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We often read about SMSF members being able to make contributions to their super fund using assets instead of cash, referred to as in-specie contributions. Less well covered is the fact that SMSF members can access their super benefits in this same way.
Most SMSF trust deeds allow members to access lump sum benefits by way of an in-specie member benefit payment by transferring the ownership of an asset held in their SMSF to themselves personally.
Accessing super benefits this way can be an effective strategy for certain SMSF members where continued ownership of the relevant asset is a priority. It also provides an alternative option or strategy for SMSF members who do not want to use their own personal resources to acquire the asset from their SMSF.
Before you start moving assets out of your SMSF, you need to consider a number of issues, including how these payments affect both you personally, and your SMSF.
How the payment is treated
An in-specie benefit payment is usually treated as a lump sum member benefit. It can’t be treated as a pension payment from your fund.
You would therefore need to have met a condition of release that allows full unrestricted access to your member benefits. You would also need to have sufficient “unrestricted non-preserved member benefits” for this to work.
If you are over age 65, or you retired after age 60, you would most likely have unrestricted non-preserved benefits. There are other events that may have occurred that resulted in your benefits becoming unrestricted non-preserved, so check your benefit details in your member statement.
Fund specific rules
Before doing anything, you need to check the trust deed of your SMSF and look for any fund specific rules or restrictions that may be relevant for these transactions.
For instance, you would need to make sure your SMSF trust deed allows both lump sum member benefit payments and payments to be made in-specie or by way of the transfer of a fund asset.
You should also check for any deed specific process that may be required and, if relevant, you need to follow that process.
The market value of the asset at the relevant time must also be determined.
The valuation can be carried out by the SMSF trustees but where the valuation process is difficult, or where there has been significant movement in the value of the asset, it would be a good idea to seek professional assistance.
It is essential that the transaction occurs on an arm’s length basis and that evidence of the transaction is retained by the SMSF trustees.
As there will be a change in the ownership of the asset, you must make sure that this change is reflected and recorded with the appropriate body.
For instance, where property is transferred, you would need to contact the relevant titles office.
There is usually a formal process that needs to be followed for the transfer to occur and, if carried out appropriately, should result in the correct change of ownership being noted. However, it is always worth reviewing this after the process has been completed.
Careful consideration must be given to any stamp duty that may arise from the transfer of the asset, usually where the asset being transferred is real estate.
Stamp duty is payable by the purchaser of the asset, so this would not be an SMSF expense. Where stamp duty is relevant, the fund member in receipt of the in-specie payment needs to be able to meet this expense personally.
There are specific and often complicated stamp duty rules that apply differently across the separate states and territories of Australia, so seek advice from a legal practitioner who has a good understanding of the rules that are relevant where the asset is located.
In certain property transactions, specific stamp duty concessions or exemptions may apply. Again, these apply differently across the various states and territories, so take care and consider seeking appropriate and relevant advice.
The transfer of an asset from an SMSF will be considered a capital gains tax (CGT) event and could therefore result in CGT being levied and payable by the fund. This will of course depend on the SMSFs overall position.
For instance, if the SMSF is entirely in retirement phase where the fund earnings are tax free, there may not be any tax payable by the SMSF on the CGT event. However where the SMSF holds benefits in accumulation phase, the CGT outcome certainly needs to be considered.
Where the transaction results in a taxable CGT event, you must consider how it will affect each member’s balance within the fund.
That is why it’s important to have up-to-date fund financial statements prepared so they can then be used to forecast the members’ actual balances held after the event.
It is worth seeking tax advice that addresses your personal position where relevant.
Common SMSF example
We have recently seen a number of SMSF members wanting to retire and live in a property that is currently in their SMSF. This would not be allowed and would be in breach of many of the superannuation laws.
Instead, these members have requested an in-specie member benefit from the fund by way of transfer of the property. This then allows the individuals to live in the property as it is no longer held within the super environment.
The information contained in this article is general in nature. Your personal position has not been taken into consideration. You should seek personal advice before taking any action.