It’s not too late for SMSF trustees seeking to maximise non-concessional contribution rules before they change next month to transfer real property into their funds, according to a superannuation expert.
On July 1 the maximum amount of non-concessional contributions a member can make to their super fund each year falls from $180,000 to $100,000.
Currently, a member can make a non-concessional (after tax) contribution of either $180,000 or $540,000 under a three-year bring-forward rule.
If a member has not made any non-concessional contributions in the 2014/2015 and 2015/2016 financial years, and provided they have not triggered the bring-forward rule in 2013/14, they can make a contribution of the full $540,000 before 30 June 2017.
Natasha Ng, a solicitor at Townsends Business and Corporate Lawyers, says that if a fund member does not have the cash to make such a contribution, one way to do it is to transfer business real property owned by the member in their personal name into their self-managed fund, effectively treating up to $540,000 of the value of the property as a non-concessional contribution for the transferring member.
For example, a member of a SMSF owns business real property in his own name with a market value of $1,000,000. He wants to transfer $540,000 of the property by way of a non-concessional contribution and then pay the remainder $460,000 from his member balance in his SMSF.
In other words, $540,000 of the value of the property can be treated as an in-specie contribution and $460,000 must be paid for out of the member’s balance.
Once the property has been transferred into the SMSF it must be “segregated” for the benefit of only the member who transferred the property.
Ng says this is irrevocable, so that any rent from that property is credited towards that member’s account and no other member’s account.
The transfer must be at market value (the property will need to be valued by an independent qualified valuer).
If the member does not have sufficient funds in his member account in the SMSF to pay $460,000, he can transfer a part interest in the property to the SMSF.
In the example above, he could transfer a 54 per cent interest in the property into the fund as a non-concessional contribution with the end result as follows: a 46 per cent share held by the member in his own capacity; and 54 per cent share held by the fund.
The member may be able to transfer the property as a non-concessional contribution for another member of the SMSF, although this could attract a significantly higher stamp duty charge (depending on the state were the transfer occurs).
Ng says such transactions are complex and may require trust deeds to be amended to ensure the relevant rules to permit the transaction are inserted. Other “segregation documents” may need to be prepared to show that the property is segregated for the member’s benefit only.
“It is important that no documents, such as a contract of sale, are signed prior to the deed being amended and relevant segregation documents being prepared and signed,” she says.
“These transactions take time and lodgement times with the various state revenue offices and titles office take weeks. Depending on the circumstances and structure of the transaction, it is possible for the transaction to be effected prior to 30 June but a member who is considering this should get a move on.”