Timing opportunities to utilise shares as contributions for SMSFs

SMSFs may be able to utilise planning opportunities for shares through the in-specie contribution process and create a better tax environment for the fund position, according to a wealth adviser.

In a recent update, Creation Wealth director Andrew Zbik said that while the market volatility and uncertainty during the past year and a half of COVID-19 have many share investors understandably rattled.

However, this may present a smart opportunity for investors nearing retirement in the next five years.

“The benefits of this strategy are that you can continue to hold your shares and move the ownership of that holding into the superannuation environment which has a lower tax rate compared to many investors’ marginal tax rate,” Mr Zbik said.

“Plus, if the shares are being transferred at a price lower than what you paid for them there will be no capital gains tax payable.”

Most superannuants are able to draw an account-based pension from their superannuation fund tax free. However, Mr Zbik said the SMSFs needs to consider that making an in-specie transfer of shares from your own name to your superannuation fund is a capital gains event. This means that if you are transferring the shares at a higher value than what you purchased them you may need to pay capital gains tax.

“If you are transferring the shares at a loss, it means you will retain that loss on your tax return which can be used to offset future capital gains,” he noted.

“So, for some, it may be an opportune time to contribute these shares to your superannuation fund to allow future gains to be made in a concessional tax environment that is superannuation.”

Furthermore, funds must choose a date that the transfer is to take place, properly report the true value of the share on that day as your sale/purchase price and the share registry must be notified of this transfer within 28 days, according to Mr Zbik.

Transferring shares into superannuation will also most likely count towards your non-concessional contribution cap which is currently $110,000 for this financial year or $330,000 if you bring forward three years of contributions and you are aged under 67.

“Ultimately, one would only use this strategy if they anticipate to continue holding these shares for the long-term,” Mr Zbik explained.

“Most members of SMSFs will be able to use this strategy. Some retail superannuation funds will accept shares as an in-specie contribution. Unfortunately, most industry funds are not able to receive in-specie contributions of shares yet, but several are investigating this as an option in the future.”

Source: SMSF Adviser