SMSF related party off-market transfer ban delayed

Off-market transfers of certain assets, such as shares, between related parties and self-managed superannuation funds (SMSFs) will cease to be allowed under proposed changes to the law. However the start date of the ban has been moved from July 1, 2012 to one year later.

Frequently referred to as in-specie contributions, the government’s move to ban non-market transactions that result in a contribution being made to an SMSF in the form of an asset came as a response to the growing trend of SMSF members making in-specie contributions of property into their SMSF. The practice has developed from the practicality of people not having spare cash but perhaps valuable assets they could contribute to their SMSF.

In-specie contributions however are generally made without (in the case of shares) actually selling and re- purchasing the securities on the open market (hence “off-market” transfers). Therefore the government has taken the view that these are not transparent and can be open to abuse through, for example, asset value manipulation to achieve more favourable capital gain outcomes.

However there are also problems with transfers made on-market, in that the Corporations Law disallows the selling and immediately buying back of equities — known as “wash trades” — with serious penalties applied for breaching of these provisions.

Delaying the planned ban on off-market transfers may allow the government to come up with a legislative solution to the dichotomy that SMSFs would have otherwise had to work around. We will inform readers as more information comes to hand.

Apart from the delay to the ban on off-market transfers, the following table details other Stronger Super measures that have been deferred until next year.

Stronger Super recommendation Announced start date Amended start date
ATO should be provided with the power to issue administrative penalties against SMSF trustees July 1, 2012 July 1, 2013
ATO should be provided with the power to issue relevant persons with a direction to rectify specified contraventions within a specified reasonable time July 1, 2012 July 1, 2013
ATO should be given the power to enforce mandatory education for trustees who have contravened SIS legislation July 1, 2012 July 1, 2013
The government should amend existing tax laws so that amounts illegally early released be taxed at the superannuation non- complying tax rate July 1, 2012 July 1, 2013
Legislation should be passed to provide for criminal and civil sanctions to enable the ATO to penalise and discourage illegal early release scheme promoters July 1, 2012 When the legislation receives royal assent
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