If you run a company, manage a trust or operate a self‑managed super fund (SMSF), you may have heard the term “in‑specie distribution”. It often comes up when people wind up entities, restructure, transfer trust assets or consider paying a non‑cash dividend.
So what does it actually mean in Australia, when is it used, and what should you watch out for legally and for tax? This guide breaks it down in plain English so you can make confident, well‑documented decisions.
Quick note: the tax treatment of in‑specie distributions can be complex and depends on your situation. This article is general information only - we don’t provide tax advice. Please speak with your accountant or tax adviser before you proceed.
What Is An In‑Specie Distribution?
An in‑specie distribution is when an entity transfers an asset to a beneficiary, shareholder or member in its actual form, rather than selling it and distributing cash.
“In specie” literally means “in its form or kind”. Instead of liquidating the asset and paying out money, the recipient receives the asset itself. That asset could be real property, listed or unlisted shares, business equipment, intellectual property, units in a trust, or even inventory.
How Is That Different To A Normal Distribution?
With a cash distribution, the entity generally sells the asset first and then distributes the proceeds. With an in‑specie distribution, there’s no sale to cash - the asset is transferred directly. Legally and for tax, though, a transfer is often treated as if a sale has occurred at market value, which is why valuation and documentation are key (more on this below).
What About In‑Specie Dividends?
Companies can make a dividend “in specie”, which is simply a non‑cash dividend paid by transferring an asset to shareholders (for example, listed shares the company holds or a property). Whether this is allowed will usually turn on your Company Constitution, the Corporations Act 2001 (Cth) requirements (including solvency), and properly passed board/shareholder approvals.
When Do Australian Businesses Use In‑Specie Distributions?
There are several common scenarios where transferring the asset itself makes commercial sense.
1) Winding Up A Trust Or Company
When closing an entity, it can be simpler or more value‑preserving to distribute assets directly instead of forcing a sale. This is particularly useful when:
- The asset is illiquid or a sale would likely destroy value (for example, a niche business asset, IP or a tenanted property).
- The recipient actually wants the asset and plans to keep using it (for example, a trading name and related IP continuing in another vehicle).
- The costs and timing of a sale are unattractive compared to a transfer.
2) Trust Distributions (Family/Discretionary Or Unit Trusts)
Trustees may make in‑specie distributions of trust assets to beneficiaries - for example, transferring shares, units, land or plant and equipment. Always check the trust deed first. If your deed doesn’t expressly permit in‑specie distributions, you may need to vary the deed (or consider other options). If you’re weighing up how a trust fits into your broader planning, our overview of trusts in Australia is a helpful primer.
3) SMSF Benefit Payments In Specie
SMSFs sometimes pay benefits in specie (for example, listed shares or business real property) to a member who has satisfied a condition of release. This can avoid forced sales and keep investment exposure with the member personally. SMSFs are tightly regulated on valuation, member entitlements and asset transfer rules, so get specialist super and tax advice before proceeding.
4) Company Dividends In Specie
Instead of a cash dividend, a company can distribute non‑cash assets to shareholders if permitted by its constitution and the Corporations Act (including the dividend and solvency rules). For example, a company may distribute shares it holds in another company or transfer IP to owners as part of a restructure. Directors should carefully consider duties, fairness across classes of shares, and that any required approvals and resolutions are properly documented.
5) Internal Restructures
Groups sometimes use in‑specie transfers to move assets between related entities (for example, transferring IP from an operating company to a holding company). Even within a group, you’ll still need to consider documentation, valuation and duty - and whether an assignment of contracts or other third‑party consents are required for assets tied to customer or supplier agreements.
Key Legal Steps And Documents
In‑specie transfers work best when the paperwork is clear, the valuation is current and your governing documents allow the distribution. Here’s a practical checklist to keep you on track.
1) Confirm The Power To Distribute In Specie
- Companies: Check your Company Constitution to ensure non‑cash dividends or distributions are permitted and understand any process it sets out (board approvals, classes of shares, etc.).
- Trusts: Read the trust deed to confirm in‑specie distributions are allowed and whether there are conditions (such as equal value across beneficiaries). If needed, consider a deed of variation or fresh deed. Our explainer on what a deed is can help you understand how these variations are made.
2) Identify Consents And Third‑Party Requirements
Some assets can’t simply be handed over - they come with contracts, licences or third‑party rights attached. Common examples include leases, finance agreements, and customer or supplier contracts.
- Leases: Commercial tenancies typically require landlord consent to an assignment. If you’re transferring a lease, you’ll usually use a Deed of Assignment of Lease and comply with any conditions in the lease.
- Contracts and IP: Where rights and obligations are tied to contracts or registered IP, an assignment or novation may be needed. Our guide to assignment of contracts covers the basics.
- Shares: Transferring shares in a private company will require the right forms, approvals and updates to the register. See this overview of transferring shares in a private company.
3) Obtain A Defensible Valuation
Because tax rules often treat an in‑specie transfer as if the asset was sold at market value, you’ll usually need an up‑to‑date valuation. For property and significant business assets, it’s wise to use an independent valuer and keep the valuation report with your records.
4) Pass Resolutions And Record Decisions
Companies will generally need board resolutions (and sometimes shareholder approvals) to authorise an in‑specie dividend or distribution. Trustees should document their decision and basis for allocation between beneficiaries. Using a clear format - such as a directors’ minute or a Directors Resolution - helps avoid confusion later.
5) Use The Right Transfer Documents
Depending on the asset, you may need different documents to effect legal title:
- Transfer of land and duty paperwork for real property.
- Securities or unit transfer forms for shares and units.
- Deeds (for example, a deed of distribution or assignment) when transferring contractual rights, IP or leases - see our outline of how deeds work in Australia.
- Updated registers and statutory records where required (for example, company share registers).
6) Consider Corporate Filings (If Company Details Change)
An in‑specie dividend itself doesn’t usually require a company details filing. However, where the transaction also changes recorded company particulars (for example, share structure or officeholder details as part of a broader restructure), a lodgement may be needed. This is typically handled using the relevant ASIC forms - our plain‑English guide to ASIC Form 484 explains when it’s required.
Tax And Duty Implications To Keep In Mind
While transferring an asset instead of selling it can be commercially attractive, most in‑specie transfers still have tax and duty consequences. Get personalised tax advice before you proceed. Here are the big issues to discuss with your accountant or tax adviser.
Capital Gains Tax (CGT)
In many cases, the entity making the in‑specie distribution is treated as if it disposed of the asset at market value at the time of transfer.
- Trusts and SMSFs: A CGT event may be triggered if market value exceeds cost base. The fund or trust may have discounts or concessions available depending on the asset and holding period.
- Companies: A transfer of a non‑cash asset by way of dividend can give rise to CGT (and the dividend may have franking and income tax implications for shareholders).
- Recipient: The recipient usually takes the asset with a cost base equal to market value on the transfer date for future CGT purposes.
Accurate, supportable valuations are essential to manage CGT risk and keep the ATO satisfied that market value has been properly determined.
Stamp Duty (State And Territory Duties)
Most real property transfers attract duty, and duty can also apply to certain business asset transfers (depending on the state or territory). Duty can be a significant cost and is often overlooked when people assume “no cash changes hands, so there’s no tax”. Plan for duty early if land or dutiable assets are involved.
GST Considerations
Some in‑specie transfers may be a taxable supply for GST. If the asset transfer forms part of a supply of a going concern, or involves trading stock, different rules may apply. Discuss GST treatment upfront so there are no surprises in your BAS.
Income Tax And Dividend Rules
For companies, the decision to pay a dividend in specie should be tested against profits, franking and solvency requirements. Document why the dividend can be paid, how it’s valued and any franking attached. Share classes should be treated fairly in line with your constitution and any Shareholders Agreement arrangements.
Common Pitfalls (And How To Avoid Them)
A careful process and clear paperwork will minimise risk. Watch for these traps.
1) Governing Documents Don’t Permit It
If your constitution or trust deed doesn’t allow in‑specie distributions (or sets conditions you haven’t met), the transfer can be invalid or disputed. Confirm the power first and, if needed, update the governing document by deed before you proceed.
2) Valuation Gaps Or Out‑Of‑Date Numbers
Undervaluing or overvaluing assets can cause tax exposure or disputes among beneficiaries or shareholders. Use qualified valuers for key assets and keep a written valuation on file at the date of transfer.
3) Missing Third‑Party Consents
Leases, finance agreements, contracts and licences often include restrictions on assignment. If you transfer an asset without required consent, you could breach the agreement. For leases, follow the process using a Deed of Assignment of Lease and obtain written landlord consent. For contracts, consider an assignment or novation supported by the counterparty’s approval.
4) Assuming “No Cash = No Tax Or Duty”
In‑specie is not a tax‑free magic trick - many transfers are treated just like a market‑value sale for CGT and duty. Budget for these costs and timing, and take advice early.
5) Light Documentation
If the transfer terms, valuation and approvals aren’t clearly recorded, it’s harder to prove what was agreed or why distributions were fair. Keep a full pack: resolutions, valuation report, transfer documents, evidence of consents and updated registers.
6) Overlooking Operational Transition
Transferring the asset is only part of the job. Think through operational handover - for example, changing insurance, utilities, licences, website domains and access rights, and updating any assigned customer or supplier agreements so the business can keep running smoothly.
Key Takeaways
- An in‑specie distribution transfers the asset itself (property, shares, IP or other assets) instead of selling it and paying out cash.
- It’s commonly used when winding up a trust or company, paying SMSF benefits, executing internal restructures, or making non‑cash dividends.
- Check your governing documents first - your Company Constitution or trust deed must permit in‑specie distributions, and you’ll need the right approvals and resolutions.
- Expect tax and duty implications: most in‑specie transfers are treated as market‑value disposals for CGT, and state duty can apply, especially to real property.
- Paperwork matters: obtain a defensible valuation, prepare the correct deeds and transfer forms, secure third‑party consents, and keep clear board or trustee minutes (consider using a Directors Resolution template where appropriate).
- Plan for practical handover too - leases, contracts, licences and IP often require an assignment or novation, for which our guide to assignment of contracts is a useful starting point.
- Get professional advice early: legal support keeps the process compliant and fair, and tax advice ensures you understand CGT, duty and GST outcomes before you act.
If you’d like a consultation on handling an in‑specie distribution for your business, trust, SMSF or company, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
