Exemption from SMSF Stamp Duty - Property Transfer to Superannuation Fund Beneficiaries

1. Land transfer (stamp) duty is payable on the transfer of real property between related parties such as a self-managed superannuation fund (SMSF) and a beneficiary of the fund, unless an exemption applies.

2. Section 41A of the Duties Act 2000 (Act) provides an exemption to duty where a trustee of an SMSF distributes real property to a beneficiary (also known as a member) of the fund in partial or whole satisfaction of that member’s entitlements.

Eligibility

3. To be eligible for this exemption to duty, the State Revenue Office (SRO) must first be satisfied of the following requirements:

3.1. duty (if any was payable) was paid on the acquisition of the relevant property by the SMSF;

3.2. the beneficiary was a beneficiary at the time the SMSF acquired the property (Relevant Time); and

3.3. the value of the property to be transferred to the beneficiary does not exceed the value of that beneficiary’s entitlement in the SMSF.

4. If a beneficiary was not a member of the fund at the Relevant Time, the exemption will not apply. A principle of this exemption is that since the Relevant Time, the beneficiary has been the beneficial holder of the property, and that the trustee has only been holding the property on their behalf, as trustee.   

5. Special consideration needs to be given to the financial statements of the SMSF. If the beneficiary does not have the necessary entitlement in the fund equal to or greater than the market value of the property, then a concession only may apply.

6. For example, if the value of the property is $1M and the beneficiary has entitlements of $1.1M, then this requirement would be satisfied, as the beneficiary’s entitlement exceeds the value of the property.

7. Alternatively, if the value of the property is $1.1M and the beneficiary has an entitlement of $1M, then (subject to all other conditions being met) we would expect the exemption to apply for the first million dollars of the property, and duty would be payable on $100,000, being the portion of the property that exceeds the beneficiary’s entitlement in the SMSF.

8. The beneficiary must also have met a condition of release which includes the beneficiary reaching the preservation age. This is currently between 55 and 60 years of age, depending on when the beneficiary was born.

9. The SMSF must be a complying superannuation for the purposes of the Superannuation Industry (Supervision) Act 1993. 

10. There is a further prerequisite that the distribution of land from the SMSF to the beneficiary is for nil consideration. That is, the SMSF cannot sell the property to the beneficiary and the transfer must be an in specie distribution of land.

Evidentiary Requirements

11. Like other complex duty exemptions, the trustee of the SMSF is required to provide particular evidentiary documentation when applying for this exemption. The required evidence includes:

11.1. copies of the superannuation fund trust deed (with all amendments and variations);

11.2. title searches;

11.3. evidence of the value of the property;

11.4. member accumulation account statements; and

11.5. a statutory declaration by the trustee of the fund.

Final Comments

12. In recent years, the SRO has increased investigations into eligibility. This may include in-depth review of the fund’s financial statements to confirm the beneficiary entitlements and confirming the SMSF has the appropriate trust powers in place to make a distribution of property to a member. The SRO will also seek documentational evidence of the beneficiary being a beneficiary of the SMSF at the Relevant Time. This will require a copy of the signed trust deed (or variation) dated before the date on which the property was transferred to the SMSF.

13. This article only considers Victorian land transfer (stamp) duty and does not consider capital gains tax (CGT) or other federal taxes.

14. If you require assistance or wish to obtain further information in relation to the distribution of property from a SMSF to a beneficiary, please contract:

Alasdair Woodford
Principal Lawyer
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Associate
T: 03 5226 8504
E: jflanagan@ha.legal

Ben Smith
Graduate Lawyer
T: 03 5225 5262
E: bsmith@ha.legal