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Subject: Non-concessional contributions
Question
Will the 'bring forward' provision under subsection 292-85(4) of the Income Tax Assessment Act 1997 (ITAA 1997) be triggered where an in specie contribution in excess of the non-concessional contributions cap is made in the 2011-12 income year?
Advice/Answer
Yes.
This advice applies for the following period
Year ending 30 June 2012.
The scheme commenced on
1 July 2011.
Relevant facts
Your client, who has reached preservation age, your client's spouse and their son are members of the family superannuation fund, a self managed superannuation fund (the SMSF).
Your client's spouse, who is under age 65, was self-employed and has been retired since July 2010.
Your client's spouse has 100% ownership of a pre CGT asset which is currently leased as a commercial centre (100% business real property).
Pending a valuation certificate to be issued by a licensed independent valuer, an approximate market value of the property has been provided.
Your client's spouse intends to make an in-specie contribution of 50% of the value of the property to the SMSF for themself and the remaining 50% for your client by transferring 100% of the ownership of the property to the SMSF.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 292-85(2).
Income Tax Assessment Act 1997 Subsection 292-85(3).
Income Tax Assessment Act 1997 Paragraph 292-85(3)(a).
Income Tax Assessment Act 1997 Paragraph 292-85(3)(b).
Income Tax Assessment Act 1997 Paragraph 292-85(3)(c).
Income Tax Assessment Act 1997 Subsection 292-85(4).
Income Tax Assessment Act 1997 Section 292-410.
Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 4.
Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 5.
Reasons for decision
Summary
Subject to the SMSF accepting the in specie contribution the spouse contributions made for your client will be non-concessional contributions made in the 2011-12 income year.
As the amount will exceed your client's non-concessional contributions cap of $150,000 for the income year, the 'bring forward' provision for the two future years' entitlement (the 2012-13 and 2013-14 income years) will be triggered.
Detailed reasoning
Non-concessional contributions cap
Non-concessional contributions made to a complying superannuation fund will be subject to an annual cap (subsection 292-85(2) of the ITAA 1997) which, for the 2011-12 income year, is $150,000.
Non-concessional contributions include (among others):
· personal contributions for which an income tax deduction is not claimed; and
· contributions a person's spouse makes to their superannuation fund account.
A taxpayer will have liability to pay excess non-concessional contributions tax at the rate of 46.5% if they have excess non-concessional contributions for a income year (subsection 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2007). The taxpayer will be required to ask their superannuation fund to release an amount that is equal to the tax liability (section 292-410 of the ITAA 1997).
'Bring forward' provisions
As a concession, to accommodate larger contributions, persons under age 65 in an income year are able to 'bring forward' future entitlements to two years worth of non-concessional contributions. This means a person under age 65 will be able to contribute non-concessional contributions totalling $450,000 over three income years without exceeding their non-concessional contributions cap (subsections 292-85(3) and (4) of the ITAA 1997).
The bring forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in an income year by a person who is under age 65 at any time in the year where a bring forward has not already commenced (subsection 292-85(3) of the ITAA 1997).
Where a bring forward has been triggered, the two future years' entitlements are not indexed.
As your client's spouse intends to make an in specie spouse contribution in excess of the non-concessional contribution cap on behalf of your client during the 2011-12 income year and both are under age 65 in that year, the bring forward will be automatically triggered as the contribution is in excess of the annual non-concessional contributions cap for that income year. However, as the amount of the contribution will not exceed three times the annual cap amount (pending the valuation certificate), no part of the contribution will be excess non-concessional contributions.
This will mean that your client can contribute no more than the remaining amount over the following two income years (20012-13 and 2013-14) without the contributions being treated as excess non-concessional contributions.
In making this decision, the Commissioner has not considered the following matters under the Superannuation Industry (Supervision) Act 1993:
· the borrowing rules;
· the in-house asset rules;
· the prohibition on acquiring assets from related parties; and
· that the investments have been made and are maintained on an arm's length basis at all times.