An ‘in specie’ contribution may sound like something your doctor would ask you for, but it’s actually a way in which non-cash contributions can be made to your self-managed superannuation fund. The process is a bit complicated though, so it’s important to understand the basics.
- What is an in specie contribution?
In specie comes from the Latin for “in its actual form”, so in the context of self-managed super funds (SMSFs), an in specie contribution refers to the transfer of ownership of an actual asset to the SMSF. This may be more desirable than selling the asset and contributing the proceeds to the super fund.
While there is a general rule against SMSFs acquiring assets from members, exceptions apply to listed securities such as shares and bonds, units in managed investment funds, and business real property.
If the SMSF pays the market price for the asset being transferred, it doesn’t count as a contribution as there is no change in the value of the fund. If the asset is acquired for less than market value, the contribution amount is the difference between the market value and the amount actually paid.
- Why make an in specie contribution?
In specie transfers of shares or other listed securities can avoid brokerage costs and the risk of the shares rising in value in the time between sale by the member and repurchase by the super fund.
One of the most common uses of in specie contributions, however, is the transfer of business real property into a SMSF. Often this comprises the premises used to run a family business and moving a productive asset into the tax-advantaged superannuation environment may be done as a prelude to retirement. Depending on the state in which the property is located and specific circumstances, stamp duty may not apply or it may be levied at a reduced rate.
- What are the tax implications?
There are many tax issues associated with in specie contributions including:
- The transfer may give rise to a capital gains tax (CGT) event. If the asset has gained in value, the member making the in specie transfer may need to pay CGT on the difference between the purchase price and market value on the date of transfer. As the asset is not being converted to cash, the money to pay any CGT will need to come from personal (i.e. non-super) sources.
- An in specie contribution may be eligible for the small business CGT concession. This may substantially reduce any CGT payable.
- It may also be possible to claim a tax deduction for the in specie contribution. Prior to 1 July 2017 this primarily applies to the self-employed. After that date anyone who is eligible to contribute to superannuation can claim a tax deduction for contributions up to the annual concessional limit, including for in specie contributions.
- Is advice necessary?
Definitely. In specie contributions are one of the more technically complex areas of managing superannuation, and expert advice is essential. If you are thinking about making an in specie contribution, talk to your licensed financial adviser before you act.