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.

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.