1013067024627 | Legal database

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Edited version of your written advice

Authorisation Number: 1013067024627

Date of advice: 19 August 2016

Ruling

Subject: Capital gains tax: In-specie transfer of asset to self-managed superannuation fund

Question 1

Is the in-specie transfer of an asset from a Unit Trust to a self-managed superfund (SMSF) on behalf of individual, a non-concessional contribution within the meaning of section 292-90 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2017

The scheme commences on:

20XX

Relevant facts and circumstances

The Trustee for the Unit Trust purchased the property a number of years ago.

The property was rented to a related entity, for a period on an arms-length basis.

You have sought advice and received confirmation that the property is 'business real property'.

The property was rented to an unrelated business from 20YY to the present date.

The Directors of the Trustee are Individual A and Individual B who are equal 50% shareholders.

Individual A and Individual B are the sole members and Trustees of the Family Superannuation Fund (SMSF).

The Trustee of the Unit Trust will make an in-specie transfer of the property to the SMSF in equal 50% shares for Individual A and Individual B.

The 100% unit holder of the Unit Trust is the Family Trust (the Family Trust). The beneficiaries of the Family Trust are Individual A and Individual B.

The Unit Trust will have a capital gains tax (CGT) event upon the transfer of the property and cannot claim a deduction for the transfer.

Relevant legislative provisions

Section 285-5 of the Income Tax Assessment Act 1997

Section 292-90 of the Income Tax Assessment Act 1997

Section 116-30 of the Income Tax Assessment Act 1997

Reasons for decision

Summary

The in-specie contribution of the property to the SMSF is a non-concessional contribution pursuant to section 292-90 of the ITAA 1997.

The market value substitution rule in section 116-30 of the ITAA 1997 will deem you to have received capital proceeds equal to the market value of the in-specie transfer of the property to the SMSF. The market value is also the contribution amount to the SMSF.

Detailed reasoning

Can a Transfer of Property be a Contribution?

The term 'contribution' is not defined in the ITAA 1997. Taxation Ruling TR 2010/1 sets out the Commissioner's view on the ordinary meaning of contribution, how a contribution can be made and when contributions are made for the purposes of the ITAA 1997. Under section 285-5 of the ITAA 1997, a transfer of property can be a contribution. Such a contribution is called an in-specie contribution.

Paragraph 20 of TR 2010/1 states:

A contribution by way of a transfer of an asset will be made when the superannuation provider obtains ownership of the asset from the contributor. The Commissioner accepts the superannuation provider obtains ownership of an asset when beneficial ownership of the asset is acquired and that beneficial ownership can be acquired earlier than legal ownership.

Contributions made to a fund for or by a person may be included in the person's concessional contributions or non-concessional contributions. There are also situations where the contributions may not be included in the person's concessional contributions or non-concessional contributions.

Concessional and Non-Concessional Contributions

Concessional contributions are contributions made into your SMSF that are included in the SMSF's assessable income. These contributions are taxed in your SMSF at a 'concessional' rate of 15%.

Non-concessional contributions are contributions made into your SMSF that are not included in the SMSF's assessable income. The most common type is personal contributions made by the member for which no income tax deduction is claimed.

Pursuant to section 291-25 of the ITAA 1997, the amount of concessional contributions for a financial year is the sum of each contribution covered under subsection 291-25(2) of the ITAA 1997; and each amount covered under subsection 291-25(3) of the ITAA 1997.

Pursuant to subsection 292-90(1) of the ITAA 1997, the amount of non-concessional contributions for a financial year is the sum of each contribution covered by subsection 292-90(2) of the ITAA 1997; each amount covered by subsection 292-90(4) of the ITAA 1997; and the amount of an individual taxpayer's excess concessional contributions (if any) for the financial year.

An amount is covered under this subsection if it is any of the following:

(a) An amount in a complying superannuation plan that is allocated by the superannuation provider in relation to that plan for you for the year in accordance with the conditions specified in the regulations;

(b) The amount of any contribution made to that plan in respect of you in the year that is covered by a valid and acknowledged notice under section 290-170, to the extent that it is not allowable as a deduction for the person making the contribution;

(c) The sum of each contribution made to that plan in respect of you at a time on or after 10 May 2006 when that plan was not a complying superannuation plan (other than a contribution covered under this paragraph in relation to a previous financial year).

An amount that is not an assessable contribution under Subdivision 295-C of the ITAA 1997 and is allocated under Division 7.2 of the Superannuation Industry (Supervision) Regulations 1994 is to be treated as having been allocated for the purposes of subsection 292-90(4) of the ITAA 1997.

Will the Contribution be a Non-Concessional Contribution?

Generally, where the property is transferred by the Unit Trust to the SMSF as an in-specie contribution on behalf of Individual A and Individual B, then it would be treated as a contribution from the Unit Trust not a contribution from Individual A and Individual B and would, therefore, be a concessional contribution as section 295-160 would categorise it as a third party contribution made on behalf of someone else.

In this case, however, it is necessary to consider the distinction between contributions made by third party contributors:

• on their own initiative or obligation, for the benefit of a member - these are other family and friends contributions

• under the member's direction or instruction dealing with monies the member would otherwise have been personally entitled to - these are personal contributions.

Individual A and Individual B are the Directors of the Corporate Trustee of Unit Trust; they are also the beneficiaries of the Family Trust that owns 100% of the units in the Unit Trust. Therefore, it is a logical construct that the transfer of the property is undertaken at Individual A and Individual B's direction, dealing with property they would otherwise have been entitled to.

Therefore, the in-specie contribution of the property is a non-deductible personal contribution and as such it is not included in the assessable income of the SMSF. Therefore, it is a non-concessional contribution per section 292-90 of the ITAA 1997.

ATO view documents

TR 2010/1

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