Advisers looking to implement a withdrawal and recontribution strategy for their SMSF clients must exercise great care when non-cash assets are involved in the process, a specialist adviser has cautioned.
“[If the strategy means it is] assets that come out [of the fund] and come back in, what sort of assets are we talking about? [If it’s] shares in listed companies, yes, that can go out and come back in, but you need to watch out for any capital gains tax implications,” Cooper Partners Financial Services director Jemma Sanderson told delegates at the Self-managed Independent Superannuation Funds Association SMSF Virtual Forum 2020 today.
“Likewise with [units in] managed funds or any other growth investments.”
According to Sanderson, particular attention is needed to determine if the assets selected are appropriate for withdrawal and recontribution.
“If [the asset] is coming out, it needs to be able to go back in. So listed shares are fine, [units in] managed funds are fine, but if you’re talking unlisted shares or those managed funds that wouldn’t satisfy the requirements of being a widely held trust, you actually can’t get them back [into the fund] under section 66 of the SIS (Superannuation Industry (Supervision)) Act because they are not assets that a super fund can acquire from a related party,” she noted.
As such, she recommends implementing the strategy using cash is easiest.
Further, she noted it was unnecessary for an SMSF to have the entire amount marked for withdrawal and recontribution in cash for the transaction to involve cash exclusively.
“If the fund doesn’t have an enormous amount of cash, so say it’s got $150,000 and you’re looking to do a $300,000 out and back in, then you could do it in two lots,” she advised.
“[So that’s having] $150,000 out and go back in, and $150,000 out and go back in.”