Edited version of administratively binding advice

Authorisation Number: 1012023051318

This edited version of your advice will be published in the public Register of private binding rulings after 28 days from the issue date of the advice. The attached ATO advice fact sheet has more information

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Advice

Subject: In-specie contribution from family trust

Questions:

Is an in specie contribution made from a family trust directly to a SMSF a non-concessional contribution?

Advice/Answers:

Yes, provided it has not been claimed as a deduction in the individual's tax return.

This ruling applies for the following period:

1 July 2009 to 30 June 2010

The scheme commenced on:

1 July 2009

Relevant facts:

Your client is self employed.

A self managed superannuation fund (SMSF) of which your client is a member was established.

A recommendation was made to transfer certain assets held under your client's family trust (the family trust) structure to the SMSF as non-concessional contributions.

Units in an unlisted unit trust were acquired by the family trust.

The units in the unlisted trust give the holder the right to receive a fixed entitlement to the income of the unit trust.

In respect of the family trust:

o your client is the director of the corporate trustee;

o the trust is a Discretionary Trust; and

o the beneficiaries of the trust are your client and his spouse.

The corporate trustee is not claiming a deduction for super contributions.

You requested your administration team to arrange the transfer of units in the unlisted unit trust into your client's individual name and after this the units were to be transferred to the SMSF.

The unlisted unit trust was taken over by another entity.

Units in the unlisted unit trust were transferred from your client's family trust directly into your client's SMSF. This was due to an error by your administration staff.

The units were acquired by the SMSF at market value.

The only asset of the family trust as at 30 June 2010 was an investment in a Cash Management Trust.

While completing the accounts for the SMSF the administrator advised your office that the in specie contribution could not be treated as a non-concessional contribution as it was transferred from a non individual entity.

A copy of the Trustee's minutes of the family trust have been provided. These state in relation to the transfer of units that The Trustee has reviewed the position of the trust and it was resolved that the trusts investments are to be transferred to the individual name of your client (Director of the corporate trustee) and subsequently transferred (in specie) into the SMSF.

Assumptions:

None.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 290-170

Income Tax Assessment Act 1997 Section 292-90

Income Tax Assessment Act 1997 Subsection 292-90(2)(b)

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

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

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

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

Income Tax Assessment Act 1997 Subsection 292-90(4)

Income Tax Assessment Act 1997 Section 295-160

Income Tax Assessment Act 1997 Section 295-190

Reasons for decision

Summary

The in specie contribution made from a family trust directly to a self managed superannuation fund (SMSF) is a personal contribution to provide superannuation benefits for your client. If your client has not claimed a deduction for this contribution in his income tax return for the 2009-10 income year it will not be included in the assessable income of the self managed superannuation fund, a complying superannuation fund, and will be a non-concessional contribution.

Detailed reasoning

Non-concessional contributions

The amount of a person's non-concessional contributions for a financial year are those made to a complying superannuation plan in respect of a member and are not included in the assessable income of the superannuation provider. They are determined under section 292-90 of the ITAA 1997.

Non-concessional contributions include:

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

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

o transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income) (paragraph 292-90(2)(b)).

Non-concessional contributions do not include:

o the superannuation co-contribution (subparagraph 292-90(2)(c)(i) of the ITAA 1997);

o the amount of a contribution arising from certain structured settlements or orders for personal injuries that result in permanent incapacity, if you elected to exclude the amount before or when you made the contribution (subparagraph 292-90(2)(c)(ii) and section 292-95);

o the amount of a contribution arising from the disposal of qualifying small business assets, if you elected to exclude the amount before or when you made the contribution, up to a lifetime limit (subparagraph 292-90(2)(c)(iii) and section 292-100);

o contributions made to a CPF that would have been assessable income of the fund if the fund was a taxable superannuation fund (for example, employer contributions made to an accumulation fund that is constitutionally protected) (subparagraph 292-90(2)(c)(iv));

o contributions to a public sector superannuation scheme that are not included in the fund's assessable income because of a choice made by the scheme's trustee (sometimes called last minute contributions) (subparagraph 292-90(2)(c)(v) and section 295-180);

o a rollover or transfer of a superannuation benefit between complying funds (subparagraph 292-90(2)(c)(vi)); and

o the tax-free component of a directed termination payment (section 292-90 of the Income Tax (Transitional Provisions) Act 1997.

In specie contributions

Contributions to a superannuation fund are not necessarily required to be in cash but can be in specie contributions as long as the provisions of the Superannuation Industry (Supervision) Act 1993 are not breached.

In this case the units in a family trust, the in specie contributions, were transferred directly into the self managed superannuation fund (SMSF). The stated intention of the trustee of the family trust was to first transfer the asset to your client, the fund member and then he was to make the contribution to the SMSF as a non-concessional contribution.

Further, instructions were provided to the administrators for the benefit to be paid out to your client in-specie for him to then contribute to the SMSF. However, this did not occur. Instead the benefit was paid directly to the SMSF.

The issue here is whether the assets transferred directly from the family trust to the SMSF can be accepted as having been transferred by your client to the SMSF.

In the Commissioner's opinion, the transfer directly from the trust to the SMSF is seen as merely a question of efficiency and practicality which, in this case, does not negate the intended outcome.

As the family trust is a discretionary trust, the beneficiary would not direct the payment on their behalf because it is at the trustee's discretion when the beneficiary is entitled to any income or assets of the trust.

Therefore it is accepted that the assets have been transferred by your client to the SMSF. If your client has not claimed a deduction for this contribution in his income tax return in the 2009-10 income year the contribution is considered a non-concessional contribution.