Related-party and in-specie transfer valuations

What is a related-party transfer?

An asset moving between the fund and someone connected to it, either into the fund or out of it. The ATO's page on SMSF investment restrictions lists related parties as all members of the fund, their relatives and business partners, and any company or trust that a member or their associates control or influence. It also covers certain employer-sponsors and their associates.

An in-specie transfer is the form it usually takes. In specie means the asset itself moves instead of cash: a member transfers shares or units to the fund as a contribution, or the fund pays a benefit by transferring an asset to a member. The ATO describes an in-specie contribution as a contribution in the form of a non-monetary asset, and a lump sum paid by asset transfer as an in-specie payment.

What does the ATO say about acquiring assets from related parties?

Acquisitions from related parties are prohibited, with exceptions. The ATO's guide to valuing SMSF assets says trustees and investment managers are prohibited from intentionally acquiring assets from related parties, with exceptions such as listed securities, business real property and certain in-house assets. Permitted assets must be acquired at market value. The ATO's ruling SMSFR 2010/1 applies subsection 66(1) of the Superannuation Industry (Supervision) Act 1993, which a trustee contravenes by intentionally acquiring an asset other than money from a related party.

The investment restrictions page puts the exceptions this way: the price must reflect market value, and the asset must be a listed security, business real property, an in-house asset where the acquisition does not take the fund over the 5% limit, or an asset specifically excluded from being an in-house asset. It states that crypto assets and private company shares are not listed securities and that they cannot be acquired from a related party. The Act also allows a fund to acquire certain in-house assets from a related party at market value, within the 5% limit (s 66(2A)), so whether a particular purchase is allowed depends on the facts. That is for the trustees' legal adviser, and it is why trustees take advice before a transfer is agreed. We value the shares.

The ATO adds that it may impose penalties, make a fund non-complying, disqualify trustees or prosecute where the investment restrictions are not followed.

What does 'acquired at market value' mean?

The ATO's ruling treats the test as met when the price paid equals market value. If nothing is paid, or less than market value is paid, the ATO accepts that the requirement can still be met where the fund treats the shortfall as a contribution equal to the asset's market value. The relevant figure is the market value at the time the asset is acquired, which is when the trustees become the owner.

So the valuation does two jobs. It tests the price, and where the asset comes in below market value it sets the size of the contribution: the ATO says a fund that buys an asset for less than market value receives a super contribution equal to the price difference. How that is recorded and reported is a matter for the fund's accountant or administrator.

How are in-specie transfers into and out of the fund valued?

At market value at the date the transfer takes effect. Into the fund, the ATO ties the test to the time the trustees become the owner. Out of the fund, the ATO says a benefit can be paid by transferring an asset if the fund's governing rules permit, and trustees need to consider those rules and the capital gains tax consequences of transferring an asset instead of cash. We value as at the date you give us, so the figure matches the transaction.

The ATO's valuing guide also says investments must be made and maintained on an arm's length basis, and that purchase and sale prices should reflect a true market rate of return. If an asset is not acquired or sold at arm's length, the ATO says income from the transaction may be non-arm's length income taxed at the highest marginal rate. Our page on arm's length dealings covers that, and the benefits, exit and wind-up page covers benefits paid in specie.

Where the asset is a holding in a related company or unit trust, we value the shares or units from the entity's own assets, liabilities and earnings, and we apply the trust deed or constitution. We do not state a fixed position on minority or marketability adjustments for related unit trusts. Whether one applies depends on the deed and the facts, and the report sets out the reasoning.

Why does the valuation date matter?

A value struck months before or after the transfer may not reflect what the fund is paying or receiving. The ATO's ruling ties the test to the time the asset is acquired, and its guide tells trustees to assess an earlier valuation and stop relying on it once it is materially inaccurate or the asset has changed significantly. Agree the transfer date first, then order the valuation as at that date. If the date moves, tell us. Additional valuation dates: $495 + GST each.

Independence matters as well. The ATO says an independent valuer should not be a member of the fund or a related party of it, and should be impartial and unbiased. Our valuer is independent of your fund: never a member, trustee or related party of it.

What do we need, and how long does it take?

Tell us the asset, the parties, the proposed price, the transfer date and whether the transfer is a sale, a contribution or a benefit payment. We usually ask for:

• the company constitution or trust deed
• the latest financial statements and recent management accounts
• any property valuation from a registered or certified property valuer, where the entity owns property
• the contract or draft transfer terms
• records of recent sales of shares or units between unrelated parties

Documents come only through the private upload link on your matter, never by email. Investment entity: $995 + GST, with delivery in 2 business days. Delivery time starts once payment and all required information have been received. Trading business fees follow turnover on our pricing page. We confirm the fee in writing before we start. No hourly billing.

Business real property is one of the exceptions the ATO names. Our position on property held directly by a fund is this.

Property held directly by your fund: we are not taking direct property valuations yet. If a trust or company owns the property, we value the units or shares using a property valuation you already hold.