If you have a parcel of shares under your name and you wish to transfer ownership to another entity, instead of a buy-and-sell process, you can perform what’s known as an ‘in-specie transfer’ or ‘in-specie contribution’.
An in-specie transfer is like a ‘gifting’ of asset where the ownership of the shares is transferred to another entity in whole, without selling the underlying investment. It is generally used to move ownership from one entity into a super fund, more commonly, Self-Managed Super Funds. The word ‘in-specie’ is a Latin phrase meaning ‘in its actual form’.
Benefits of an in-specie transfer
There are a number of benefits to using an in-specie transfer. They include:
- Eliminating buy-and-sell costs associated with moving investments
- Eliminating the time that shares would be out of market under a buy-and-sell arrangement
- Potential tax savings by transferring individual ownership of investment funds or shares into an SMSF.
Types of in-specie contributions
There are restrictions on the type of in-specie contributions you can make to an SMSF. Currently, the law only allows the following assets to be transferred to an SMSF from a member:
- ASX Listed Securities
- Widely Held Managed Funds
- Business or Commercial Property
- Cash Based investments
An in-specie transfer or contribution into an SMSF counts towards super contributions caps.
An example of an actual in-specie transfer scenario might be the following:
John earns $40,000 per annum. He also owns BHP shares which give him an additional $4,000 from dividend earnings. His total taxable income is therefore $44,000, which is taxed at the income tax rate of 32.5%.
John also has an SMSF where he would like to transfer the ownership of these BHP shares. He works out this is going to give him a tax saving, as putting the shares into the SMSF will mean it is taxed at 15% instead of 32.5%.
John prepares a ‘deemed disposal’ for the transfer of ownership which means completing an off-market share transfer form to the broker who will transfer the shares. John will need to pay Capital Gains Tax (CGT) as the disposal of the shares is considered a CGT event.
It’s always best to seek financial advice before doing an in-specie transfer to ensure you’ve covered all the finer details.
If you have any questions or would like to speak with us about your financial circumstance, please do not hesitate to contact us.
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Disclaimer: This post has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions. Align Financial | Financial Planner Northern Beaches | Servicing North Narrabeen, Narrabeen, Mona Vale, Elanora Heights, Newport, Avalon, Palm Beach | Enquire with us online