Let’s look at how it works – a case study
David has a portfolio of direct shares in his own name:
- Some of the shares have increased in value during the period he has owned them, and others have decreased in value
- All of the shares yield an annual dividend which is taxable at David’s marginal tax rate
- David has held his shares for longer than 12 months
- David has an SMSF and would like to understand the benefits of transferring the shares into the fund.
How the strategy works
David transfers the shares into his SMSF via an in-specie contribution. Listed shares are exempt from the acquisition from related party rules and therefore may be acquired from a member of the fun. The transfer of ownership is a CGT event and will trigger a gain or loss depending on the circumstances.
David’s share portfolio is currently valued at $100,000.
| Share | Value | Gross Capital gain/loss |
| ABC | $20,000 | $1,000 |
| EFG | $10,000 | -$2,000 |
| XYZ | $70,000 | $10,000 |
| Total | $100,000 | $9,000 |
As David has held his shares for longer than 12 months, he can apply for the 50% CGT discount to reduce the amount of capital gains he needs to include in his assessable income from $9,000 to $4,500. David will pay tax on this amount at his marginal rate of tax.
Outcomes
| Shares owned by David outside SMSF | Pre-retirement | When receiving a pension from the SMSF | |
| Ownership of shares transferred to SMSF by in-specie contribution Year 1 | Ownership of shares transferred to SMSF and used to pay pension Year 1 | ||
| Marginal Tax rate | 39% (including medicare levy) | 15% | 0% |
| Capital gains tax (one off liability) | Nil | $1,755 (paid by David) | $1,755 (paid by David) |
| Dividends | $5,000 | $5,000 | $5,000 |
| Franking credits | $2,143 | $2,143 | $2,143 |
| Tax paid on dividends | $643 | Nil | Nil |
| Unused franking credits | Nil | $1,072 | $2,143 |
By transferring his shares to his SMSF, David enjoys the following benefits:
At pre-retirement age
- David saves $1,715 in tax annually
- David recoups the capital gains tax he paid in less than two years
At pension age
- David saves $2,786 tax annually
- David recoups the capital gains tax he paid less than one year
In both scenarios, David has made sure any subsequent capital gains would be taxed at concessional super fund tax rates rather than higher marginal tax rate
How your financial adviser can help
A Roberts and Morrow Financial Services adviser can help you assess all the relevant issues and provide advice on whether transferring shares to your SMSF is an appropriate strategy for you and your fund.
General Advice Warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
