What you need to know
Many investors have a personal share portfolio. When it comes to your SMSF, did you know that you can contribute more than simply cash? You are also able to contribute listed shares.
What are the advantages of transferring personal shares to your SMSF?
Assets held in SMSFs are generally protected from creditors in the event of bankruptcy.
Are there any disadvantages
Transferring shares from your name to your SMSF will trigger a Capital Gains Tax (CGT) event and you could incur a CGT liability or crystallise a capital loss. Depending on your circumstances you may be able to apply the 50% individual CGT discount to reduce any capital gains tax liability.
We suggest you discuss the transfer with your tax adviser before going ahead.
What you need to know before you get started
Under the superannuation investment rules, the trustees of an SMSF are generally prohibited from acquiring assets from members and other related parties of the fund. However, an exemption to this rule includes any securities (such as shares, bonds and options) that are listed on the ASX (as well as any other approved stock exchanges1) so long as they are transferred at market value.
Another exemption includes units held in a widely held trust, such as units in a retail managed investment fund transferred at market value.
For more information on the types of assets that you can contribute to your SMSFs and the rules that apply please speak to your financial adviser.
To contribute your shares to your SMSF, you need to transfer the legal ownership of the shares to the trustee(s) of your fund. Completing an off-market transfer form does this.
Depending on whether the shares are issuer or broker sponsored you will then need to forward the completed form to either your share broker or to the company share registry.
When considering making super contributions, it’s important to assess how much you are contributing to your super in any one year. The government has set annual limits; known as contributions caps.
The annual contribution caps for 2017/18 are:
It is important to keep your adviser informed about any contributions you make so they can ensure you don’t exceed these caps. From 1 July 2013, excess concessional contributions made are effectively taxed at your marginal tax rate plus interest charges, while excess non-concessional contributions are taxed at 49% unless an offer to refund is accepted. If accepted, an associated earnings amount will be taxed at your marginal tax rate.
Before transferring any shares to your SMSF, you should confirm that the shares be consistent with the fund’s investment strategy and that they will allow you to achieve your retirement goals. Your financial adviser can assist you to update your investment strategy if needed.
Where a trustee accepts a contribution in the form of shares via an off-market transfer, the transfer must be done at market value. As a guide, the market value for a listed share is generally the closing price of the share on the date of transfer.
All contributions made to superannuation are subject to preservation and may not be released back to you until you have satisfied a condition of release, such as full retirement after reaching your preservation age (56) or turning 65.
Where you are entitled to receive shares under an employee share scheme, you may be able to nominate your SMSF to receive the shares. However, prior to nominating your SMSF you should confirm that this will be permitted under your SMSF’s investment rules and that you understand the tax implications of nominating your fund.
For more information regarding nominating your fund to receive shares under an employee share scheme, please speak to your financial and taxation adviser.
How your financial adviser can help
A financial adviser can help you assess all of the relevant issues and provide advice on whether transferring shares to your SMSF is an appropriate strategy for you and your fund.