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Campbell McCart

Jul 05, 2022

Trustee Disqualified Transfer To Spouse

in SMSF Technical Forum

BACKGROUND

The Brown Super Fund has two members Jim Brown( 68 years of age) and Sue Brown ( 57 years of age ) who are married. Jim has recently become a disqualified person so he must exit the fund.

Presently the fund is worth $1,000,000 being 80% Jim ($800,000) and 20% Sue ( $200,000 ). Jim is 100% in pension phase and has been for years with no Concessional or Non Concessional contributions made since 2018, Sue is 100% in Accumulation phase as she has not meet a condition of release. Of the $1,000,000 assets in the fund ( member balances ) $950,000 is in ASX Listed Shares and the remaining $50,000 in cash. The fund has a corporate trustee.

Question 1

Can Jim transfer / split his $800,000 to his wife wife Sue so that the assets remain within the smsf and Sue will be become sole member with $1,000,000 balance? What are the requirements to accomplish this?

Question 2

If the above is not permitted? Can Jim make a pension payment of $330,000 via an specie transfer payment to himself? That then with with $330,000 an in specie Non Concessional Contribution be made for Sue ( that will trigger the bring forward rules. This would then mean that Sue would be the sole member with a member of $530,000. Shares would be transferred at Market Price on day of transfer.

Jim's remaining balance of $470,000 would have to be converted to cash and then rolled out to an industry fund and he exits the fund totally.

Question 3

If Jim wanted to roll out his member balance of $800,000 as an in specie transfer of the ASX shares are you aware of an industry / retail fund that accepts such in specie transfer and then allows to directly what ASX shares the member wished to be invested in?

Your assistance will be appreciated.

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Jul 06, 2022

Hi Campbell

Thanks.

In relation to question 1 Jim cannot split / transfer his balance to his wife. Under the SIS legislation generally only concessional contributions (CCs) can be split to spouses, and then only 85% of the contribution can be split (ie. the contribution after contribution’s tax is deducted).

So under the splitting provisions the maximum that Jim could split to his wife Sue is 85% of $27,500 or $23,375, assuming Jim was able to contribute concessional contributions and he contributed the maximum CC of $27,500 last financial year.

Another instance where superannuation can be split is when there is an order made by the Family Court due to a divorce or separation of a couple.

In relation to question 2, yes, Jim could make a pension commutation (not a pension payment as such) and take the $330,000 as an in-specie withdrawal (via the off-market transfer of shares), and then she could make a contribution up to $330,000 back to the SMSF, which would trigger her bring-forward provisions and mean she could not make any further non-concessional contributions for 3 years. (This assumes she had not already triggered the bring-forward provisions & has under $1,480,000 total superannuation balance at 30 June 2022.)

Note: because Jim’s withdrawals are in-specie and not cash they are considered commutations and not pension payments (pension payments must always be made in cash). Jim would still need to satisfy his minimum pension for the year, up until the date the balance of his funds in the SMSF are rolled over to a new superannuation fund.

In relation to question 3, yes, we are aware of Retail Super Funds that accept in-specie contributions / rollovers of shares, and also allow the member to direct the investment of their Superannuation Fund, within trustee and SIS limits. These Funds include Macquarie Super and Pension Consolidator, AMG Super, BT Panorama Super and HUB24 Super.

I also note that another option the Fund could consider given the disqualified trustee issue to to convert the Fund to being a small APRA Fund (SAF). A SAF is in effect a SMSF that has appointed a professional trustee. A disqualified person can be a member of a SAF but not a SMSF. Australian Executor Trustees offer a SAF option and this can be referred to at:

https://www.aetlimited.com.au/smsf-services/for-you-and-your-family/small-apra-funds

Thanks

SMSF AAA