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Ruling

Subject: In-specie contribution

Question

Did the Fund receive an in-specie contribution from its members in the relevant income year?

Advice/Answer

No.

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

The Fund has members (the Members) who are over their preservation age and retired with no intention to re-enter the workforce.

The Members withdrew a lump sum in the form of cash and an in-specie transfer of shares from the Fund.

The Members planned to recontribute the cash and shares to commence allocated pensions.

As you were overseas during a part of the relevant income year you advised the Fund administrator (the Administrator) to implement a recontribution strategy with pensions commencing in the relevant income year.

During the relevant income year you received information about new pension rules. As a result of the new rules you decided to commence pensions later and cash withdrawal and off market transfer forms were prepared.

You posted the forms to your broker in the relevant income year.

You contacted your broker after returning from overseas and discovered that you had not received any holding statements for the off market transfers. A broker informed you that they were unable to find any of the off market transfer forms and you were advised to send new forms as copies were unacceptable. You then sent new forms to your broker in the relevant income year.

A Chess Holding Statements shows a movement of securities due to purchase, sale or transfer dated more than a week after the start of the 2012-13 income year.

Reasons for decision

Summary of decision

In this case, fund statements show a movement of securities due to purchase, sale or transfer dated more than a week after the start of the subsequent income year.

It is clear that the in specie contribution was made in the subsequent income year. The Fund did not acquire beneficial ownership of shares in the relevant income year.

Detailed reasoning

Taxation Ruling TR 2010/1 entitled 'Income tax: superannuation contributions' (TR 2010/1) sets out the Commissioner's view on contributions made to a superannuation fund, an approved deposit fund or a retirement savings account.

Example 7 provides an example of when the Commissioner considers an in specie contribution of shares is made and states:

Example 7 - when in specie contribution of shares is made

85. On 26 June 2009, Cheung signs an off-market share transfer form to effect a contribution of shares from herself to Cho Pty Ltd, the trustee of her self-managed superannuation fund. However, Cheung leaves certain parts of the form blank for completion by her stock broker, as her shareholdings, and those of Cho Pty Ltd are broker sponsored. Cheung posts the transfer form to her broker on the same day.

86. Cheung's broker adds the omitted information on 2 July 2009 and completes the transfer through CHESS. Cho Pty Ltd is registered as a shareholder on 5 July 2009.

87. Cheung's contribution will be made on 2 July 2009 as it is not until that day that the relevant transfer has been completed to registrable form.

In relation to when a contribution of shares in a company is taken to have been made paragraphs 201 to 204 of TR 2010/1 states:

201. When a person makes a contribution of shares in a company the superannuation provider has a duty to ensure it holds proper legal title to the shares. Legal ownership of the shares is recognised when the superannuation provider's name is registered in the company's share register - section 1072F of the Corporations Act 2001. This will be the case where a contribution of shares in a publicly listed company is effected through the Clearing House Electronic Subregister System, known as CHESS.

202. As with a contribution of real property, the Commissioner accepts that a superannuation provider may acquire beneficial ownership of shares or units in an Australian Stock Exchange listed company or unit trust effected through an off-market share transfer, when the trustee obtains a properly executed off-market share transfer in registrable form.

203. Whether a contribution is made when beneficial ownership of property passes will need to be determined on a case by case basis. 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. In the absence of such evidence, the Commissioner will treat the contribution as made when the superannuation provider obtains legal ownership of the relevant property.

204. A contribution of property by way of the creation of a contractual right or other legal or equitable right in the superannuation provider will occur when the superannuation provider commences to hold that right.

From the above it is clear that contributions by way of a transfer of an asset will be made when a superannuation fund obtains ownership of the asset. For shares in a publicly listed company the legal ownership is evidenced by a system of formal registration and legal ownership will pass when the superannuation fund is registered as the owner.

In this case it is evident that the Members had planned to execute a recontribution strategy in the relevant income year whereby shares were to be transferred out of the Fund and back into the Fund prior to 30 June 20XX. However, off market transfer forms were misplaced and the transaction was not carried out as planned.

You provide that after returning from overseas and discovered that you had not received any holding statements for the off market transfers. A broker informed you that they were unable to find any of the off market transfer forms and you were advised to send new forms as copies were unacceptable. You then sent new forms to your broker in the relevant income year. However, there is insufficient evidence to show that everything that is required to be done to enable the Fund to obtain registration of the change of ownership occurred prior to 30 June 20XX.

Further, fund statements shows a movement of securities due to purchase, sale or transfer dated more than a week after the start of the subsequent income year.

It is clear that the in specie contribution was made in the subsequent income year. The Fund had not acquired beneficial ownership of shares in the relevant income year.

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