What are in-specie transfers?
It may sound complicated at first glance, but in-specie transfers are actually very simple. All an in-specie transfer is, is when you transfer an asset, you transfer it as it is. The asset keeps its form, unlike other asset transfers where the asset is sold then the cash is received. For example, lets say you have a certain amount of shares in a company and you want to transfer these shares to someone else. You could transfer the shares in-specie and by doing that the shares themselves change ownership from you to the recipient. The new owner now has in his possession those exact shares, rather than the cash value of those shares.
Advantages to in-specie transfers
There are a certain number of advantages to in-specie transfers. Firstly, in relation to shares, it can prevent losses that would occur with repurchasing shares if the share price fluctuates. If you didn’t transfer shares in-specie and you sold the shares for its cash value, if the shares increase in price then the person receiving the money would have less value than they would have got through an in-specie transfer. Additionally, if the recipient decides to repurchase the shares and in the mean time the shares increase in price, it would end up costing the recipient more in money to purchase the same amount of shares.
Similar to the first advantage, in-specie transfer eliminates the time period where you are out of the market. For some shares being out of the market is not ideal, especially if the shares are projected to grow in value. There is also a possibility that the share price can increase dramatically in a short period.
There are also associated tax advantages when it comes to capital gains on shares that are transferred in-specie. To see which assets are taxable under capital gains, click here to read our quick guide. You should seek a lawyer if you are deciding to transfer or receive assets in-specie to see if its the best strategy for you. Feel free to reach out to our network of lawyers that specialise in the area.
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Superannuation restrictions
When it comes to superannuation, there are a number of restrictions in place that prevent certain in-specie transfers. Because of taxation purposes, a trustee can only receive certain assets from a related party through in-specie transfers. A related party is someone who is a member of the Self-Managed Superannuation Fund (SMSF), an employer sponsor, or a Part 8 associate. There are a range of people that fall under the Part 8 associate category, including relatives. For more explanation about related parties, and a comprehensive list on which parties are classified as related, click here.
The in-specie assets that are allowed to be transferred from a related party with Superannuation funds are listed securities (shares), units in widely held unit funds, business or commercial property, and in house assets.
For members of the SMSF, there are also restrictions in place. Members may only transfer listed securities on the ASX, widely held managed funds, bonds, debentures, and business or commercial property.
Conclusion
In-specie transfers are a form of asset transfer that keeps the asset as it is. It carries with it several advantages over the alternative method of selling and transferring the cash value. These advantages stem from minimising time out of the market and associated tax benefits. There are some restrictions in place in relation to superannuation transfers. Generally for related parties, only shares, units in unit funds, business/commercial property, and in house assets are able to be transferred. If you have any questions about your current situation with asset transferring, we recommend speaking to a lawyer. Feel free to use our network of lawyers for any legal concerns.
