Many SMSF trustees wonder if they can sell or transfer assets from their fund to a related party, such as themselves or a family member. While regulations restrict certain asset purchases from related parties, there is no rule preventing an SMSF from selling or transferring its assets, like property or shares, to a fund member or a related party under certain conditions.
To transfer an asset, the SMSF must complete the transaction at market value and on an arm’s length basis, meaning it should be treated like a regular market transaction, without any influence from personal relationships. The asset's sale price must reflect its true market value.
SMSFs are allowed to invest in assets, including property, with strict rules about their use. For instance, the superannuation sole purpose test mandates that SMSF investments are solely for providing retirement benefits. If, for example, you were to temporarily stay in a property owned by your SMSF, it could breach this test, potentially causing the fund to lose its concessional tax benefits and leading to penalties. As a result, SMSF trustees might decide to sell or transfer assets to themselves personally to avoid these risks.
For retired members, it’s also possible to receive retirement benefits either in cash or as an asset transfer (known as an in-specie transfer). For example, if a retired member needs a lump sum for personal expenses, the SMSF could transfer shares to the member’s personal account instead of selling the shares and paying cash. However, such a transfer can have tax implications, so seeking advice is wise to determine if an in-specie transfer is suitable for your financial circumstances.
For SMSF members receiving a pension, pension payments must be made in cash, not in-specie. Any in-specie lump sum payment will not count toward the annual minimum pension payment requirement. So, if you take an in-specie lump sum from a pension account, you must still take the minimum annual pension amount in cash to meet the pension rules.
Before transferring assets to a related party, review your SMSF trust deed and investment strategy for any restrictions. Consider potential tax outcomes, such as capital gains or income tax, and any stamp duty that might apply on transfers, especially for property. Selling or transferring SMSF assets to related parties is a legitimate option, but it’s best to consult a professional if you have tax questions or need further guidance.
