Edited version of private ruling

Authorisation Number: 1011695180601

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Ruling

Subject: CGT - retirement exemption

Question 1

Would the proposed in specie transfer of the property to the fund satisfy the requirement under paragraph 152-305(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) that the taxpayer "contribute an amount" into superannuation?

Answer

Yes, provided the transfer satisfies the relevant provisions of the Superannuation Industry (Supervision) Act 1993 (SISA).

Question 2

Would the proposed in specie transfer of the property to the fund satisfy the requirement under paragraph 152-305(1)(c) of the ITAA 1997 relating to the timing of the contribution required?

Answer

Yes, provided a choice is made by the day the taxpayer lodges his tax return for the relevant income year and a record specifying the CGT exempt amount is retained.

This ruling applies for the following period:

1 July 2010 - 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The taxpayer owns one half of a farming property as a tenant-in-common. They have owned it for more than 12 months.

The property is used wholly in a primary production business that is carried on by a connected entity of the taxpayer.

The taxpayer wishes to make an in specie contribution of the property to their self managed superannuation fund (fund), which is a complying superannuation fund. The property may be acquired by the trustee of the fund pursuant to s 66(2)(b) of the SISA because it is "business real property" as defined in s 66(5) of the SISA and it will be acquired at market value.

The transfer of the property will give rise to a capital gain for the taxpayer. However, because the property is to be contributed to the fund as a gift, the taxpayer will not receive any proceeds.

The basic conditions in subdivision 152-A of the ITAA 1997 will be satisfied when the property is transferred to the fund.

The taxpayer proposes to disregard the remaining capital gain (after the 50% discount is applied in accordance with division 115 of the ITAA 1997) using the retirement exemption under division 152 of the ITAA 1997. The remaining capital gain will be less than his life time CGT retirement exemption limit of $500,000.

The taxpayer will be aged under 55 years when the property is transferred.

It is proposed that the property will be contributed to the fund in a single transfer of the title and in accordance with the following limits:

· the part of the property equal to the amount the taxpayer chooses to disregard under the retirement exemption (the CGT exempt amount) will count towards the taxpayer's lifetime $1,155,000 contributions cap; and

· the remaining part of the property will count towards the taxpayer's non concessional and concessional contribution caps.

It is proposed that the contribution that is required to be made under s 152-305(1)(b) of the ITAA 1997 in order to be eligible for the retirement exemption would be the transfer of the property itself (i.e. the part of the property described in point 8a above).

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

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

Income Tax Assessment Act 1997 Paragraph 152-305(1)(b)

Superannuation Industry (Supervision) Act 1993 Section 66

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Question 1

Under subsection 152-305(1) of the ITAA 1997 an individual can choose the retirement exemption and disregard all or part of a capital gain if:

· the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied; and

· if the individual was under 55 just before they made the choice - they contribute an amount equal to the asset's CGT exempt amount to a complying superannuation fund or an RSA.

The question arises as to whether the requirement in paragraph 152-305(1)(b) of the ITAA 1997 can be satisfied by the transfer of real property from the individual to a complying superannuation fund.

Generally speaking, a superannuation contribution can be made in a number of ways including by transferring an asset to the superannuation provider (an in specie contribution: refer section 285-5 of the ITAA 1997, and paragraphs 4, 10, 18-25, and 151 of Taxation Ruling TR 2010/1).

A superannuation provider may breach section 66 of the SISA when an asset is acquired from a related party of the fund, such as a member (refer SMSFR 2010/1). Subsection 66(2) of the SISA does however provide an exception to the prohibition relating to the acquisition by a superannuation fund of assets from related parties where the asset is 'business real property' (as defined in subsection 66(5) of the SISA) and other conditions are satisfied.

As a result, the transfer of the ownership interest in the property by the taxpayer to a complying superannuation fund would satisfy the requirement in paragraph 152-305(1)(b) of the ITAA 1997 to contribute an amount if the transfer of the property satisfies the relevant provisions of the SISA.

Question 2

Section 152-305 of the ITAA 1997 sets out conditions for choosing the retirement exemption.

Subparagraph 152-305(1)(c)(ii) of the ITAA 1997 sets out that the contribution (an amount equal to the assets CGT exempt amount) is required to be paid into the complying superannuation fund at the later of when you make the choice and when you receive the proceeds.

Subsection 103-25(1) of the ITAA 1997 states that choices you can make under Part 3-1 or Part 3-3 of the ITAA 1997 must be made by the day you lodge your income tax return for the income year in which the relevant CGT event happened, or within a further time allowed by the Commissioner. Under subsection 103-25(2) of the ITAA 1997, the way in which you prepare your income tax return is sufficient evidence of the making of the choice.

Section 103-25 does not restrict the making of any such choice to the lodgement of the return itself. The relevant choice may be made at any time prior to the lodgement of the return, provided it is made by the day of lodgement of the return. A contribution to a complying superannuation fund could itself be evidence of a choice to apply the small business retirement exemption under subsection 152-305(1) of the ITAA 1997.

In the taxpayer's situation, no proceeds will be received as the asset will be gifted. The relevant events in the taxpayer's situation will occur in the following order:

1. The CGT event occurs and (at the same time) a contribution is made into superannuation.

2. The choice to apply the retirement exemption is made.

So long as the choice in step 2 is made by the day the taxpayer lodges his tax return for the relevant income year and a written record is kept of the CGT exempt amount, the taxpayer will meet the condition under paragraph 152-305(1)(c) of the ITAA 1997.