Head of SMSF Technical & Education Services
My client’s SMSF owns a number of properties. The members are aged in their 70’s and want to gift one of these properties to their son. Is this possible?
No, your client’s SMSF is not permitted to use the fund’s resources to make a gift to the members’ son. If the trustee were to do so, the fund would be in breach of the prohibition on providing financial assistance to members or relatives. The fund may also risk breaching the sole purpose test.
However, given the members have met a condition of release with no cashing restrictions, it would be possible for them to:
- make a request to the trustee for the withdrawal of all or part of their member benefits,
- as part of that request for a benefit payment, specifically ask for the benefit to be paid in the form of a particular fund asset (eg the chosen property) rather than cash, and
- rather than the property being transferred to the member, ask that the trustee transfer the property into the son’s name (or the son’s chosen entity).
This issue was addressed a number of years ago in the case of Asgard Capital Management Ltd v Maher (2003) FCAFC 156 (25 July 2003). The Court found that while Regulation 6.22 of the Superannuation Industry (Supervision) Regulations restricts the categories of persons to whom a benefit may be paid, this provision is not designed to prevent a beneficiary from giving a direction to the trustee regarding the manner in which the beneficiary’s interest is to be paid. That is, when drawing on their benefits, the member is permitted to direct that the benefit be paid to someone else.
Before proceeding with the transaction, it will be important for you/your client to be aware that:
- It will be essential to ensure the benefit payment documentation is appropriately worded to incorporate the member’s request for the direction of their benefit to someone else but not give rise to the assignment of their interest. Heffron can assist with this documentation if needed.
- The fund’s trust deed should be reviewed to ensure it allows for in-specie benefit payments.
- Given the members’ age, they are presumably drawing a retirement phase pension from the fund with all or part of their benefits. Despite this, the transfer of the property cannot be treated as a pension payment as pensions must be paid in cash. However, the transfer could be treated as a lump sum commutation from a pension account with the member’s minimum pension requirements satisfied with a cash payment from the fund.
- If the transfer will realise a capital gain and the fund is using the segregated method to determine its exempt current pension income (ECPI), it may be appropriate to ensure the commutation is only a partial commutation of the pension rather than a full commutation. This is because a partial commutation, where a lump sum is paid but there is still a balance remaining in the pension account, will not cause the pension, and the fund’s ECPI, to cease.
- The stamp duty impact of the transfer may depend on the jurisdiction of the property.
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