In specie or in kind contributions of business real property to self-managed superannuation funds ("SMSFs") can often form part of an effective tax and succession planning strategy. For instance, real property that is owned in the fund may be leased to related parties and used to provide tax effective income streams to members whilst facilitating inter-generational change at the business entity level. While in specie contribution strategies often have application for primary producers in South Australia given the stamp duty exemption on transfers of primary production land, from 1 July 2018 these strategies will have a broader application as qualifying South Australian commercial property will also be subject to a full stamp duty exemption. Interstate land (particularly in New South Wales, Victoria and Western Australia) may also qualify for stamp duty exemptions if the particular requirements in those jurisdictions are satisfied.
In specie contributions are often used in conjunction with the $1.445 million lifetime CGT cap, which allows for significant value to be migrated to the SMSF without breaching the concessional or non-concessional contribution caps. Although using the CGT cap and in specie contributions together can be effective, it is important to be aware that in a number of recent private rulings the ATO has raised some issues with the ability to access the CGT cap in these circumstances. In particular, the ATO private rulings question whether the CGT cap is available on an in specie contribution on the basis that the CGT event, the written choice to use the CGT cap and the contribution to the fund or the payment to the CGT concession stakeholder occur simultaneously. Whilst at this stage no ATO public ruling has been issued, the private rulings suggest that these events need to occur sequentially (that is, in the order described).
We have concerns about whether the reasoning adopted in the private rulings is correct. Certainly, the legislation does not expressly preclude a simultaneous CGT event and payment/contribution. In our view, the interpretation adopted in the private rulings appears unduly restrictive given the specific words of the legislation. Even if the view taken in these private rulings is accepted, the timing issues might be overcome by carefully documenting the arrangements so that there is no simultaneous CGT event and payment/contribution. We therefore recommend that clients discuss with us the particular documentation that may be required when making an in specie contribution under the CGT cap.
We expect that there will be growing opportunities for SMSF in specie contribution strategies, particularly in planning for the lead up to 1 July 2018 when stamp duty on qualifying land will be abolished.