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Edited version of private ruling
Authorisation Number: 1011681715234
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Ruling
Subject: Self managed superannuation fund - capital losses
Question 1
Can capital losses be distributed if a fund is wound up?
Answer
No. Capital losses are quarantined within the superannuation fund
Question 2
If the fund operated as a trust after the fund ceases to be a superannuation fund, can the capital losses be retained?
Answer
No.
This ruling applies for the following period:
1 July 2010 to 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You have taken steps to wind up your superannuation fund. Most of the benefits have already been rolled out. Your fund has capital losses.
You wish to utilise the capital losses after the fund is wound up.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 118-305.
Does Part IVA apply to this ruling?
Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.
If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.
For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.
Reasons for decision
Summary
Any capital losses from the original superannuation fund are quarantined and retained within that fund and could not be distributed or applied to a subsequent trust.
Detailed reasoning
Winding up a self managed superannuation fund
A trustee of a self managed superannuation fund must notify the ATO if you have decided to close your fund. You can do this by lodging your final income tax and regulatory return with the ATO and completing the relevant wind-up labels on the return.
You must also ensure that all assets and members have left the fund and that everything has been done in accordance with the trust deed.
Further information can be found in Running a self managed super fund your role and responsibilities as a trustee (NAT 11032-06.2010) and on our website at www.ato.gov.au.
Superannuation capital gains and capital losses
A capital gain or capital loss is triggered by a capital gains tax (CGT) event. However, section 118-305 of the Income Tax Assessment Act 1997 (ITAA 1997) advises that a capital gain or capital loss is disregarded if it is made from a CGT event happening in relation to a right to an allowance, annuity or capital amount payable out of a superannuation fund or approved deposit fund.
Therefore the capital loss you will make on the withdrawal of funds from your superannuation fund will be disregarded. You will not be entitled to claim a capital loss in the year you withdraw the funds, nor will you be entitled to carry forward the capital loss to future years.
This means that capital gains or capital losses are not able to be distributed to the members of a superannuation fund, even if it is closed down. The capital gain or capital loss is quarantined in the superannuation fund and no longer available after it has been wound up.
Any capital losses are quarantined and retained within the original superannuation fund and could not be applied to a subsequent trust.
Whilst we appreciate your circumstances however there are no provisions within the legislation that gives the Commissioner discretion to allow you to carry forward a capital loss in these circumstances.
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