Following the media release No.74, Stronger Super – Self Managed Super Fund Reforms, issued on 10th May 2011 by the Assistant Treasurer and Minister for Financial Services and Superannuation, The Australian Taxation Office has issued a media release on 28th March 2012.
“To enhance transparency and strengthen the integrity of the self-managed super funds (SMSF) system, SMSFs which dispose or acquire assets from a related party will need the process to occur through an underlying market. Where an underlying market doesn't exist, the transfer must be made at a price determined by a qualified independent valuer.
These amendments will apply in cases where an acquisition from a related party is permitted. In many cases, SMSF trustees and investment managers are prohibited from acquiring assets from related parties. However, there are exceptions, such as listed securities, business real property and certain in-house assets acquired at market value.
Transfers of listed securities will be the transaction most commonly affected by this requirement to use an underlying market. Currently, shares can be transferred to and from a related party off-market without engaging a broker to buy and sell the shares. Under the proposed amendments, listed securities must be sold on and purchased through the market or exchange.
Any increased transaction costs due to this measure will only be incurred by SMSFs that choose to enter into related-party transactions.
This is part of the Stronger Super suite of measures that address potential risks and inconsistencies under the current law.”
The Government believes that current non-market transactions are not transparent and in some cases do not meet the arm’s length agreement which can lead to abuse of the current system. This can occur through the manipulation of a transaction date and/or asset value to achieve a more favourable outcome in terms of contribution caps and capital gains tax.
The measures come in on 1 July 2012, so any member looking at transferring related party assets into their superannuation fund, especially direct equities should be doing so prior to 30 June 2012. We have seen that a lot can happen in the market in a day or so, so leaving the transfer to be done on-market by a broker could have significant effects on the price of the equity. Especially so while waiting for settlement, cash transfers tot eh fund and then being able to purchase the asset once again in the funds name.
After 1 July 2012 there will also be additional brokerage costs associated with the transaction. Additional costs for non-market investment may be significant. For example, previously of a property was transferred in the SMSF, a real estate appraisal of the property was sufficient for the transaction, and did not require an independent valuation. We are still waiting for further guidelines, which will provide the guidance needed for valuations for related party transactions where there is no underlying market.