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Ruling

Subject: Capital gains tax implications on sale of asset

Question:

Are you assessable on the capital gain made on the disposal of the asset?

Answer:

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You are a self-managed superannuation fund. One member is under 55 years of age. The other members are over 70 years of age and receiving an income stream.

The assets of the fund have been segregated to identify assets providing benefits to the younger member and those providing funds for the income streams.

The trustees have decided to wind up the fund.

The younger member wishes their benefits to be rolled-over to another fund and to resign as a trustee.

The trustees sold an asset in order to provide sufficient monies to roll over the younger member's benefits to another fund. The sale resulted in a capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Subsection 104-10(5)

Income Tax Assessment Act 1997 Section 118-320

Income Tax Assessment Act 1997 Subsection 295-385(3)

Income Tax Assessment Act 1997 Subsection 118-305(1)

Income Tax Assessment Act 1997 Subsection 118-305(2)

Income Tax Assessment Act 1997 Section 115-10

Income Tax Assessment Act 1997 Section 115-100

Income Tax Assessment Act 1997 Section 115-25

Reasons for decision

Summary

You have disposed of a capital gains tax (CGT) asset; therefore CGT event A1 has occurred. However, you did not meet the necessary conditions for any capital gains to be disregarded. Accordingly, you will be assessed on the net capital gain made on the disposal of the asset.

Detailed reasoning

Section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that CGT event A1 occurs when your ownership in a CGT asset is transferred to another entity. The time of the event is when you enter into a contract for the disposal, or, if there is no contract, the time of disposal is taken to be the time when the change in ownership occurs.

As trustees of the super fund you are the legal owners of its CGT assets and are assessable in those roles on its net capital gain. However, in certain circumstances, where an entity's ownership of a CGT asset ends, a capital gain or capital loss from CGT event A1 may be disregarded.

Section 118-320 of the ITAA 1997 provides that a capital gain or capital loss that a complying superannuation entity makes from a CGT event happening in relation to a segregated current pension asset is disregarded. Subsection 295-385(3) of the ITAA 1997 explains that assets of a complying superannuation fund are segregated current pension assets at a time if:

the assets are invested, held in reserve or otherwise dealt with at that time solely to enable the fund to discharge all or part of its liabilities (contingent or not) in respect of superannuation income stream benefits that are payable by the fund at that time; and

the trustee of the fund obtains an actuary's certificate before the date for lodgement of the fund's income tax return for the income year to the effect that the assets and the earnings that the actuary expects will be made from them would provide the amount required to discharge in full those liabilities, or that part of those liabilities, as they fall due.

Subsection 118-305(1) of the ITAA 1997 provides that a capital gain or capital loss is disregarded if you make it from a CGT event happening in relation to any of the following:

· a right to an allowance, annuity or capital amount payable out of a superannuation fund;

· a right to an asset of such a fund;

· a right to any part of such an allowance, annuity, capital amount or asset.

However, subsection 118-305(2) of the ITAA 1997 explains that the exemption in subsection 118-305(1) of the ITAA 1997 does not apply to a trustee of the fund when a CGT event happens in relation to a CGT asset of the fund.

In your case, you have disposed of a CGT asset and CGT event A1 has occurred. You do not meet any of the conditions necessary to disregard any capital gain made on the disposal of the asset. Accordingly, the capital gain made on the disposal of the asset will be assessed under the capital gains tax provisions.

Further issues for you to consider

33 1/3% CGT discount available to superannuation funds

Section 115-10 of the ITAA 1997 states that a complying superannuation entity may make a discount capital gain, with the discount percentage applied to the gain being 33 1/3% (section 115-100 of the ITAA 1997).

In order to be considered a discount capital gain, the asset that gave rise to the capital gain must have been owned for a period of at least 12 months prior to the CGT event (section 115-25 of the ITAA 1997).

Accordingly, if the asset has been held for over 12 months, you may be entitled to apply the 33 1/3% CGT discount to any capital gain made on disposal of the asset.