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Cooper Review Panel "off the mark" with off market transfers

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With the release of the preliminary recommendations by the Cooper Review Panel on Phase Three, there has been a focus on tightening up the investment conditions and restrictions to improve the “pedigree” of the sector.

It appears to be the view of the Panel that to achieve this goal, there is a need to prohibit funds to invest in collectables (i.e. artwork, wine, etc) and also remove the ability to loan to, invest in or have a lease arrangement with a related party (in-house assets). Whilst these changes may not sit well with a few within the industry, I feel it’s probably not a bad result given the small percentages that these actually these represent.  In any event, transitional arrangements through to 30 June 2020 are being proposed to sort out these investment arrangements.

However, what did come as a surprise was the recommendation to effectively tighten the section 66 (SIS Act) prohibition on acquiring assets from a related party of the fund.  Section 66(2) currently provides for a range of exceptions to this prohibition including acquiring from a member:

  • Shares listed on an approved exchange (e.g. ASX, Nasdaq, FTSE)
  • Business Real Property (including farmland)
  • Widely held trusts (e.g. managed funds); and
  • In-house assets (up to 5% of fund assets)

Recommended changes

It has been recommended by the Review Panel that the SIS legislation relating to acquisitions and disposals between related parties be amended so that either:

(a). Where an underlying market exists, all acquisitions and disposal of assets between SMSFs and related parties must be conducted through that market; or

(b). Where an underlying market does not exist, acquisitions or disposals of assets between related parties must be supported by a current independent valuation from a registered valuer; and

(c). APRA Regulated Funds are exempt from these changes.

Listed Shares

It is the Panel’s view that any acquisition or disposal of an asset (including in-specie) to a related party where there is an underlying formal market or exchange must be conducted through that market.  This view is held on the basis that such a change will provide for greater transparency and will reduce the inherent risk and potential abuse of related party transactions.

Since the abolition of stamp duty on the transfer of listed shares, there is a perception of ‘abuse’ in terms of consideration used from both a personal CGT perspective and for contribution cap purposes in a super fund.  I feel this is unwarranted and would be interested to know from SMSF Annual Return statistics what level of off market transfer activity is actually occurring within the SMSF environment?  It is now a requirement to provide answers to this information within the disclosure area of the regulatory return.

Whilst it is a simple process to ‘sell’ and ‘buy’, for some there is an emotional attachment to assets that are being transferred into a fund.  Shares that may have been acquired from a parent’s estate or company shares exercised from many years of service come with ‘baggage’.  To require shares to be sold and re-purchased may be simple, the strategy may not eventuate because of the attachment to these assets.  It sounds like a silly notion, but I’ve witnessed such examples first hand with clients!!

If the Panel is so concerned about such abuse in manipulation of consideration when transferring shares, why isn’t a recommendation put forward to have improved data matching information provided to the ATO from the registries on items such as:

  • changes to the CHESS register (shares ON or OFF)
  • date of transfer
  • number of shares
  • closing share price on that day
  • consideration

With data such as dividends already being submitted to the ATO from share registries (including franking credits), this surely provides an appropriate outcome without the need to remove the ability to transfer shares off-market?   It would also improve the integrity of capturing capital gains tax across all investors.


The Panel recommendation to require a sworn valuation for a property transfer is reasonable as valuations in this area have been the most subjective for contribution cap and CGT purposes.  I think you would find many practitioners transferring property with their clients would be using appraisals from licensed real estate agents.  There is much further scope to manipulate the outcome by simply asking for a ‘curb-side’ valuation(s).

Whilst sworn valuations are going to add to the transactional cost of an in-specie property transfer, this is an important step forward to improving the integrity of these related party transactions.

I was disappointed to see no consideration by the Review Panel of allowing residential property transfers into a SMSF.  With the tightening of the framework for business real property transfers, surely it provides a more robust environment to consider any type of property to be acquired from a member (or related party) of the fund?

Introducing rules on benefits leaving the fund as well?

It is the Panel’s view that off market transfers between related parties should not only be tightened but should also apply to benefit payments in-specie as well.

Currently, there is nothing within superannuation law that prohibits the payment of a lump sum by way of asset transfer.  It is not uncommon for shares or other assets to be transferred out as a lump sum (cannot be paid as a pension).

It seems unfair that a Small APRA Fund (SAF) or other public-offer funds (e.g. Wrap accounts) will be able to conduct off market share transfers, but not SMSFs.  This recommendation goes against Principle 6 in the Review Panels 10 guiding principles for SMSFs.  This principle focuses on ‘consistent treatment with APRA regulated funds where appropriate’.   This certainly does not provide a level playing field.

I hope the industry provides some strong feedback on this one, because I think the Review Panel got this one wrong!!  Let’s hope for a change in view in the final recommendation.



4 thoughts on “Cooper Review Panel "off the mark" with off market transfers

  1. Pingback: Stronger Super reforms for SMSFs delayed to 1 July 2013 – 'thedunnthing' - Aaron Dunn's blog

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