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Authorisation Number: 1011624873828

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Ruling

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

Questions

Are the personal contributions made to a complying superannuation fund arising from the disposal of a capital gains tax (CGT) asset counted towards the non-concessional contributions cap where the capital gain is to be disregarded under the small business retirement exemption (SBRE) provision of subsection 152-305(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Is there a time limit for making a personal contribution to a complying superannuation fund so that it will not be counted towards the non-concessional contributions cap where the contribution arises from the disposal of a CGT asset that is to be disregarded under the SBRE provision?

Will the Commissioner exercise a discretion to extend the time for making a personal contribution to a complying superannuation fund so that it will not be counted towards the non-concessional contributions cap?

Advice/Answers

Yes.

Yes.

No.

This ruling applies for the following period

Year ending 30 June  2011

The scheme commenced on

1 July 2009

Relevant facts and circumstances

During the 2008-09 income year your client sold a business property they owned. The property was certain land used for a primary production business. The business was conducted by a family trust of which your client was both a trustee and a beneficiary.

Early in the 2009-10 income year your client received the capital proceeds from the sale. At the time of the sale, your client was over 65 years of age.

After applying all of the basic conditions for accessing the CGT small business concessions, you were satisfied that your client was eligible to access those concessions in relation to the capital gain your client made from the sale.

You applied part of your client's capital gain as an SBRE allowed under Subdivision 152-D of the ITAA 1997 as your client did actually want to utilise their CGT retirement exemption limit by making that contribution, even though your client is not required by law to make that contribution because your client is over 55 years of age.

Your understanding was that, as your client is over 55 years of age, there is no time limit under the legislation for your client to contribute a CGT exempt amount to their superannuation fund. In spite of this, you still advised your client that they should make that contribution prior to lodgement of their income tax return.

Your client was satisfied with your advice and was willing to make that contribution but wanted a little more time to get that organised. You therefore held off lodging your client's income tax return for the 2008-2009 income year until closer to the due date for lodgement that applied to your client, which was towards the end of the 2009-10 income year. However, due to an internal error, the return was not held off but was lodged several weeks earlier than the due date of lodgment.

When you reviewed subsection 152-305(1) of the ITAA 1997, it appeared to you that the legislation was silent on the time frame for a person aged 55 or over contributing a CGT exempt amount to a complying superannuation fund under the SBRE. You contacted the Tax Office on a number of occasions to clarify but have received conflicting advice.

Your client has yet to make the contribution.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1.

Income Tax Assessment Act 1997 Section 103-25

Income Tax Assessment Act 1997 Subsection 103-25(1)

Income Tax Assessment Act 1997 Part 3-3

Income Tax Assessment Act 1997 Section 152-105

Income Tax Assessment Act 1997 Subsection 152-305(1)

Income Tax Assessment Act 1997 Part 3-30

Income Tax Assessment Act 1997 Division 292

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

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

Income Tax Assessment Act 1997 Subsections 292-100(1)

Income Tax Assessment Act 1997 Subsections 292-100(2)

Income Tax Assessment Act 1997 Subsections 292-100(4)

Income Tax Assessment Act 1997 Subsections 292-100(7)

Income Tax Assessment Act 1997 Subsections 292-100(8)

Income Tax Assessment Act 1997 Section 292-105

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

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

Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.03(1)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 5.01(1)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.01(2)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.01(3)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04(1)

Summary of decision

A contribution to a complying superannuation fund that is a CGT exempt amount under the SBRE must be made on or before the later of:

· the day your client is required to lodge an income tax return for the income year in which the CGT event happened; or

· 30 days after the day your client received the capital proceeds from the CGT event.

Where this condition is not met, the Commissioner does not have a discretion to given an extension of time.

The contribution to be made by your client arising from the disposal of the CGT asset that is to be disregarded under the SBRE provision will be counted towards your client's non-concessional contributions cap for the year in which the contribution is to be made.

Detailed Reasoning

Non-concessional contributions made to a complying superannuation fund on or after 1 July 2007 are subject to an annual cap (subsection 292-85(2) of the ITAA 1997). For the 2009-10 income year onwards the annual cap is always six times the concessional contributions cap. For the 2010-11 income year the annual cap is $150,000 ($25,000 × 6).

Non-concessional contributions include:

· personal contributions for which an income tax deduction is not claimed;

· contributions a person's spouse makes to the person's superannuation fund account (spouse contributions); and

· transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income).

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:

· a Government co-contribution;

· a contribution arising from a structured settlement or an order for personal injury;

· a contribution relating to some CGT small business concessions to the extent that it does not exceed the CGT cap amount ($1,000,000 indexed annually) when it is made (section 292-100 and section 292-105); and

· a roll-over superannuation benefit.

In the present case, you are asking whether the proposed contributions to be made by your client from amounts arising from the disposal of CGT asset that is to be disregarded under the SBRE provision under subsection 152-305(1) of the ITAA 1997 can be excluded from the non-concessional contributions cap to the extent that they do not exceed the CGT cap amount.

To qualify for the CGT concession under section 292-100 of the ITAA 1997 certain conditions must be met. These are set out under subsection 292-100(1) as follows:

A contribution is covered under this section if:

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

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

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

Subsections 292-100(2) and (7) of the ITAA 1997 deal with where the person is a small business entity. Subsections 292-100(4) and (8) deal with where the person is a CGT concession stakeholder.

In the present case, only subsections 292-100(2) and (7) of the ITAA 1997 are applicable.

Subsection 292-100(2) of the ITAA 1997 deals with the 15 year exemption available under section 152-105 and subsection 292-100(7) deals with the SBRE under section 152-305(1). Accordingly, subsection 292-100(7) is the provision applicable to your client.

The requirements under subsection 292-100(7) of the ITAA 1997 are:

· 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

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

· the day you are required to lodge your *income tax return for the income year in which the CGT event happened;

30 days after the day you receive the *capital proceeds from the CGT event.

In your client's case, the CGT event occurred during the 2008-09 income year and the capital proceeds were received early in the 2009-10 income year. You have advised that your client's 2008-09 income tax was required to be lodged towards the end of the 2009-10 income year (although, due to an internal error, it was actually lodged several weeks earlier).

Therefore, in accordance with subsection 292-100(7) of the ITAA 1997, the contribution would need to be made on or before the later of:

· towards the end of the 2009-10 income year (the date on which the 2008-09 income tax return was required to be lodged);

· towards the beginning of the second quarter of the 2009-10 income year (30 days after the date the capital proceeds were received).

As the contribution has not yet been made, the requirement under subsection 292-100(7) of the ITAA 1997 will not be met. Therefore, the contribution will count towards your client's non-concessional contributions cap for the year of income in which the contribution is made.

It should be noted that neither section 292-100 or Division 292 nor any other section of the ITAA 1997 contain a provision that allows the Commissioner the power to extend the time limit specified in subsection 292-100(7) (nor subsections 292-100(2), (4) or (8) for that matter). Consequently, the Commissioner is unable to comply with any request to grant an extension of the time limit under subsection 292-100(7).

It should be further noted that the time limits (and the further time allowed by the Commissioner) specified under subsection 103-25(1) of the ITAA 1997 are only applicable to the operation of Parts 3-1 and 3-3 of the ITAA 1997 which deal with capital gains - general topics and capital gains - special topics. The operation of Division 292 (which includes section 292-100) is contained within Part 3-30 of the ITAA 1997.

Further issues to be considered

Regulation 7.04 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) deals with when a regulated superannuation fund can accept contributions. Under item 2 of the table contained in subregulation 7.04(1), if a member of a regulated superannuation fund is 65 years of age or over but is under 70 years of age, the fund may accept:

· contributions that are made in respect of the member that are:

· mandated employer contributions; or

· if the member has been gainfully employed on at least a part-time basis during the financial year in which the contributions are made:-

· employer contributions (except mandated employer contributions); or

· member contributions; or

· payments from an FHSA of a kind mentioned in subparagraph 31(1)(b)(i) or (ii) of the FHSA Act.

In relation to the phrase 'gainfully employed on at least a part-time basis' subregulation 7.01(3) of the SISR states:

In this Part, a person is gainfully employed on a part-time basis during a financial year if the person gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in that financial year.

Subregulation 1.03(1) of the SISR defines 'gainfully employed' as:

gainfully employed means employed or self employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

Subregulation 7.01(2) of the SISR states that expressions used in Division 7 of the SISR that are defined for the purposes of Part 5 have the same meanings respectively as in that Part. Consequently, 'member contributions' is defined in subregulation 5.01(1) as:

member contribution, in relation to a member of a regulated superannuation fund, means contributions by, or on behalf of, the member to the fund, but does not include employer contributions made in respect of the member.

A contribution of a CGT exempt amount to a regulated superannuation fund, by virtue of subregulation 5.01(1) of the SISR, is a member contribution as it is a contribution by, or on behalf of, a member of the fund.

As noted in the facts, your client is over 65 years of age. Accordingly, item 2 of the table under subregulation 7.04(1) of the SISR does not allow a regulated superannuation fund to accept any member contribution by, or on behalf of, your client (whether it is a contribution of a CGT exempt amount or otherwise) unless your client has been gainfully-employed on at least a part-time basis during the financial year in which the contribution is made.

The Australian Prudential Regulation Authority (APRA) has released a series of guidance notes and circulars to provide general guidance on how APRA interprets and administers relevant legislation. In particular, in Superannuation Circular No. I.A.1, entitled 'Contribution and Benefit Accrual Standards for Regulated Superannuation Funds', it states at paragraph 22:

'Gainfully employed' means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. The concept of 'gain or reward' envisages receipt of remuneration such as salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion. (emphasis added)

From the information available to the Commissioner, it would appear that your client is not in receipt of any income from personal exertion and that the only income derived by your client is passive income. At this point it should be noted that trust distributions would not constitute income from personal exertion as your client's entitlement to the distributions arise from being a beneficiary of the trust.

Accordingly, it would appear that your client would not meet the gainful-employment requirement under the SISR to allow the superannuation fund to accept contributions from your client.