Retirement income entities - in-specie payment

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

No. There are no limitations in the SISA that prohibit a member's benefits being paid in specie provided a condition of release is first satisfied under the SISA.

The taxpayer is a member of a SMSF.

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

Part of the assets of the fund comprises a property. The trustees wishes to transfer this property to the taxpayer as part of his member benefits.

SISA and the SIS 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 prohibited under the SISA. The Australian Prudential Regulation 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, a member's benefits, are permitted to be paid in specie or in cash. However, the trustees must be able to substantiate the value of the relevant asset for the 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 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.