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Ruling

Subject: Capital gains tax

Question

Will the proposed in-specie contribution of land made to a complying superannuation fund qualify for the capital gains tax (CGT) cap pursuant to subsection 292-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

Yes

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You are trustees of a discretionary trust.

The Trust owns post CGT land (Land) which is used by your partnership in the course of carrying on its business.

You each hold a 50% interest in the partnership.

You are potential beneficiaries (as to income and capital) of the Trust.

The trustee of the Trust is empowered under its trust deed to make in specie distributions of capital to its potential beneficiaries.

You are members of a complying self managed superannuation fund.

The trustee of the fund is empowered under its governing deed to accept in specie contributions from its members.

It is proposed that:

· the trustees of the Trust make an in specie capital distribution of 50% of the land to each of you as beneficiaries of the trust.

· You will then make an in specie contribution of your respective interests in the Land to the Fund by way of in specie member contributions.

As a result of the distribution of Land from the Trust to you, a capital gain will arise to the Trust.

No capital proceeds will be received by the Trust. However the transaction will be subject to the market valuation substitution rule deeming the capital proceeds to be market value of the Land.

You state that the Trust satisfies all of the conditions to qualify for the 15-year exemption under subdivision 152-B of the ITAA 1997, which will allow the trustees of the Trust to disregard the whole of the capital gain.

You will qualify as CGT concession stakeholders by each receiving at least X% of the income and/or capital distributions of the Trust during the income year in which the CGT event happens.

Within 30 days of the transfer of the interests in the Land to you, you will on-transfer your interests in the Land to the Fund as member contributions.

No tax deduction will be claimed by you for your contributions of the Land to the Fund.

You propose to make a choice for the purposes of section 292-100(4) of the ITAA 1997 and give it to the trustees of the Fund on or before their contributions of interests in the Land are made to the Fund.

You state that the land amounts to business real property for the purposes of the Superannuation Industry (Supervision) Act 1993.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 285-5

Income Tax Assessment Act 1997 Subsection 116-30(1)

Income Tax Assessment Act 1997 Section 103-5

Income Tax Assessment Act 1997 Section 292-90

Income Tax Assessment Act 1997 Section 292-100

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

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

Income Tax Assessment Act 1997 Section 115-110

Income Tax Assessment Act 1997 Subsection 152-125(2)

Income Tax Assessment Act 1997 Subsection 292-100(9)

Income Tax Assessment Act 1997 Paragraph 292-100(1)(c)

Superannuation (Industry) Supervision Act 1993 Subsection 66(1)

Superannuation (Industry) Supervision Act 1993 Subsection 66(2)

Reasons for decision

Summary

The in-specie transfer of land received from the Trust is considered to be a 'payment' (by the Trust) to the capital gains tax (CGT) concession stakeholders in relation to the CGT exempt amount disregarded by the Trust under the 15-year exemption concession. This is because the 'giving of property' is considered a payment for CGT purposes.

The in-specie transfer of land (that is the capital proceeds received from the Trust) from the CGT concession stakeholders to their self-managed superannuation fund is considered a contribution by the members to the superannuation fund. This is because the land, as business real property, satisfies the requirement of a payment to the superannuation fund under the Superannuation (Industry) Supervision Act 1993 (SISA) and as a payment for CGT purposes.

As the transfer of the land to the superannuation fund is considered a 'payment' for CGT purposes and the taxpayers satisfy the necessary conditions to be eligible for the CGT cap, the market value of each taxpayer's interest in the land that will be transferred to the superannuation fund is excluded from being a non-concessional contribution, so long as the contribution does not exceed the CGT cap amount for the relevant financial year.

Detailed reasoning

The Trust intends to make an in-specie capital distribution of Y% of the land to each of you as beneficiaries of the Trust. You then intend to make an in-specie contribution of your respective interests in the Land to your self managed superannuation fund as member contributions.

You state that the Trust satisfies all of the conditions necessary to qualify for the CGT small business 15-year exemption concession and that both of your will qualify as CGT concessions stakeholders.

Therefore, it is only necessary to determine whether the proposed in-specie contribution to your superannuation fund qualifies for the CGT cap under section 292-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

In specie transfer of land

Section 285-5 of the ITAA 1997 provides that a superannuation contribution can be made by transferring property to the superannuation provider (an in-specie contribution) providing the payment is or includes the market value of the property.

Subsection 66(1) of the SISA provides that subject to subsection (2), a trustee or an investment manager of a regulated superannuation fund must not intentionally acquire an asset from a related party of the fund. Subsection 66(2) of the SISA explains that subsection (1) does not prohibit a trustee or investment manager acquiring an asset from a related party of the fund if the fund is a superannuation fund with fewer than 5 members and the asset is business real property of the related party acquired at market value.

Subsection 116-30(1) of the ITAA 1997 provides that if you received no capital proceeds from a CGT event, you are taken to have received the market value of the CGT asset that is the subject of the event. (The market value is worked out as at the time of the event.)

ATO Interpretative Decision ATO ID 2010/217 discusses the transfer of real property to a superannuation fund to satisfy the payment of the CGT retirement exemption amount. While the CGT retirement exemption concession is a separate concession to the CGT 15-year exemption concession, it is considered that the Commissioner's view on the transfer of real property for the retirement exemption will also apply to the 15-year exemption. The note in ATO ID 2010/217 states:

where a company or trust chooses the retirement exemption and a CGT concession stakeholder is under 55 just before a payment is made in relation to them, there is a similar requirement for the company or trust to contribute the payment to a complying superannuation fund or an RSA: s 152-325(7)(a). The Commissioner says his view that a transfer of real property to a complying superannuation fund can satisfy the requirement to make a contribution also applies to the requirement to make a contribution under s 152-325(7)(a).

On this basis, a "payment" for CGT purposes may be defined to include "giving of property". In fact, section 103-5 of the ITAA 1997 provides that there are a number of provisions in the capital gains tax legislation that say that a payment, cost or expenditure can include giving property. The section also states that to the extent that such a provision does say that a payment, cost or expenditure can include giving property, use the market value of the property in working out the amount of the payment, cost or expenditure.

In cases where a taxpayer has directed that the sale proceeds from the disposal of the property to their superannuation fund be credited to their member account in the superannuation fund, they are taken to have received money or other property if it has been applied for their benefit or as they direct (subsection 103-10(1) of the ITAA 1997).

Accordingly, the giving of property could satisfy the requirement of making a relevant 'payment to a CGT concession stakeholder'. Further, as the Commissioner considers that the transfer of real property by a company or trust to the superannuation fund of the CGT concession stakeholder meets the 'payment' requirement. Then it stands to reason that a 'payment' of property by a company or trust to the CGT concession stakeholder, then an 'on-payment' of property by the CGT concession stakeholder to their superannuation fund would also meet the 'payment' requirement. This is of course provided that the market value of the property is used in working out the amount of the payment.

CGT Cap - exclusion from non-concessional contributions cap

Section 292-90 of the ITAA 1997 explains that some contributions are specifically excluded from being non-concessional contributions. One of the contributions that is excluded is a contribution covered under section 292-100 of the ITAA 1997 (certain CGT related payments) to the extent that it does not exceed the CGT cap amount ($1,255,000 for the 2012-13 financial year) when the contribution is made.

The CGT cap is a lifetime limit which is indexed annually. The CGT cap is reduced by the amount of each contribution that a person has elected to be covered by the exemption from the non-concessional contributions cap under section 292-100 of the ITAA 1997.

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

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

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

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

Subsection 292-100(4) of the ITAA 1997 provides that the requirement in this subsection will be met if:

a) just before a CGT event, you were a CGT concession stakeholder of an entity that could, under section 152-110 of the ITAA 1997 (about the 15-year exemption concession for trusts), disregard any capital gain arising from the CGT event (or would be able to do so, assuming that a capital gain arose from the event); and

b) the entity makes a payment to you within 2 years after the CGT event; and

c) the contribution is equal to all or part of your stakeholder's participation percentage (within the meaning of subsection 152-125(2)) of the capital proceeds from the CGT event (but not exceeding the amount of the payment mentioned in paragraph (b)); and

d) the contribution is made within 30 days after the payment mentioned in paragraph (b).

Subsection 292-100(9) of the ITAA 1997 explains that to make a choice for the purposes of paragraph 292-100(1)(c), you must:

a) make the choice in the approved form; and

b) give it to the superannuation provider in relation to the complying superannuation plan on or before the time when the contribution is made.

Based on the information provided, you will satisfy the necessary conditions to qualify for the CGT concession under subsection 292-100(1) of the ITAA 1997. This is because you meet all the requirements under subsections 292-100(4) and 292-100(9) of the ITAA 1997 and you intend to make a contribution to your complying superannuation fund.

Therefore, as long as each taxpayer does not exceed the CGT cap amount for the relevant financial year, the contribution made will be excluded from being a non-concessional contribution.