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What Is An In Specie Transfer

What Is An In Specie Transfer

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Introduction

This article answers the question, what is an in specie transfer. An in specie transfer’s definition and benefits are explored.

A procedure known as an asset transfer involves moving valuable items (such as managed assets or listed securities) from one person or location to another. You could be thinking about switching the ownership arrangements of a property or investment.

You may, for instance, transfer certain assets from your personal account into a trust. The investment or item can be sold for cash via this method, and the money is then split amongst the parties.

Alternatively, the transfer might be done specifically. 

What is an In Specie Transfer

The procedure of moving assets without selling the underlying investment is known as an in-specie transfer. Transferring managed money or shares frequently use this procedure.

A transfer done “in-specie” is a transfer of an asset in its current state since the Latin term “in-specie” means “in its real form.”

An in-specie transfer includes the transfer of an asset without any money touching hands, as contrast to the procedure of selling an item and then transferring the proceeds between parties.

Understanding What is an In Specie Transfer

Financial or physical assets may be used in in specie transactions. Instead of exchanging money, businesses or individuals may transfer ownership of real property, tangible assets, or stock.

In some cases, capital return schemes may deliver financial assets to shareholders, such as stocks, bonds, warrants, or other securities.

When money is tight, a business could, for instance, provide investors equity shares as a dividend. Fractional shares of this kind in specie distribution are commonly issued. A shareholder who holds 100 shares, for instance, may get 0.5, or 50 shares.

The choice to utilize specie is influenced by tax issues as well. Generally speaking, taxes are deducted from cash income and are only owed on capital gains that have been realized.

If a business acquires another business using stock instead of cash, the seller does not have to pay taxes on the gain until the stock shares are eventually sold.

What Is An In Specie Transfer
Image from Investopedia

Benefits of In Specie Transfer

An in-species transfer has a number of advantages, including:

  • possible cost savings on purchases and sales, such as skipping the fees involved in advertising an item or hiring an agent;
  • reducing the risks associated with market transactions such as selling and buying investments; conducting an in-specie transfer of shares avoids them from being sold at a low time during market volatility;
  • having the ability to maintain a position in the market during the transfer; and
  • possible reductions in capital gains tax (CGT) if beneficial ownership does not change.

What is an In Specie Transfer: Examples in the Real World

Securities held by individual investors are often kept in brokerage accounts or with financial advisors.

The investor may choose to move the assets to a different adviser or invest the funds in another type of security, such as a trust or an individual retirement account (IRA).

To realize the funds, the investor has two options: sell the assets or simply transfer them to another account. The latter is a transfer within species.

Tax repercussions are avoided with the in specie option. Even if it was just temporary, accepting the cash would have required the investor to pay capital gains taxes on any growth in the investments.

Superannuation and In-Specie Transfers

In-specie transfers are another option for your superannuation fund. In addition to the regular payments you make to your superannuation, this transfer is also made. A transfer of an asset into your superannuation fund that doesn’t entail turning it into cash first is known as an “in-specie transfer.”

Although this type of transfer can be made to retail and industrial super accounts, self-managed super funds tend to benefit from it more frequently (SMSFs).

For instance, a member of an SMSF who is subject to a high marginal tax rate could think about making an in-specie transfer to move an asset to a superannuation fund in order to, among other things, take advantage of the favorable tax treatment.

Regarding the intra-species movement of assets in the framework of superannuation, there are unique regulations. A trustee cannot purchase an asset from a connected person for tax reasons. There are some exclusions, such as:

  • listed securities;
  • business real property;
  • units in widely held unit trusts; and
  • in-house assets within the prescribed limits.

An in-specie transfer will often result in a capital gains tax event since you are transferring ownership even if you are not selling the item for less than face value.

What Is An In Specie Transfer
Image from KPG Taxation

Transferring an Asset Into an SMSF

Currently, a member can only transfer the following assets into an SMSF:

  • ASX listed securities;
  • widely held managed funds;
  • business or commercial property; and
  • cash-based investments, such as bonds and debentures.

Different procedures could be needed when transferring an in-specie asset to an SMSF. Depending on the kind of asset in question, for example:

  • You need to file an Off Market Transfer Form if you want to transfer an ASX listed securities; alternatively.
  • You must sign a contract for sale when selling business property.

The transfer of an asset to your SMSF may lead to tax and capital gains tax (CGT) savings. It is crucial to realize, however, that once an asset is transferred to an SMSF, you cannot withdraw it until you are of retirement age.

In light of this, you must be certain that you won’t need to access your assets before moving through with an in-specie transfer.

Along with this, substantial stamp duty is frequently assessed when real estate is transferred. Therefore, it is essential to make a well-informed decision before electing to transfer any assets to your SMSF.

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.

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