Edited version of your private ruling

Authorisation Number: 1012468799113

Ruling

Subject: Transfer of shares to self-managed superfund

Question

Does a CGT event happen, resulting in a capital loss, on your transfer of your inherited shares to your superannuation fund?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

During the relevant year, your relative passed away, resulting in you inheriting their shares.

They acquired the shares before 20 September 1985.

At the date of death, the market value of the shares was $X.

Afterwards, you transferred the shares to your self-managed superannuation fund.

On the day of transfer, the market value of the shares was $X.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-60

Income Tax Assessment Act 1997 Section 116-30

Income Tax Assessment Act 1997 Section 128-15

Reasons for decision

Item 4 of subsection 128-15(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provides if a deceased person acquired an asset before 20 September 1985, a beneficiary who inherits that asset is taken to have acquired it at market value on the day the deceased person died.

Subsection 116-30(1) of the ITAA 1997 provides 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.)

Section 104-60 of the ITAA 1997 provides CGT event E2 happens if you transfer a CGT asset to an existing trust. You make a capital gain if the capital proceeds from the transfer are more than the asset's cost base; that you make a capital loss if those capital proceeds are less than the asset's reduced cost base.

Where an asset is transferred to a trust, of which the transferor or an associate is a beneficiary or object, CGT event E2 (rather than CGT event A1) will be the most specific event (ATO ID 2003/559).

However, subsection 104-60(5) provides CGT event E2 does not happen if you are the sole beneficiary of the trust and you are absolutely entitled to the asset as against the trustee (disregarding any legal disability) and the trust is not a unit trust.

Draft Taxation Ruling TR 2004/D25 is about the meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust'. In summary, paragraph 139 states a member of a superannuation fund is not treated as if they are absolutely entitled for CGT purposes to the assets of the fund or to assets held in the member's account. Paragraphs 176 and 177 provide the following example:

Bill contributes to his own self-managed superannuation fund. He transfers some shares to the fund which he had previously purchased in his own name. Bill is the only member of the fund. The transfer of the shares from Bill to the fund will cause CGT event E2 to happen. The exception to CGT event E2 that applies if the transferor of assets to a trust is the sole beneficiary of the trust and is absolutely entitled to the assets does not apply in the case of a transfer of an asset to a superannuation fund.

In your case, CGT event E2 happened when you transferred your shares to your superannuation fund because you were not absolutely entitled to the CGT asset as against the trustee of a trust. As the market value you are taken to have received when you transferred the shares (i.e., the capital proceeds of the transfer) are less than the market value of the shares when you acquired them (i.e., the asset's reduced cost base), you made a capital loss as a result of the transfer of your shares to your superannuation fund.