What is an In Specie Transfer?
You might be required to make an in specie transfer. Find out what they are and how you can benefit from them here.
A business may transfer its assets to another business in two forms. The business may transfer cash (received by selling the asset) or transfer the asset itself. When you transfer the asset as it is, it is called an in specie transfer. In specie, from Latin, means “in its actual form”.
Benefits of In Specie Transfer
There are several benefits to in specie transfers. Firstly, a cash transfer may not be possible. Further, an in specie transfer avoids the charges that would be paid on the sale of the asset. This includes listing fees, agent fees, and other charges. For financial securities like shares, an in specie transfer prevents the shares from being sold at low point. Furthermore, an in specie transfer also prevents capital gains tax being added on the asset. This requires the transfer to occur within a business’ corporate structure.
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 fund (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. You can refer to Lawpath’s guide on SMSFs for more information here.
In Specie Transfer to SMSF Accounts
The in specie transfer of assets into a SMSF account is sometimes known as “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 have a choice of declaring 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 into 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 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 will need to pay a purchase price to recover the property out of the SMSF account.
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, one of Lawpath’s best superannuation lawyer can assist you in navigating the rules and regulations. You can receive a free quote from a Lawpath superannuation lawyer here.
Meru is a legal tech intern at Lawpath and a Bachelor of Laws student at The University of Technology Sydney. He is interested in how technology can help bring the legal industry into the 21st century.