In specie contributions are essentially all contributions made to your super that is not a cash contribution.
What are they?
In specie contributions are essentially all contributions made to your super that is not a cash contribution. As in specie contributions do not involve a transfer of cash, naturally this means that it involves a transfer of some other asset from the member to their super fund.
Generally there are restrictions surrounding super funds acquiring assets from members. The only assets that are currently allowed to be contributed to a super fund are:
- Listed securities – these are the most commonly transferred.
- Business real property – generally this means commercial property. You cannot transfer residential property.
- An in-house asset – this covers assets such as investments in a related party and cannot exceed 5% market value of the assets in the fund.
All assets contributed to the fund must be transferred at market value. If there isn’t an open market for which a reliable market value can be determined (e.g. the Australian Stock Exchange), then an independent valuation must be done.
Why do it?
Making an in specie contribution of assets to your super can be quite beneficial, as transferring assets from the member to the fund can lower the overall level of tax. Remember, for the assets held in your personal name you have to pay tax on the income at your marginal rates. When transferred to the fund, the tax is only 15% on the income, 10% on capital gains for investments held for more than 12 months, and 0% if you’re in pension phase.
Things to watch out for
Capital gains tax
Because an in-specie contribution is a non-cash contribution, the member is effectively selling the asset that they are contributing from themselves to their super fund. This triggers a ‘capital gain event’ by which any resulting loss or gain that the member makes by transferring the asset must be accounted for in their individual tax return.
Example: Craig purchases 200 BHP shares for $25, costing $5,000. Five years later he wishes to contribute these shares to the fund. At the time he would like to contribute the shares, they are now worth $35 each, a total value of $7,000. The value of the super contribution to the fund is $7,000 and Craig must take up a capital gain of $2,000 in his personal tax return for that year (He may also claim the 50% discount as he has held the shares for more than 12 months).
This means that if you have large unrealised capital gains it may be painful to transfer them into your super fund, as you will have to pay tax for something you haven’t received any cash in hand for.
Contribution limits
Another thing to watch out for when making in-specie contributions is to stay under the annual contribution limits. Just because the contribution isn’t made in cash, it doesn’t mean it isn’t counted as part of the cap.
The limits are, for non-concessional contributions, $100,000 per person per financial year, up until you turn 75. If you are between 65 and 75, you can only contribute if you meet the work test. People under 65 years of age may be able to make non-concessional contributions of up to three times their cap over a three year period (i.e. $300,000). This is known as the ‘bring-forward’ option.
This might not be so much of an issue when transferring shares, but obviously with the market values of property it can be quite difficult staying under these limits when transferring property. However, you really want to stay under these limits as excess contributions tax can be a high price to pay for exceeding them.
