Edited version of administratively binding advice

Authorisation Number: 1012468844260

Advice

Subject: Non-concessional contributions and CGT small business concessions

Question

Will a contribution covered under section 292-100 (certain CGT-related payments), to the extent that it does not exceed your CGT cap amount when it is made, be excluded from being counted as non-concessional contributions for a financial year under section 290-90 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This administrative binding advice applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You and your spouse jointly own land which is business real property with a total market value of $X (Property 1-market value and Property 2-market value).

You are both aged under 65.

You propose to make an in specie contribution to a complying self managed superannuation fund (SMSF) by way of transferring ownership of the properties to the SMSF during the relevant income year.

The transfer of the properties will result in a total capital gain of $Y.

The amount of the contribution to the SMSF will be $Z worked out as the two market values of the properties reduced by the cash consideration to be given by the SMSF for the transfer of the properties (Total market value $X reduced by cash consideration = $Z).

Your tax agent has stated that all requirements to obtain the relevant CGT concessions for the purposes of 292-100 of the ITAA 1997 are satisfied and therefore the total capital gain ($Y) is the in specie contribution relating to the CGT concessions.

The remaining amount of the in specie will be treated as non-concessional contributions to yourself and to your spouse.

You are in part time employment and for the relevant income year and expect to have the maximum $25 000 concessional contributions paid to your superannuation accounts (either in the proposed SMSF or a retail account, or a combination of both).

You have not made any significant non-concessional contributions to superannuation in recent years and have not breached the annual cap in any of the mentioned years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 285-5

Income Tax Assessment Act 1997 Division 292,

Income Tax Assessment Act 1997 paragraph 292-90(1)(a),

Income Tax Assessment Act 1997 subparagraph 292-90(2)(c)(iii),

Income Tax Assessment Act 1997 section 292-100,

Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 4.

Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 5

Summary

The amount representing the CGT related amount of the in specie contribution by way of transfer of the properties to the SMSF will not be counted towards your non-concessional contributions cap for the relevant financial year.

Detailed reasoning

The general concepts relating to superannuation is contained in section 285-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and is as follows:

Section 285-5 Transfers of property

285-5(1) Any of the following payments covered by this Part can be or include a property:

(a) a contribution;

(b) a superannuation lump sum.

285-5(2) The amount of the payment is or includes the market value of the property.

285-5(3) The market value is reduced by the value of any consideration given for the transfer of the property.

A superannuation contribution can be made in a number of ways including by transferring an asset to the superannuation provider.

The Commissioner's view of this is contained in Taxation Ruling Income tax: superannuation contributions (TR 2010/1). The relevant paragraphs 4, 10, 18, 23 and 151 are as follows:

Ordinary meaning of contribution

4. In the superannuation context, a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general….

How and when a contribution is made to a superannuation fund

10. The capital of a superannuation fund may be increased directly by:

…

· transferring an existing asset to the superannuation provider (an in specie contribution);

Transferring an existing asset (in specie contribution)

18. The fund's capital will be increased when a person transfers an asset to the superannuation provider but the provider pays no consideration or pays consideration less than the market value of the asset.

…

23. A superannuation provider acquires the beneficial ownership of real property when the provider obtains possession of a properly executed transfer that is in registrable form together with any title deeds and other documents necessary to procure registration of the superannuation provider as the legal owner of the land.

How a thing of value increases the fund's capital

151. A 'contribution' is not limited to a direct payment of cash to the superannuation provider. A superannuation contribution can be made by transferring funds or other assets to the superannuation provider. Subject to the restrictions in the SISA on a superannuation fund acquiring assets from a related party, a transfer of an asset to a superannuation fund may be a contribution in specie.

Division 292 of the ITAA 1997 limits the superannuation contributions made in a financial year for a person that receive concessional taxed treatment.

Subdivision 292-C defines non-concessional contributions and excess non-concessional contributions, and sets liability to pay excess non-concessional contributions tax.

A person will have liability to excess non-concessional contributions tax imposed by the Superannuation (Excess Non-concessional Contributions Tax) Act 2007 (ENCCTA) if they have excess non-concessional contributions for a financial year.

In accordance with subparagraph 292-90(2)(c)(iii) of the ITAA 1997, your non-concessional contributions for a financial year excludes a contribution covered under section 292-100 (certain CGT related payments), to the extent that it does not exceed your CGT cap amount when it is made. The CGT cap amount for the year ended 30 June 2013 is $1.255 million.

Apply the law to your circumstances

From the information provided, you propose to make an in specie contribution to a complying self managed superannuation fund (SMSF) by way of transferring ownership of the properties to the SMSF during the relevant income year.

You have stated the transfer of the properties will result in a total capital gain of $Y which will be CGT related amounts to be contributed to the SMSF by way of the transfer of the properties to the SMSF.

The amount of the in specie contribution to the SMSF will be $Z calculated as the amount of the two market values of the properties reduced by the cash consideration to be given by the SMSF for the transfer of the properties (Total market value $X reduced by the cash consideration = $Z).

You state that all of the requirements to obtain the relevant CGT concessions for the purposes of 292-100 of the ITAA 1997 are satisfied, therefore the $Y is the in specie contribution relating to the CGT related amounts as stated in subparagraph 292-90(2)(c)(iii) of the ITAA 1997.

You also state that the remaining amount of the in specie contribution ($Z - $Y) will be treated by the SMSF as non-concessional contributions to yourself and to your spouse.

As discussed previously, subparagraph 292-90(2)(c)(iii) of the ITAA 1997 provides that a contribution covered under section 292-100, to the extent that it does not exceed your CGT cap amount, is not considered a non-concessional contribution for the financial year.

Section 292-100 of the ITAA 1997 outlines when contributions relating to some CGT small business concessions are covered.

Subsection 292-100(9) states that to make a choice for the purposes of paragraph 292-100(1)(c) to apply this section to an amount that is all or part of the contribution, 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.

As discussed previously, the Commissioner's view expressed in TR 2010/1 is that a superannuation contribution can be made by transferring funds or other assets to the superannuation provider (subject to the restrictions in the Superannuation Industry (Supervision) Act 1993 (SISA) on a superannuation fund acquiring assets from a related party). A transfer of an asset to a superannuation fund may be a contribution in specie.

Therefore on the basis of the information provided in relation to your proposed transfer of the properties to the SMSF (and where you have met all of the requirements of the SISA and section 292-100 of the ITAA 1997 as above), the relevant amount of the in specie contribution (relevant to the CGT related amount) and made to the SMSF by way of the transfer of the two properties is excluded as non-concessional contributions in accordance with subparagraph 292-90(2)(c)(iii) of the ITAA 1997.

Consequently, as the amount is not non-concessional contributions, the amount will not count towards your non-concessional contributions cap for the relevant financial year.