ATO Interpretative Decision

ATO ID 2003/505

Income Tax

CGT small business retirement exemption: sale proceeds credited to a superannuation fund - Part IVA
  • This document has changed over time. View its history.

Status of this decision: Current
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is an arrangement, where a taxpayer disposes of a property to a superannuation fund and directs that the sale proceeds be credited to the taxpayer's members account with that fund, a 'scheme' to which Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies?

Decision

No. The arrangement is not a 'scheme' to which Part IVA of the ITAA 1936 applies.

Facts

The taxpayer purchased a commercial property in 1987.

A company, of which the taxpayer is the sole shareholder and director, operates a business from the property. The taxpayer leased the property to the company under a formal lease.

During the year ended 30 June 2003, the taxpayer disposed of the property under a contract for sale for its market value to a superannuation fund and made a capital gain. The applicable stamp duty was duly paid. The taxpayer and the taxpayer's spouse are the only members of the fund.

The parties agreed that the proceeds of the sale be credited to the taxpayer's members account in the fund and treated as an undeducted contribution. The main reason for transferring the asset to the superannuation fund was for asset protection.

The taxpayer chose to disregard the capital gain under the small business retirement exemption in subsection 152-305(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Reasons for Decision

Part IVA of the ITAA 1936 contains general anti-avoidance provisions designed to prevent the avoidance of tax.

Part IVA of the ITAA 1936 applies where a scheme or any part of the scheme has been entered into or carried out in a particular way to obtain a tax benefit in connection with the scheme, having regard to the factors set out in subsection 177D(2) of the ITAA 1936.

The arrangement in this case is a bona fide disposal of an asset (land) by the taxpayer to a superannuation fund in which the taxpayer and their spouse are the only members. As a result, the taxpayer made a capital gain and sought to choose the small business retirement exemption in subsection 152-305(1) of the ITAA 1997.

For CGT events that occur in the 2006/07 and later income years, the retirement exemption is available where a capital gain is made on the disposal of an active asset and the conditions in section 152-305 of the ITAA 1997 are satisfied.

In this case, the taxpayer has directed that the sale proceeds be credited to his account in the superannuation fund and a taxpayer is taken to have received money or other property if it has been applied for their benefit or as they direct (subsection 103-10(1) of the ITAA 1997). The taxpayer is therefore able to choose the retirement exemption if the other conditions are satisfied.

In these circumstances, it is considered that there is no basis for concluding that the taxpayer entered into a scheme for the purpose of obtaining a tax benefit. The taxpayer disposed of the asset to the superannuation fund for reasons of asset protection. It was also more efficient to direct the proceeds into the superannuation fund rather than have funds change hands as it reduced bank fees and handling.

Accordingly, the arrangement is not a scheme to which Part IVA of the ITAA 1936 applies.

Note: Taxpayers who are contemplating disposing of an asset to an SMSF of which they are a member, should consider whether the tax and regulatory issues noted in TA 2015/1 have application.

Note: The ATO ID has been amended to remove the reference to subsection 152-310(3) of the ITAA 1997 as it has been repealed by Tax Laws Amendment (2006 Measures No 7) Act 2007. For CGT events happening prior to the 2006/07 income years, a taxpayer needed to receive actual capital proceeds from a CGT event to qualify for the retirement exemption.

Amendment History

Date of Amendment Part Comment
7 August 2018 Reasons for Decision Note added referring to TA 2015/1
28 August 2015 Reasons for Decision Updated reference to from paragraph 177D(b) to subsection 177D(2) of the ITAA 1936.
Note Updated to describe the effect of the changes to the legislation.
Legislative references Updated paragraph 177D(b) to subsection 177D(2).
Related ATO ID Removed ATO ID 2003/454 as this was withdrawn on the 19 August 2005.

Date of decision:  21 May 2003

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   Part IVA
   paragraph 177D(2)

Income Tax Assessment Act 1997
   subsection 103-10(1)
   subsection 152-305(1)
   subsection 152-310(3)

Related Public Rulings (including Determinations)
Taxation Determination TD 95/4

Keywords
Capital gains tax
CGT capital proceeds
CGT capital proceeds modification market value substitution rule
CGT small business relief
Part IVA
Small business retirement exemption

Siebel/TDMS Reference Number:  3515294; 1-5CELDUQ; 1-F5R2EWD

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  4 July 2003
Date reviewed:  20 June 2018

ISSN: 1445-2782

history
  Date: Version:
  21 May 2003 Original statement
  28 August 2015 Updated statement
You are here 7 August 2018 Updated statement