An in-specie transfer refers to the transfer of assets between two entities, without the need to sell the assets for cash and then purchase them again in the new entity’s name. This type of transfer is commonly used in Australia, particularly in the context of self-managed super funds (SMSFs) and can be a tax-efficient way to move assets.
In this Business Kitz blog post, we will define what an in-specie transfer is, its advantages, and considerations for those considering this type of transfer. We will also discuss the different types of assets that can be transferred in-specie and the steps involved in executing an in-specie transfer.
What is an In-Specie Transfer?
An in-specie transfer is a process where assets are transferred between two entities, such as between two super funds, without the need to sell the assets and then purchase them again in the new entity’s name. Instead, the assets are transferred “as is,” meaning that they retain their original cost base and any associated tax implications.
In the context of SMSFs, an in-specie transfer can occur when an SMSF trustee transfers an asset from the SMSF to themselves or from themselves to the SMSF. This type of transfer is commonly used to move assets between different SMSFs or to transfer assets from an individual’s name to their SMSF.
What are the advantages of In-Specie Transfers:
There are several advantages to conducting an in-specie transfer, particularly in the context of SMSFs. These include:
- Cost savings: In-specie transfers can be a cost-effective way to transfer assets between entities. By avoiding the need to sell and repurchase assets, investors can save on brokerage fees, stamp duty, and other transaction costs.
- Tax efficiency: In-specie transfers can also be a tax-efficient way to move assets. By transferring assets “as is,” investors can retain the original cost base and any associated tax implications. This can be particularly advantageous for assets that have appreciated in value over time, as investors can avoid paying capital gains tax on the transfer.
- Diversification: In-specie transfers can also be a useful tool for diversifying an investment portfolio. By transferring assets between different entities, investors can spread their investments across different asset classes, sectors, and geographies.
Considerations for In-Specie Transfers:
While in-specie transfers can be a useful tool for investors, there are several considerations to keep in mind when conducting these transfers:
- Legal requirements: In-specie transfers must comply with the legal and regulatory requirements of the relevant entity. This may include complying with superannuation laws, tax laws, and other legal requirements.
- Asset liquidity: Some assets may not be easily transferable in-specie due to their illiquidity. This may include assets such as property, unlisted shares, and collectibles.
- Valuation: The value of assets being transferred must be accurately assessed to ensure that they are transferred at fair market value. This may involve obtaining a professional valuation or using other methods to determine the value of the asset.
What assets that can be transferred In-Specie?
Several types of assets that can be transferred in-specie, include:
- Shares: One of the most common assets transferred in-specie are shares. This method is popular because it allows the shares to be transferred from one broker to another without the need to sell them first.
- Property: Property can also be transferred in-specie. This method is useful in situations where the property is not easily sold, such as when it is located in a remote area or has unique features that make it difficult to sell.
- Managed Funds: Managed funds, including exchange-traded funds (ETFs) and other collective investment schemes, can be transferred in-specie. This method is beneficial because it avoids the need to sell the funds and then repurchase them.
- Cryptocurrency: Cryptocurrencies such as Bitcoin and Ethereum can also be transferred in-specie. This method is useful because it avoids the need to sell the cryptocurrencies and then repurchase them, which can be time-consuming and expensive.
- Collectibles: Collectibles, such as art, antiques, and vintage cars, can be transferred in-specie. This method is useful because these assets may have sentimental value and may not be easily sold.
In conclusion, an in-specie transfer is a valuable tool for investors looking to transfer assets between entities without incurring unnecessary costs or tax implications. While it can be a tax-efficient and cost-effective way to move assets, investors must consider legal requirements, asset liquidity, and accurate valuation when executing an in-specie transfer. Shares, property, managed funds, cryptocurrencies, and collectibles are some examples of assets that can be transferred in-specie. By understanding the advantages and considerations of in-specie transfers and the types of assets that can be transferred, investors can make informed decisions and maximize the benefits of this type of transfer.
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