5 things you should know before shifting shares into super
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Now may be an opportune time to make an in-specie contribution of shares into your SMSF or other super fund, but there are some important details to be aware of.
The last year has not been one of the kindest for share investors. The Australian All Ordinaries Index is down 5.1 per cent. Finance sector stocks are down around 7.2 per cent. Metals and mining sector stocks are down on average by 19.2 per cent for the year.
However, this ongoing volatility may present a smart opportunity for investors nearing retirement in the next five years.
It is possible to contribute your shares in what is called an "in-specie" contribution to your superannuation fund. This highlights the commonly overlooked fact that not all contributions to superannuation need to be cash.
The benefits of this strategy is 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.
Additionally, if the shares are being transferred at a price lower than what you paid for them initially, there will be no capital gains tax payable.
Regardless of who wins the election on 2 July 2016, most superannuants will still be able to draw an account-based pension from the superannuation fund tax-free.
However, there are a number of things to consider:
1) 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 they were when 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.
Given some shares are trading at five-year lows, 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.
2) You 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. The share registry must also be notified of this transfer within 28 days.
3) Transferring shares into superannuation will most likely count towards your non-concessional contribution cap. This is currently $180,000 for the 2015-16 financial year, or $500,000 if you bring forward three years of contributions.
Given the recent proposed changes announced in the Federal Budget, you cannot make more than $500,000 in non-concessional contributions dating back from 1 July 2007.
4) Ultimately, you should only use this strategy if you anticipate to continue holding these shares for the long term.
5) 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.
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Andrew Zbik is a senior financial planner with Omniwealth. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind.
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