A so called “in specie contribution” can be a productive way to minimise overall taxation by taking advantage of superannuation tax concessions. By way of example:
Mary owns a $300,000 commercial property with a $120,000 mortgage.
Mary’s accountant has suggested that there would be substantial tax benefits if the property was transferred into Mary’s Self Managed Super Fund (“SMSF”).
As the property is used wholly and exclusively in a business it is “business real property” and can be transferred into the SMSF regardless of the fact that Mary owns it or even if the property was used in a business owned or operated by Mary.
Mary doesn’t have the cash to pay out the mortgage – so the property can’t be simply contributed (that is, gifted) into the SMSF. (Noting that contribution caps mean the property would have to transferred in two separate annual installments.)
However, Mary can contribute 60% of the ownership of the property to her SMSF as a non-concessional / after tax contribution. This contribution should be exempt from stamp duty.
Mary can then sell the remaining 40% to her SMSF at market value. Stamp duty will be payable on the value of the 40% sold. This requires that the SMSF either has $120,000 (plus stamp duty and costs) in liquid assets or can borrow $120,000 to fund the purchase. (please note the two transactions need to be simultaneous to avoid complications under the existing mortgage).
A so called “in specie contribution” can be a productive way to minimise overall taxation by taking advantage of superannuation tax concessions. However, there are a variety of tax issues, SMSF compliance issues and other issues to be considered and such transactions should only be entered into with appropriate taxation and legal advice.
Lewis O’Brien and Associates has assisted with the transfer of many properties into the SMSF environment and has the skills required to ensure that stamp duty and other transaction costs are minimised.