Edited version of administratively binding advice

Authorisation Number: 1012558835393

Ruling

Subject: Non concessional contributions cap- CGT small business concessions

Questions

1. Is the disposal of your interest in the property that you acquired prior to 20 September 1985 a capital gains tax (CGT) event that meets the requirements of paragraph 292-100(2)(a) of the Income Tax Assessment Act 1997 (ITAA 1997)?

2. Is the disposal of your interest in the property that you acquired following the death of your spouse a CGT event that meets the requirements of paragraph 292-100(2)(a) of the ITAA 1997?

3. Will a contribution covered under section 292-100 (certain CGT-related payments), to the extent that it does not exceed your CGT cap amount when it is made, be excluded from being counted as non-concessional contributions for a financial year under section 292-90 of the ITAA 1997?

Answers

1. Yes.

2. Yes.

3. Yes.

Relevant facts

You are currently aged over 65.

You acquired a rural property on two adjoining titles (jointly referred to as the property) prior to 20 September 1985 as joint tenants with your late spouse.

The land on one title consisted of an area of irrigated land and the other consisted of an area of farming land with the family home.

You and your spouse commenced an agricultural business on the property in partnership when you acquired the property. You each had an equal interest in the partnership.

Your spouse passed away a few years ago and ownership of the property reverted to you as sole owner at this time.

Your spouse was over age 65 at the time of their death.

The partnership was a small business entity at the time of your spouse's death.

Your spouse did not carry on any other business other than in the agricultural partnership with you.

Following the death of your spouse, you continued to operate the agricultural business as a sole trader.

You are a small business entity.

The property was sold during the 2013-14 income year. You were over 55 years of age at this time.

The sale date of the property was the effective date of your retirement. All machinery, stock and plant were disposed of in the period leading up to the settlement of the property.

The capital proceeds from the sale of the property exceed the cost base.

You propose to contribute part of the proceeds from the sale of the property to superannuation utilising the Lifetime CGT cap provision.

You advised that although aged over 65, you qualify to make superannuation contributions as you meet the work test.

Relevant legislative provisions

Income Tax Assessment Act 1997 Paragraph 104-10(5)(a)

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 128-50

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Section 152-105

Income Tax Assessment Act 1997 Section 152-80

Income Tax Assessment Act 1997 Section 292-100

Income Tax Assessment Act 1997 section 285-5

Income Tax Assessment Act 1997 Division 292,

Income Tax Assessment Act 1997 paragraph 292-90(1)(a),

Income Tax Assessment Act 1997 subparagraph 292-90(2)(c)(iii),

Income Tax Assessment Act 1997 section 292-100,

Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 4.

Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 5

Reasons for decision

Summary

The amount representing the CGT related amount, in relation to the proposed contribution to a complying superannuation fund and to the extent it does not exceed your CGT cap amount, will not be counted towards your non-concessional contributions cap for the 2013-14 financial year.

Detailed reasoning

In order for a contribution made to a complying superannuation fund to be excluded from the amount of your non-concessional contributions, it must be equal to all or part of the capital proceeds from a CGT event for which you can disregard the capital gain under the small business 15 year exemption, or would have been able to disregard if the asset was not a pre-CGT asset (subsection 292-100(2) and subsection 292-100(5) of the ITAA 1997).

In this case, you had two separate interests in the property; the portion originally acquired prior to 1985 and the portion acquired following the death of your spouse. These two interests need to be considered separately.

Portion acquired prior to 1985

Generally, any capital gain made on the disposal of an asset that was acquired prior to 20 September 1985 is disregarded under paragraph 104-10(5)(a) of the ITAA 1997 and the small business concessions do not apply. However, subsection 292-100(5) of the ITAA 1997 operates to treat a pre-CGT asset as a post-CGT asset for the purposes of determining if the requirements of subsection 292-100(2) of the ITAA 1997 have been met.

The basic conditions for the small business CGT concessions are outlined in subsection 152-10(1) of the ITAA 1997:

(a) a CGT event happens in relation to an asset that the taxpayer owns

(b) the event would have, apart from the application of the small business concessions, resulted in a capital gain

(c) one or more of the following applies

(i) the taxpayer satisfies the maximum net asset value test

(ii) the taxpayer is a "small business entity" for the financial year

(iii) the asset is an interest in an asset of a partnership which is a small business entity for the financial year, and the taxpayer is a partner in that partnership, or

(iv) the special conditions for passively held assets in sub-sections 152-10(1A) or 152-10(1B) are satisfied in relation to the CGT asset in the financial year and

(d) the asset satisfies the active asset test.

To qualify for the 15 year exemption under section 152-105 of the ITAA 1997, the following conditions must be met in addition to the basic conditions:

· you continuously owned the CGT asset for the 15 year period ending just before the CGT event happened and

· you were:

- at least 55 years old at that time and the event happened in connection with your retirement; or

- permanently incapacitated at that time.

The disposal of your interest in the property that you acquired prior to 1985 would qualify for the 15 year exemption if it had been acquired after 20 September 1985 due to the following:

· a CGT event occurred in relation to an asset you owned

· the event would have resulted in a capital gain

· you are a small business entity

· the asset was an active asset as it was used in a business of yours for the entire period of ownership (both in partnership and as a sole trader)

· you owned the asset for a period of more than 15 years; and

· you were over the age of 55 at the time of the event and the event occurred in connection with your retirement.

Accordingly, the disposal of your interest in the property that you acquired prior to 20 September 1985 is a CGT event that meets the requirements of paragraph 292-100(2)(a) of ITAA 1997.

Portion acquired in 2012

For CGT purposes, if you are a joint tenant you are treated as if you are a tenant in common owning equal shares in the asset (section 108-5 of the ITAA 1997). However, if you are a joint tenant and another joint tenant dies, on that date their interest in the asset is taken to pass in equal shares to you and any other surviving joint tenants, as if their interest is an asset of their estate and you are beneficiaries (section 128-50 of the ITAA 1997).

Accordingly, you are deemed to have acquired the remaining portion of the property on the date of your spouse's death.

Section 152-80 of the ITAA 1997 allows either the legal personal representative of an estate or the beneficiary to apply the small business CGT concessions in respect of the sale of the deceased's asset in certain circumstances.

Specifically, the following conditions must be met:

· the asset devolves to the legal personal representative or passes to a beneficiary

· the deceased would have been able to apply the small business concessions themselves if they had disposed of the asset immediately prior to their death, and

· a CGT event happens within two years of the deceased's death unless the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997.

The 15 year exemption can also be chosen if the deceased had met the requirements, except that it is not necessary for the CGT event to have happened in relation to the retirement of the individual.

In this case, section 128-50 of the ITAA 1997 treats you as having acquired the remaining portion of the property as a beneficiary of your late spouse's estate. You disposed of the property within two years of your spouse's death. Accordingly, you would be entitled to apply the small business concessions to the resulting capital gain to the same extent your spouse would have been able to had they disposed of the property immediately prior to their death.

Had your spouse disposed of the property immediately prior to their death, they would have qualified for the 15 year exemption if it had been acquired by them after 20 September 1985 due to the following:

· the event would have resulted in a capital gain

· the asset was an interest in an asset of a partnership which was a small business entity for that financial year, and your spouse was a partner in that partnership

· the asset was an active asset as it was used in a business operated by your spouse for the entire period of ownership (in partnership)

· your spouse owned the asset for a period of more than 15 years; and

· your spouse would have been over the age of 55 at the time of the event.

Accordingly, the disposal of your interest in the property that you acquired in 2012 is a CGT event that meets the requirements of paragraph 292-100(2)(a) of ITAA 1997.

Non-concessional contributions and CGT related amounts

Division 292 of the ITAA 1997 limits the superannuation contributions made in a financial year for a person that receive concessionally taxed treatment.

Subdivision 292-C defines non-concessional contributions and excess non-concessional contributions, and sets liability to pay excess non-concessional contributions tax.

A person will have liability to excess non-concessional contributions tax imposed by the Superannuation (Excess Non-concessional Contributions Tax) Act 2007 (ENCCTA) if they have excess non-concessional contributions for a financial year.

A person can make non-concessional contributions to a superannuation fund for a financial year up to a particular limit. The non-concessional contributions cap is $150,000 for the 2013-14 financial year

Contributions made from certain amounts arising from the disposal of qualifying small business assets are exempt from the non-concessional caps of a person up to a lifetime limit (the CGT cap amount).

In accordance with subparagraph 292-90(2)(c)(iii) of the ITAA 1997, your non-concessional contributions for a financial year excludes a contribution covered under section 292-100 (certain CGT related payments), to the extent that it does not exceed your CGT cap amount when it is made. The CGT cap amount for the year ended 30 June 2014 is $1,315,000.

Apply the law to your circumstances

From the information provided, you propose to make a contribution from the proceeds of the sale of the asset to a complying superannuation fund (the fund) during the 2013-14 income year.

The disposal of your interest in the property that you acquired prior to 20 September 1985 is a CGT event that meets the requirements of paragraph 292-100(2)(a) of ITAA 1997.

The disposal of your interest in the property that you acquired on the death of your spouse is a CGT event that also meets the requirements of paragraph 292-100(2)(a) of ITAA 1997.

As discussed previously, subparagraph 292-90(2)(c)(iii) of the ITAA 1997 provides that a contribution covered under section 292-100, to the extent that it does not exceed your CGT cap amount, is not considered a non-concessional contribution for the financial year.

Section 292-100 of the ITAA 1997 outlines when contributions relating to some CGT small business concessions are covered.

Subsection 292-100(9) states that to make a choice for the purposes of paragraph 292-100(1)(c) to apply this section to an amount that is all or part of the contribution, you must:

(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.

Therefore on the basis of the information provided in relation to your proposed contribution to a complying superannuation fund (and where you have all of the requirements of section 292-100 of the ITAA 1997 as above), the amount of the proposed contribution (representing the CGT related amount) will be excluded as non-concessional contributions to the extent that it does not exceed your CGT cap amount (a lifetime limit) when it is made. The CGT cap amount for the year ended 30 June 2014 is $1,315,000.

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