Ban on SMSF off-market transfers deferred until 1 July 2013

Trustees of self-managed super funds (SMSF’s) are able contribute some personally-owned assets to their fund by way of an off-market transfer. An off-market transfer is also known as an in-specie contribution.

If you own shares, term deposits, managed funds or business real property (but not residential property), you can transfer the ownership of these assets to your SMSF via an off-market transfer. Such a transfer is treated as a contribution and will therefore count towards your annual contribution caps. An off-market transfer may also have capital gains tax and stamp duty implications.

For SMSF trustees, the benefit of an off-market transfer is that an asset doesn’t need to be sold and then repurchased by the fund. For instance, if you own shares you don’t have to sell them on an exchange and arrange for your SMSF to repurchase them. This saves you transaction costs and a lot of hassle. The only requirement is that a transfer form is completed.

In December 2010 the Government announced it would ban SMSF off-market transfers from 1 July 2012. The basis for this decision came from the Cooper Review (a review into the governance, efficiency, structure and operation of Australia’s superannuation system) in 2009/10 that recommended the ban. The Cooper Review found that, in some instances, there was scope for manipulation of asset prices because there was flexibility about the dates that could be applied to transfer forms. Specifically, this was considered to be a big problem for listed assets such as shares where prices can change significantly over a short period of time.

Since the announcement in 2010 the Government has been subject to intense lobbying from a number of industry bodies, most notably the SMSF Professionals’ Association of Australia (SPAA). SPAA (and others) have raised a number of issues which have been acknowledged by the Government, and delaying commencement of the ban for another 12 months is hoped to provide Treasury with time to find solutions to the problems raised.

The main issue with the proposed ban is that the Corporations Act does not allow someone to sell a share with the intention of buying it back on market. This is known as a ‘trade and wash’ and severe penalties apply for this action. However, if the ban is implemented, a trade and wash is the exact process an SMSF trustee would need to undertake to transfer shares to their fund.

SPAA’s view is a sensible one. Rather than banning off-market transfers, tighten the regulations around completion of the transfer form.

Makes sense to me.