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Edited version of your written advice
Authorisation Number: 1051340362042
Date of advice: 16 May 2018
Ruling
Subject: Superannuation contributions
Question 1
Can the in-specie transfer of business real property owned by an individual who is over 55 years of age to their SMSF and which qualifies for the CGT small business retirement exemption under section 152-305 of the Income Tax Assessment Act 1997 (ITAA 1997, be simultaneously treated as a contribution for the purposes of section 292-100 of the ITAA 1997?
Answer
Yes
Question 2
Can the in-specie transfer of business real property owned by an individual to their SMSF and which qualifies for the CGT small business 15 year exemption under section 152-105 of the ITAA 1997, be simultaneously treated as a contribution for the purposes of section 292-100 of the ITAA 1997?
Answer
Yes
This advice applies for the following period:
Income year ended 30 June 201X
The arrangement commences on:
Relevant facts and circumstances
Your client is over 55 years of age.
Your client and spouse, who is also over 55 years of age, are intending to retire.
Your client and the spouse jointly owned property (the property) which was actively used in relation to a small business which was operated by them.
Your client and spouse have a complying self-managed superannuation fund (the Fund) of which they are the only members.
The property was transferred as an in-specie contribution into the Fund at market value in the 201X-1X income year and recognised by the Fund as contributions for the members at the market value of the property
The property is all now being leased out to a third party and actively farmed by that third party.
You have stated that your client satisfies all the conditions and is eligible for:
(a) the CGT small business 15-year exemption under section 152-105 of the ITAA 1997 in relation to two parcels of the property; and
(b) the small business retirement exemption under section 152-305 of the ITAA 1997 in relation to a third parcel of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 152-105
Income Tax Assessment Act 1997 Section 152-305
Income Tax Assessment Act 1997 Section 285-5
Income Tax Assessment Act 1997 Section 292-90
Income Tax Assessment Act 1997 Section 292-100
Income Tax Assessment Act 1997 Subsection 292-100 (1)
Income Tax Assessment Act 1997 Subsection 292-100 (2)
Income Tax Assessment Act 1997 Subsection 292-100 (7)
Reasons for decision
Summary
Where an individual is able to disregard a capital gain under the CGT small business 15-year exemption in accordance with section 152-105 of the ITAA 1997, a contribution of all or part of the proceeds from the CGT event made to a complying superannuation fund can be considered under section 292-100 of the ITAA 1997. A choice can be made to apply subsection 292-100(1) to exclude all or part of the contribution from being considered a non-concessional contribution, to the extent that it does not exceed the ‘CGT cap amount’ when it is made.
Where an individual is able to disregard all or part of a capital gain under the small business retirement exemption in accordance with section 152-305 of the ITAA 1997, a contribution of all or part of the disregarded capital gain made to a complying superannuation fund can be considered under section 292-100 of the ITAA 1997. A choice can be made to apply subsection 292-100(1) to exclude all or part of the contribution from being considered a non-concessional contribution, to the extent that it does not exceed the CGT cap amount when it is made. Any amount of a contribution arising from the proceeds from a CGT event made to a complying superannuation fund that exceeds an individual’s CGT cap amount when it was made will count as a non-concessional contribution for the relevant financial year.
Detailed reasoning
In specie transfer of business real property
Section 285-5 of the ITAA 1997 provides that a superannuation contribution can be made by transferring property to the superannuation provider (an in-specie contribution) providing the payment is or includes the market value of the property, or the market value reduced by the value of any consideration given for the transfer of the property.
In your client’s case:
● you have advised that the property your client transferred to their Fund as an in-specie contribution into the Fund is used actively in a business by way of being leased out to a third party and used in a farming business. The Commissioner is satisfied that the business real property requirement has been met; and
● you have stated that the property was transferred at market value and recognised by the Fund as contributions for the members at the market value of the property.
Non-concessional contributions
As far as relevant in this case, non-concessional contributions are defined in section 292-90 of the ITAA 1997 as the sum of:
(a) each contribution covered under subsection (2); and …
With certain exceptions, a contribution is covered under subsection 290-90(2) of the ITAA 1997 if it is made in the financial year to a complying superannuation fund in respect of a person and it is not included in the assessable income of the superannuation fund.
Specifically excluded from being covered under subsection 292-90 (2) of the ITAA 1997 is a contribution covered under section 292-100 of the ITAA 1997 (certain CGT related payments) to the extent that it does not exceed the CGT cap amount when it is made.
The CGT cap is a lifetime limit which is indexed annually. The CGT cap is reduced by the amount of each contribution that a person has elected to be covered by the exemption from the non-concessional contributions cap under section 292-100 of the ITAA 1997.
To qualify for the CGT concession under subsection 292-100(1) 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.
*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.
Subsection 292-100(2) of the ITAA 1997 (15-year exemption) provides that the requirement in this subsection will be met if:
(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.
*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.
Subsection 292-100(7) of the ITAA 1997 (the retirement exemption) provides that the requirement in this subsection will be met if:
(a) the contribution is equal to all or part of the *capital gain from a *CGT event that you disregarded under subsection 152-305(1); 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 from the CGT event.
*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.
Subsection 292-100(9) of the ITAA 1997 explains that to make a choice for the purposes of paragraph 292-100(1)(c), 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.
Application to the 15-year exemption
You have stated that in relation to two parcels of land your client satisfies the necessary conditions to qualify for the CGT concession under section 152-105 of the ITAA 1997.
The requirements of subsection 292-100(2) of the ITAA 1997 (relating to the 15 year exemption) are met where the contribution is equal to all or part of the capital proceeds from a CGT event where the individual was able to disregard a capital gain under section 152-105 of the ITAA 1997, and the contribution is made on or before the later of (a) the day the individual was required to lodge their income tax return for the year in which the CGT event happened, and (b) 30 days after receipt of the capital proceeds.
As the in-specie contribution of the real property would meet the requirements in subsection 292-100(2) of the ITAA 1997, your client could choose to apply subsection 292-100(1) to the amount of the contribution to exclude it from being a non-concessional contribution, up to the individual’s CGT cap amount for the relevant year.
The choice will only be valid if it is made in accordance with subsection 292-100(9) of the ITAA 1997.
Application to the retirement exemption
You have stated that in relation to the third parcel of land, your client satisfies the necessary conditions to qualify for the CGT concession under subsection 152-305(1) of the ITAA 1997. The small business retirement exemption allows individuals the choice to disregard up to $500,000 (lifetime limit) in qualifying capital gains.
Subsection 292-100(7) of the ITAA 1997 (which relates to the retirement exemption) provides that the requirement in this subsection will be met if the contribution is equal to all or part of the capital gain disregarded (under subsection 152-305(1) of the ITAA 1997), and is made on or before the later of (a) the day the individual is required to lodge their income tax return for the year in which the CGT event happened, and (b) 30 days after receipt of the capital proceeds.
To make the choice to have subsection 292-100(1) of the ITAA 1997 apply to the contribution (or part thereof), the choice must be made in the approved form and given to the superannuation fund on or before the time the contribution is made.
As the in-specie contribution of the real property would meet the requirements in subsection 292-100(7) of the ITAA 1997, your client could choose to apply subsection 292-100(1) to an amount of the contribution that does not exceed the exempt capital gain amount, to exclude it from being a non-concessional contribution, up to the individual’s CGT cap amount for the relevant year.
The choice will only be valid if it is made in accordance with subsection 292-100(9) of the ITAA 1997.
Importantly, it is only the amount of the capital gain disregarded under the retirement exemption that is excluded from being a non-concessional contribution. Any amount of in-specie contribution that is over and above the amount of capital gain disregarded under the retirement exemption will be counted as non-concessional contributions and will be subject to your client’s non-concessional contribution cap for the relevant financial year.
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