Wasiliev | A date to remember

John Wasiliev

The ruling states that the purchase, sale or transfer of shares to or from a super fund is considered to have taken place at the time the transaction takes place, says Graeme Colley of OnePath. Photo Louise Kennerley

One of the special entitlements for do-it-yourself superannuation funds is the right to accept certain investment assets owned by members as contributions.

Shares in public companies, units in widely owned managed investment funds and commercial real estate are the most common member-owned investments contributed to DIY funds.

As well as being transferred as tax-deductible or after-tax contributions, these investments can be bought from members by their DIY funds using the fund’s cash.

However, this entitlement won’t be available for shares and managed funds from July next year.

The change to the rules follows a proposal from a federal review into super that says where there is an actual market for an investment, all acquisitions and disposals of such investments between DIY funds and anyone related to the funds, such as members, must be conducted through this market. If there is no specific market for investments, such as direct property, says Graeme Colley of financial group OnePath, transfers or acquisitions of commercial property can continue between a DIY fund and a member or related party, such as a relative of a member.

Acquisition by a DIY fund of a residential investment property owned by a member or relative of a member has long been prohibited.

The major requirement when buying a member-owned commercial property for a DIY fund, says Colley, is a valuation from a suitably qualified independent valuer.

The coming change for shares and managed funds is of interest to a reader who asks about the valuation process that applies to the transfer shares.

If a member wishes to make such a contribution, he asks, is the transfer value the price on the date of the written notification of the share contribution to the fund? Or is it the signature date on the “off-market” transfer form? Is it the Clearing House Electronic Subregister System (CHESS) holding statement date, or the date the shares appear on the DIY fund’s shareholding statement?

These alternatives highlight the range of dates that could apply. One of the reasons the change is being introduced is because the Tax Office, as both tax and super regulator, was not happy with fund members nominating a price for the shares within 30 or 90 days of the transfer date.

This created the opportunity to put down the most favourable price for the fund and the member transferring the shares to the fund. For a member, the transfer price is important because, regardless of whether it is a contribution to or a purchase by the fund, a share transfer is considered a sale by the member and could have personal capital gains tax implications.

As far as the reader is concerned, says Colley, the purchase, sale or transfer of shares to or from a super fund is considered to have taken place at the time the transaction takes place. That is, the date the shares are recorded on the fund’s shareholding statement.

Taxation Ruling TR 2010/1 gives the Commissioner’s opinion when such a contribution is taken to have been made to a super fund. The term for such contributions is an “in specie contribution”.

Paragraph 22, example seven, and paragraph 201 state that where shares are transferred to a fund as an in specie contribution, the contribution is made when the superannuation fund acquires the beneficial ownership of the shares. This also applies where the investment is units in a listed company or unit trust.

Legal ownership of shares is recognised when a fund’s name is registered in the company’s share register. This happens when a properly executed off-market share transfer in registrable form is completed and sent to the register, which could be CHESS if the shares are broker-sponsored or the Issuer Sponsored Subregister if not.

Colley says it is possible for the cost of the shares for tax purposes to differ from the value at the time of transfer if the price moves between the date the transfer form is completed and when the shares are registered. However, the value of the shares for contribution purposes will be the price when the shares are registered in the company’s register.

The price in the off-market transfer form is usually the market price at the end of the trading day when the transfer occurred. If there is no trading in the shares on the exchange for a particular day, the price on the last day the shares traded will usually be accepted.

Colley says the change to the rules will have implications for some trustees. Fund members who transfer shares with sentimental value will have to change their attitude. After next July, they won’t be able to simply transfer out of the fund after retirement the same parcel of shares they contributed as an in specie contribution while they were saving. They can still receive a tax-free benefit but the fund will have to sell the shares to the market and transfer the money to the member, who will then have to buy the shares on the market.

The Australian Financial Review