SMSFs and off-market transfers: the latest news
Off-market share transfers occur when shares held in the name of an individual are transferred into that person’s Self-managed Super Fund (SMSF) as a contribution. The transaction takes place without the shares being either bought or sold on the open market – hence the term ‘off-market’.
For a number of years, SMSF regulators have expressed concern that off-market transactions are notoriously difficult to regulate due to their lack of transparency and the ease with which their value can be manipulated.
To combat this, in December 2010, the then federal government announced a set of restrictions affecting off-market share transfers specifically related to SMSFs. The proposed changes would have resulted in a ban on SMSF off-market transfers of listed securities between the fund and related parties.
The ban will now not go ahead with a proposal being put forward to continue with the current rules relating to SMSF off-market transfers, although subject to a number of less constraining amendments.
- SMSFs will be able to dispose of or acquire assets from related parties provided the transfer takes place through an underlying market.
- If there is no underlying market, the transfer must be at a price determined by a qualified, independent valuer.
- Transfers can only take place where the fund’s trust deed permits related-party transfers.
- SMSF trustees and investment managers will be prohibited from purchasing assets from related parties except in some particular cases such as:
- listed securities,
- business real property,
- certain in-house assets purchased for their market value.
It is expected that the transfer of listed securities will be the most common asset affected by the new ruling; these transactions will need to be conducted through an underlying market.
The Australian Taxation Office (ATO) believes that these measures will enhance transparency of SMSF transactions and reinforce the integrity of the SMSF system.
Although there will most likely be increased transaction costs associated with the tightened regulations, the ATO has stated that SMSFs choosing to conduct these types of related-party transfers will be expected to absorb the costs.
Contact this office for further information about off-market transfers and how they relate to your SMSF.
Sources:
www.ato.gov.au Off-market transfers between SMSFs and related parties (Last modified 4 July 2013)
www.superguide.com.au SMSF alert: Off-market share transfer ban deferred indefinitely (Trish Power 12 June 2013)