In-specie payment from a Self Managed Superannuation fund

Are there any limitations contained in the Superannuation Industry (Supervision) Act 1993 (SISA) that restricts a Self Managed Superannuation Fund (SMSF) from paying a member's benefit "in-specie" rather than in cash?

No. There are no limitations in SISA that prohibit a member's benefits being paid "in-specie".

The taxpayer is the sole member of a self-managed superannuation fund.

The taxpayer is over 55 and wished to cease gainful employment and withdraw benefits from the fund.

Part of the assets of the fund includes a property. The taxpayer wished to transfer this property to himself as part of his member benefits.

The trust deed requires that the trustee receive an acknowledgment from the Commissioner of Taxation that such a transfer would not cause the fund to lose its status as a complying superannuation fund.

The Superannuation Industry (Supervision) Act 1993 (SISA) and the accompanying regulations provide rules on when and how a member's benefit may be paid from a superannuation fund. These rules ensure that a member's benefit is only paid in accordance with the payment and preservation standards and the superannuation fund's rules.

The transfer of property to a member in satisfaction of the member's benefit is not prevented by SISA. The Insurance and Superannuation Commission (the forerunner to the Australian Prudential & Regulatory Authority) issued Superannuation Circular No I.C. 2, which, in part, addresses this issue. Paragraph 9 of the circular provides that if the governing rules of a fund so provide, member's benefits are permitted to paid "in-specie" or in "cash". However, the trustees must be able to substantiate the value of the relevant asset for SISA and taxation purposes.

"In-specie" payments cannot, however, (see paragraph 10 of Superannuation Circular No I.C. 2) be made where the payment relates to financial hardship or compassionate grounds.

Subsection 27A(8) of the Income Tax Assessment Act 1936 (ITAA) provides that where a transfer of property has been made to a person for the purposes of making an eligible termination payment, the transfer is deemed to be payment of an amount equal to the value of the property immediately before the transfer.