Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of administratively binding advice

Authorisation Number: 1012437689917

Advice

Subject: Non-concessional contributions cap -CGT small business concessions

Question

Will the amount from the sale of a small business to be contributed to a complying superannuation fund be a non-concessional contribution for the relevant income year under section 292-100 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice

No, provided the contribution is made to a complying superannuation fund, the contribution is made within the specified timeframe under paragraph 292-100(2)(b) of the ITAA 1997, the contribution is made to a complying superannuation fund and your client's choice to make the contribution is in the approved form under subsection 292-100(9) and gives that form to the superannuation fund on or before the contribution is made. The contribution from the sale of the business cannot exceed $1,255,000.

This advice applies for the following period:

For the year ended 30 June 2013

The arrangement commences on:

1 July 2012

Relevant facts and circumstances

Your client had a business as a sole trader from a property, working full time, for several years.

During the relevant income year, your client was issued with a private ruling from the Australian Taxation Office (ATO) that determined your client meets all of the conditions under section 152-105 of the ITAA 1997 and the small business 15 year exemption will apply to disregard the capital gain made on the disposal of a property.

Your client presently continues to work a few half days per week. Your client intends to fully retire within the next 12 months and certainly before the end of the subsequent income year.

Your client intends to make a contribution to a superannuation fund up to the Capital Gains Tax (CGT) cap ($1,255,000 in the 2012-13 income year) in the relevant income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-105.

Income Tax Assessment Act 1997 Section 292-80

Income Tax Assessment Act 1997 Section 292-85

Income Tax Assessment Act 1997 Subsection 292-85(2).

Income Tax Assessment Act 1997 Section 292-90.

Income Tax Assessment Act 1997 Paragraph 292-90(2)(c).

Income Tax Assessment Act 1997 Section 292-100.

Income Tax Assessment Act 1997 Subsection 292-100(2).

Income Tax Assessment Act 1997 Subsection 292-100(3).

Income Tax Assessment Act 1997 Subsection 292-100(5).

Income Tax Assessment Act 1997 Subsection 292-100(9).

Reasons for decision

Summary

An amount up to $1,255,000 from the sale of a small business to be contributed to a complying superannuation fund will not be a non-concessional contribution for the relevant income year under section 292-100 of the Income Tax Assessment Act 1997 (ITAA 1997) provided all the conditions under subsection 292-100(1) have also been met.

Detailed reasoning

Non-concessional contributions

Non-concessional contributions for a financial year are defined under section 292-90 of the Income Tax Assessment Act 1997 (ITAA 1997) and include:

Non-concessional contributions made to superannuation funds are subject to an annual cap in accordance with subsection 292-85(2) of the ITAA 1997. For the 2012-13 income year, the non-concessional contributions cap is $150,000.

A person will be liable to pay excess non-concessional contributions tax at the rate of 46.5% on non-concessional contributions over the cap (sections 292-80 and 292-85 of the ITAA 1997).

Contributions in excess of the non-concessional contributions cap will be taxed at the rate of 46.5%. The member will be required to ask their superannuation fund to release an amount that is equal to the tax liability.

Some contributions are specifically excluded from being non-concessional contributions (paragraph 292-90(2)(c) of the ITAA 1997). These include:

In the present case, you are asking whether the proposed contributions to be made by your client from the amounts arising from the disposal of a CGT asset can be excluded from the non-concessional contributions cap to the extent that they do not exceed the CGT cap amount.

The CGT cap is a lifetime limit and is reduced by the amount of each contribution that an individual has elected to be covered by the exemption from the non-concessional contributions cap. As noted above, the CGT cap is indexed annually. For the 2012-13 income year the CGT cap amount is $1,255,000.

To qualify for the CGT concession under section 292-100 of the ITAA 1997 certain conditions must be met. These are:

(a) the contribution is made by you to a complying superannuation plan in respect of you in a financial year; and

(b) the requirement in subsection (2), (4), (7) or (8) is met; and

(c) you choose, in accordance with subsection (9), to apply this section to an amount that is all or part of the contribution

We will now discuss each condition:

Complying superannuation fund

The contribution must be made to a complying superannuation fund.

This condition will be met if the contribution is made to a complying superannuation fund.

Requirement under subsection 292-100(2) of the ITAA is met

The requirements under subsection 292-100(2) of the ITAA 1997 are:

(a) the contribution is equal to all or part of the capital proceeds from a CGT event for which you can disregard any capital gain under section 152-105 (or would be able to do so, assuming that a capital gain arose from the event); and

(b) the contribution is made on or before the later of the following days:

(i) the day you are required to lodge your income tax return for the income year in which the CGT event happened;

(ii) 30 days after the day you receive the capital proceeds

During the relevant income year, your client was issued with a private ruling that determined your client meets all of the conditions under section 152-105 of the ITAA 1997 and the small business 15 year exemption will apply to disregard the capital gain made on the disposal of the property.

Your client intends to make a contribution to superannuation up to the CGT cap in the relevant income year for the disposal of the property.

Your client will satisfy this condition if your client makes a contribution to a superannuation fund up to the CGT cap of $1,255,000 and makes the contribution within the specified timeframe on or before the later of the following days:

(i) the day you are required to lodge your income tax return for the income year in which the CGT event happened;

(ii) 30 days after the day you receive the capital proceeds from the CGT event.

In approved form

Under subsection 292-100(9) of the ITAA 1997, a contribution will only count towards the CGT cap if the individual makes the choice in the approved form and gives it to their superannuation fund before, or when, the contribution is made.

To make the choice for the purposes of paragraph 292-100(1)(c) of the ITAA 1997, the person must, in accordance with subsection 292-100(9) of the ITAA 1997:

(a) make the choice in the approved form; and

(b) give it to the superannuation provider in relation to the complying superannuation plan on or before the time when the contribution is made.

This condition will be met if your client makes the choice in the approved form to contribute an amount to superannuation from a disposal of property and giving it to the superannuation fund on or before the contribution is made.

Your client will be eligible to a make a contribution of up to his CGT cap for the relevant income year for disposal of a property as covered under section 292-100 (certain CGT-related payments). The CGT cap for the 2012-13 income year is $1,255,000. Therefore your client is entitled to a make a contribution of up to $1,255,000 in the 2012-13 income year and it will not be counted towards your client's non-concessional contribution cap for the relevant income year if all the following conditions under subsection 292-100(1) of the ITAA are also satisfied:

· the contribution is made to a complying superannuation fund;

· the contribution is made within the specified timeframe on or before the later of the following days:

(i) the day you are required to lodge your income tax return for the income year in which the CGT event happened;

(ii) 30 days after the day you receive the capital proceeds from the CGT event.

· your client makes the choice in the approved form under subsection 292-100(9) of the ITAA 1997 to contribute an amount to superannuation and giving it to the superannuation fund on or before the contribution is made.

Conclusion

Your client can make a contribution from the disposal of a CGT asset of up to $1,255,000 which will not count towards your client's non-concessional contributions cap for the relevant income year, provided that the contribution is made within the specified timeframes under paragraph 292-100(2)(b) of the ITAA 1997, the contribution is made to a complying superannuation fund and your client's choice to make the contribution is in the approved form under subsection 292-100(9) of the ITAA 1997 and your client gives that form to your client's superannuation fund on or before the contribution is made.

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).