ATO Interpretative Decision

ATO ID 2004/969 (Withdrawn)

Income Tax

• This ATO ID is withdrawn because of significant changes to the law (relevant provisions in Subdivision 152-D of the Income Tax Assessment Act 1997) effective after 30 June 2007.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

If an individual chooses the retirement exemption in Subdivision 152-D of the Income Tax Assessment Act 1997 (ITAA 1997), can the rollover required under paragraph 152-305(1)(b) of the ITAA 1997 be made by transferring real property to a complying superannuation fund instead of money if the transfer satisfies the relevant provisions of the Superannuation Industry (Supervision) Act 1993 (SISA)?

Decision

Yes. If an individual chooses the retirement exemption in Subdivision 152-D of the ITAA 1997, the rollover required under paragraph 152-305(1)(b) of the ITAA 1997 can be made by transferring real property to a complying superannuation fund if the transfer satisfies the relevant provisions of the SISA.

Facts

An individual taxpayer, aged under 55, made a capital gain from the sale of an active asset. The individual is considering choosing the small business retirement exemption to disregard the capital gain.

The individual proposes to use the capital proceeds to pay out a mortgage on real property before making an in-specie transfer of the real property, instead of paying cash, to their self managed superannuation fund.

Reasons for Decision

Under subsection 152-305(1) of the ITAA 1997 an individual can choose the retirement exemption and disregard all or part of a capital gain if:

•

the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied and,

•

if the individual was under 55 just before receiving an amount of capital proceeds from the CGT event, an amount equal to the ETP referred to subsection 152-310(2) of the ITAA 1997 is rolled over into a complying superannuation fund, a complying approved deposit fund or a retirement savings account.

If an individual chooses the retirement exemption, the capital proceeds from the CGT event (to the extent of the exempt amount) are taken to be an ETP made to the individual at the later; of when they made the choice and when they received the capital proceeds (subsection 152-310(2) of the ITAA 1997).

Once a choice is made (assuming it is made after the receipt of the capital proceeds) an amount equal to the ETP must be immediately rolled over if the individual was under 55 just before receiving the capital proceeds (paragraph 152-305(1)(b) of the ITAA 1997).

To satisfy this immediate rollover requirement, the individual must pay the amount into a complying superannuation fund, complying approved deposit fund or a retirement savings account no later than the day they make the choice for the retirement exemption. Failure to do so will mean the conditions are not satisfied and the retirement exemption will not be available.

The question has arisen as to whether the rollover requirement in paragraph 152-305(1)(b) of the ITAA 1997 can be satisfied by the transfer of real property from the individual to a complying superannuation fund.

For the purposes of the ETP provisions in Subdivision AA, Division 2, Part III of the Income Tax Assessment Act 1936 (ITAA 1936), a transfer of property to, or for the benefit of, a person is deemed to be a payment to, or for the benefit of, the person of an amount equal to the value of the property immediately before the transfer (subsection 27A(8) of the ITAA 1936). In other words, there is provision to convert a transfer of property to a monetary payment.

Further, subsection 66(2) of the SISA provides an exception to the prohibition relating to the acquisition by a superannuation fund of assets from related parties where the asset is 'business real property' (as defined in subsection 66(5) of the SISA) and other conditions are satisfied.

Accordingly, it is considered that a transfer of real property to a complying superannuation fund can satisfy the paragraph 152-305(1)(b) of the ITAA 1997 requirement to rollover an amount if the transfer of the real property satisfies the relevant provisions of the SISA.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   Subdivision AA
   subsection 27A(8)

Keywords
Basic conditions for relief
Capital gains tax
CGT capital proceeds
CGT choice
CGT retirement exemption
CGT small business relief
Complying superannuation fund
Eligible termination payments
ETP rollover
Self managed superannuation fund
SMSF investments
SMSF acquisition of assets
SMSF business real property

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  17 December 2004

ISSN: 1445-2782