date of 1 July 2013). At the time of writing, the federal government had not made a formal announcement confirming the indefinite deferral of the off-market share transfer ban for SMSFs, but the relevant provisions were not included in legislation tabled before federal parliament in June 2013. SuperGuide predicted this outcome 12 months ago.
After years of speculation, the federal government has apparently deferred indefinitely the potential ban on off-market share transfers for SMSFs. The ban on such transactions was set to take effect from 1 July 2013. For the record, there is currently no official announcement about this deferral. Information regarding planned commencement dates for Stronger Super measures (including SMSF changes) is available on the Stronger Super website. When you visit the SMSF page of the website you will discover a table with lots of text and dates, and the fourth item (8.13) still reports a start date of 1 July 2013, for the potential ban on SMSF off-market share transfers.
Background: The proposed SMSF related party purchase and disposal legislation (and the legislation which would support related regulations) was supposed to be part of Schedule 4 of the Tax and Superannuation Laws (2013 Measures No 1) Bill 2013. The Bill currently in parliament does not contain Schedule 4 and I believe that Opposition Treasurer, Joe Hockey, moved the amendment to omit this SMSF change, based on documentation appearing on the parliamentary website.
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 has been deferred once before, and we are so close to the supposed start date. Come on guys, make an official announcement so SMSF trustees don’t have to rely on commentators like myself digging in the dark for what may affect the retirement savings of nearly 1 million Australians.
Such last-minute decision-making is continuing to wreak havoc on retirement planning and increasing the cost of advice for Australians. In the June 2012 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 has again decided to have these changes take effect from a later date, or more likely, defer indefinitely, 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 was 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 indicating the new start date was 1 July 2013. We are now in June 2013, about 2 weeks from the supposed start date but the relevant provisions have been removed from the bill before parliament. , and now the start date has been pushed back to 1 July 2013. Has the ban on SMSF off-market share transfers been deferred indefinitely, or just for another year?
It is worthwhile explaining how SMSF trustees can process off-market share transfers. (I explain what the proposed ban would have meant for how SMSF trustees buy and sell shares later in the article.)
How off-market share transfers to SMSFs work
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.
Tip: 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.
What would the proposed ban mean, if it ever became law?
If the off-market share transfer ban was in place, then be mindful that if any SMSF trustee was considering transferring personally held Australian shares into their self-managed super fund, then the ban would effectively preclude such a transaction. If the proposed rules ever become law, 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. Further, 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.
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. If the ban is put into place at some later date, 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.
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.
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.
More SMSF changes take effect 1 July 2013
A raft of changes affecting SMSFs are set to take effect from 1 July 2013. For more information on these SMSF-related changes see SuperGuide article Changes to SMSF rules, from July 2013 or earlier.