Edited version of private ruling

Authorisation Number: 1011471348032

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: CGT - share transfer

Question

Did the CGT even E2 happen in respect to the transfer of shares to your Self Managed Super Fund on date X?

Answer

Yes.

This ruling applies for the following period

1 July 2005 to 30 June 2007

Relevant facts and circumstances

On the relevant date you told your company bookkeeper and personal assistant to transfer shares from your company to you and your spouse.

A few months later the transfer of the legal interest in most of the shares from your company to you and your spouse had been effected.

Later that month and the following month the remaining shares were transferred from the company to you and your spouse.

After this you advised your accountant of dividend payments you and your spouse received in which you retained personally and did not contribute to your superannuation fund.

Statements showing a "Movement of Securities due to Purchase, Sale or Transfer" were issued showing the shares were transfer on date X from you to your Self Managed Superannuation fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-60.

Income Tax Assessment Act 1997 Section 104-60(2)

Income Tax Assessment Act 1997 Section 104-60(5)(a)

Reasons for decision

A capital gains tax (CGT) event E2 happens if you transfer a CGT asset to an existing trust. Under subsection 104-60(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the time of the event is when the asset is transferred.

Your self managed super fund (SMSF) is a trust, under subsection 104-60(5)(a), a CGT E2 event does not happen if you are the sole beneficiary of the trust and:

(a) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability)

We have reviewed the evidence you provided in support of your position that the CGT event E2 took place on the intended date of transfer of the shares to your SMSF. Alternatively, you submit that once the remaing shares were transferred you and your spouse personally had beneficial ownership of all the shares and therefore so did your SMSF.

As per Taxation Ruling TR 2004/D25, paragraph 139:

We take the view that the legislative scheme that regulates the taxation of superannuation funds, the payment of benefits by those funds and the taxation of those benefits is a complete code in respect of those matters. This does not mean that the CGT provisions cannot apply if a CGT event happens to an asset of a superannuation fund. It simply means that the CGT concept about the entitlement of a beneficiary to trust assets does not apply. Therefore, a member of a superannuation fund is not treated as if they are absolutely entitled for CGT purposes to the assets of the fund or to assets held in the member's account. We take this view regardless of whether the member has met a condition of release for the payment of benefits under the Superannuation Industry (Supervision) Regulations 1994.

Therefore, once you have placed the asset into the superannuation fund, you have given up your claim to that asset until the fund ceases to function. This argument is backed up by a statement made by O'Loughlin J in Re CORAM: Ex parte Official Trustee in Bankruptcy v Inglis and Others (1992) 36 FCR 251 (Coram). In this case, he stated:

Until the happening of a prescribed event that will crystallise his right into an actual entitlement, a member of a superannuation fund is neither the legal nor the beneficial owner of the amount that stands to the credit of his account from time to time.

Taxation Ruling TR 2010/1, paragraph 24 states:

A superannuation provider acquires beneficial ownership of shares or units in an Australian Stock Exchange listed company or unit trust when the provider obtains a properly executed off-market share transfer in registrable form.

Your evidence, share holding statements, shows that your shares were not received in a properly executed off-market share transfers in a registrable form until date X.

Further to TR 2010/1, in paragraph 25 it states:

A contributor or superannuation provider who seeks to argue that a contribution of property is made when beneficial, not legal, ownership of the property passes must retain sufficient evidence of the relevant transactions and events to precisely identify when the change of beneficial ownership occurs.

The evidence should show when everything that is required to be done to enable the superannuation provider to obtain registration of the change of ownership occurs. Such evidence would include relevant minutes of any trustee meeting held to consider the acceptance of the in specie contribution, the relevant transfer forms, and any other record of when the relevant transfer took place.

Your evidence does not reflect a transfer of ownership of the shares to the fund until date X. Further more; on or around two months prior to this you notified your accountant that you and your spouse had received dividend payments, which you retained personally and did not contributed to your SMSF. This in itself shows that because you and your spouse received and retained the dividend payments there was no change of beneficial ownership of the shares.

Therefore, the CGT event E2 happened on date X.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).