Off-market Transactions – New regulation of acquisitions and disposals of assets between SMSF trustees and related parties

The Government recently announced changes to the regulation of off-market transactions between SMSF trustees and related parties.

These new regulations, due to come into effect in the new financial year, are likely to change the way in which members interact with their funds and will result in increased transaction costs.

From 1 July 2012, SMSF trustees will need to adapt their practices to ensure that they comply with these new requirements.

 

New requirements for related party purchases

Although the legislation has yet to be introduced into Parliament, the Australian Government's intentions regarding off-market transactions are set out in the Stronger Super Information Pack, published on 21 September 2011.

The Stronger Super Information Pack sets out the Government's response to the Cooper Review, a comprehensive assessment of Australia's superannuation system. Part of that response was of particular importance to SMSF trustees because the Government intends to introduce greater transparency into the SMSF system by placing restrictions on off-market transactions between SMSFs and related parties.

What are the new off-market transfer rules?

From 1 July 2012:

  • Where a market for an asset exists – all acquisitions and disposals between SMSF trustees and related parties must be conducted through the relevant market or exchange.
  • Where there is no underlying market – the transaction must be supported by a valuation obtained from a properly qualified independent valuer.

For example:

  • where a SMSF trustee is seeking to purchase shares in an ASX listed company, the trustee must purchase them from the market, such as through a broker.
  • where the acquisition or disposal involves unlisted shares or property, a valuation will be required.

Effect of the reforms

This reform will have the largest impact on SMSFs seeking to purchase and dispose of listed securities. At present, listed securities can be purchased directly from a related party, without the need to engage a broker to give effect to the transfer.

After the reforms take effect, SMSF trustees will no longer be permitted to purchase listed securities directly from related parties of the fund. Rather, SMSF trustees will be required to acquire the securities from the relevant market or exchange.

What is the reason for these changes?

The Government's main concern with off-market transactions is the lack of transparency.

In particular, the Government is seeking to curb the manipulation of transaction dates and values that provide illegal benefits to the SMSF or related party through reductions of capital gains tax or contribution caps.

Although these reforms will increase the costs of transactions involving securities and property, the Government considers that they will reduce the instances of abuse related to off-market transactions.

The full extent of the reforms will become apparent when the Government releases the amending legislation later this year.

You can read the Stronger Super Information Pack here.

More Information from Maddocks

For questions or more information about the above article, please call Maddocks in Melbourne on 03 9288 0555 and ask for a member of the Superannuation Team.

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