Many trustees transferred their commercial properties in their SMSF as in specie contribution. Some of these properties were owned by Family trusts etc.

In many cases stamp duty is still not paid as trustees are disputing (misguided by advisors) there liability, due to underlying benefit ownership confusion. To understand the beneficial ownership issue, let us use an example.

 Assume Bill and Mary Howard are individual trustees of a SMSF. They own a commercial property worth $600,000 in their own names which they want to transfer to their SMSF called Howard Family Superannuation fund in specie as un-deducted contribution before 30^th June 2007. The property is registered with the land titles office in their own names as "Tenants in Common".

Once the property is transferred to Howard Family Superannuation fund where Bill and Mary are the two individual trustees, there is no change in name of ownership at the land titles office, however, the new ownership is "As Trustees for Howard Family Superannuation Fund".

Since the beneficial ownership has changed, from "tenants in common" to "as trustees for SMSF" Stamp Duty is payable. In other words, if the property was outside of Super and if Bill died, the interest in property will vest with the executor of his estate, however, after the transfer of property to SMSF, in case of Bill's death, the property will vest with the trustees of Howard Family Superannuation Fund, Immaterial to the fact that Bill's interest in the super fund has to be paid to nominated beneficiaries.

This interest of dead member can only be transferred, in specie, (assets instead of cash), to dependant beneficiaries if the SMSF trust deed allows it. Does yours?

Transfer of assets from Trust to SMSF

A point to note here is that the transitional arrangement of $million was for contribution from member, however a contribution directly from a "Family Trust to SMSF" is not covered under transitional arrangements. This means that any transfer of assets from family trust to SMSF cannot be treated as in specie un-deducted contribution for the member.

The correct method for the member would be to first transfer the asset in the name of the member (pay stamp duty and incur capital gain tax liability for the trust) and then transfer the asset in the name of the super fund (and then SMSF pays stamp duty).

In a recent statement by ATO, the tax commissioner has expressed the following opinion:-

It has come to our attention that some trustees have made inappropriate investments such as acquiring a residential property from a fund member. In addition, some companies and trusts have transferred assets (including cash) to superannuation funds without correctly accounting for the transactions.

This behavior breaches the law and can also be costly to rectify due to capital gains tax, stamp duty or penalties.

 Alternative Method

The method to transfer property owned by trust to SMSF is simple:-

Assume the property is valued at $600K

Step 1: Member makes a cash contribution to SMSF of any amount say $10,000

Step 2: SMSF purchases property from trust and pays an instalment of $10,000 to the Family Trust

Step 3: The Trust Distributes this $10,000 to the member.

Step 4: Go back to Step 1

What actually happens is that, SMSF purchases the property from the Family Trust and the members makes 60 contributions of $10,000 each.

Next Week Topic How to avoid paying excess contribution tax.

If you have contributed more then non-concessional cap of $million and now facing to pay excess contribution tax of 31.5% (total tax of 46.5%).