Have you heard about the financial term “In Specie Transfer” but not sure what it means? In-specie transfer is a way to rearrange your business assets without the hassle of selling and repurchasing.
If you want to shuffle things around in your investment strategy without triggering a bunch of tax headaches, or you’re keen on moving some of your business’s goodies from one account to another without going through the cash dance, In-specie transfer can be a good tool.
In this guide, we’re going to break down the ins and outs of In-Specie Transfers for small business owners. We’ll take you through the benefits, spell out how it works, and help you see how this financial move could give your business an extra edge.
Read along!
What does In-Specie Transfer mean?
In-Specie, from Latin, means “in its actual form.”
An In-Specie Transfer is a financial transaction where assets, such as investments or property, are moved directly from one account or entity to another without being sold or converted into cash first. In other words, it’s like shifting your belongings from one room to another in your house without selling them off and then buying new ones.
This type of transfer is often used in investment and financial management strategies to achieve specific goals. For example, an investor might want to move shares of a company from one investment account to another without selling them. This can be done to adjust their portfolio’s composition and tax implications or to optimise their investment strategy.
In the context of small businesses, an In-Specie Transfer could involve moving assets between different business accounts or even between the business and its owner. This can be useful for various reasons, such as optimising the tax structure, separating business and personal assets, or reorganising the company’s holdings.
An In-Specie Transfer provides a way to make strategic asset movements while avoiding the need to liquidate assets, which can help manage taxes and maintain the desired investment or business structure.
What are the benefits of In-Specie Transfer?
There are several benefits of In-Specie Transfer, namely:
- Tax Efficiency: In-Specie Transfers can help you make changes to your investment portfolio or business holdings without triggering capital gains taxes that would occur with a sale.
- Diversification: Move assets between different accounts or investments to achieve a more balanced and diversified portfolio, reducing risk.
- Cost Savings: By avoiding selling and repurchasing assets, you can save on transaction costs and potential market impact.
- Ownership Structure: In the context of businesses, In-Specie Transfers allow for adjustments in ownership structure or asset distribution without cash transactions.
- Asset Allocation: Easily reallocate assets among different investment options or business divisions to align with changing goals.
- Preserve Investments: Maintain your original investments, avoiding potential loss in value that could occur during the selling and repurchasing process.
- Simplify Processes: Streamline changes in ownership or investments by directly transferring assets, eliminating the need for multiple transactions.
- Time Efficiency: In-Specie Transfers can be quicker than selling and repurchasing, allowing you to act on investment or business decisions promptly.
- Personalisation: Tailor your investment portfolio or business holdings more effectively to your specific preferences and strategies.
- Strategic Planning: In-Specie Transfers offer a valuable tool for strategic financial planning and optimising your financial position.
Superannuation and In-Specie transfers
You might be familiar with the idea of contributions to your superannuation account. However, it is also possible to make an In-Specie transfer of the asset directly into your superannuation account without realising the asset in cash.
This commonly occurs with self-managed super funds (SMSF) but is also possible for traditional retail and industry super funds. An SMSF allows the individual, as trustee, to manage their own super accounts as opposed to a fund manager.
In-Specie Transfer to SMSF Accounts
The In-Specie transfer of assets into an SMSF account is sometimes known as an “off-market transfer.” There are rules that restrict the assets that may be transferred into an SMSF.
According to the ATO, the following can be transferred In-Species into your SMSF account: ASX-Listed securities, commercial property, and cash-based investments like bonds. When the transfer is made, you can declare the transfer as a contribution or an asset sale. In both cases, the purchaser is the SMSF. In the case of the asset sale, the SMSF is then required to transfer the purchase price to you according to market value.
Transferring assets to your SMSF account can have tax benefits. The transfer can reduce how much you pay in income and capital gains tax on the property. The tax falls to $0 once you retire and begin to receive a pension from the super account. But there are also some disadvantages to transferring assets to your SMSF account.
The asset is trapped in your SMSF account until you reach above 60. You must ensure that you do not require the asset until that age. Where there is a transfer of commercial property, stamp duty will be required to be paid. This can be a significant cost, and thus the transfer of the asset must not be hastily made. However, there is no stamp duty to be paid on share transfers.
In-Specie Transfer out of SMSF Account
Assets can also be transferred out of the SMSF account once retirement age is reached. The transfer may be In-Specie or by selling the asset and then transferring a lump sum payment.
You might choose to buy a property for your retirement while you are currently working and transfer it In-Specie to the SMSF account. When you reach the retirement age, you will need to take the property out of the fund. If you transferred the property as an asset sale, with the fund as the purchaser, you must pay a purchase price to recover the property from the SMSF account.
Conclusion
The process of In-Specie transfer into the SMSF account and then out of the SMSF account can be very complicated. On top of that, determining whether the transfer should be made is itself a complex decision.
Luckily, Lawpath’s lawyers can assist you in navigating the rules and regulations with ease. Get a free quote when you hire a lawyer from our marketplace.
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