Edited version of administratively binding advice

Authorisation Number: 1012587556974

Advice

Subject: Non-concessional contributions

Question

Is a taxpayer's proposed in-specie contribution of farming land to a superannuation fund excluded from being counted towards the taxpayer's non-concessional cap under the capital gains tax small business concessions?

Advice

Yes

This advice applies for the following period

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2013

Relevant facts and circumstances

Your client and your client's spouse are farmers. Both of them are over 55 years of age.

Your client acquired a property with the spouse several years ago.

The purchase cost was over $X and the current market value is an estimated amount.

You estimated your client and their spouse's capital gain and the taxable gain.

Your client and your client's spouse farm the land as partners in a partnership.

The farm land has been owned for more than 15 years and actively farmed longer than 50% of ownership period.

You state that both your client and your client's spouse pass the small business, active asset and 15 year ownership tests under the capital gains tax (CGT) business concessions.

You also state that your client and your client's spouse qualified for the subdivision 152-B, 15 year exemption and CGT concessions on their farming land of the Income Tax Assessment Act 1997 (ITAA 1997).

Your client and their spouse are ready to retire and they would like to transfer their interest of the farming land as an in-specie contribution to a regulated self managed superannuation fund (the SMSF).

The gross capital gain before any concessions on the transfer or sale of the farm is estimated to be an amount.

Relevant legislative provisions

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(2)

Income Tax Assessment Act 1997 paragraph 292-100(2)(a)

Income Tax Assessment Act 1997 Subsection 292-100(5)

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

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

Reasons for decision

Summary

The amount representing the capital gains tax (CGT) related amount in relation to the proposed contributions to a regulated self managed superannuation fund (the SMSF) and to the extent it does not exceed your client's CGT cap amount, will not be counted towards your client's non-concessional contribution cap for the 2013-14 income year.

Provided that your client makes the choice to apply the small business retirement exemption in the approved form and gives it to the SMSF on or before the time when the contribution is made the contribution will be excluded from being a non-concessional contribution.

Detailed reasoning

CGT small business concessions

In order for a contribution made to a complying superannuation fund to be excluded from the amount of your client's non-concessional contributions, it must be equal to all or part of the capital proceeds from a CGT event for which your client can disregard the capital gain under the small business 15 year exemption, or would have been able to disregard if the asset was not a pre-CGT asset under subsections 292-100(2) and 292-100(5) of the Income Tax Assessment Act 1997 (ITAA 1997).

The facts of this case show the farm land in question is jointly owned by your client and their spouse (since 30 June 199X) therefore is a post-CGT assets. You state that your client and your client's spouse:

· pass the small business, active asset and 15 years ownership tests for Division 152 of the ITAA 1997; and

· qualified for subdivision 152-B, 15 year exemption, CGT concessions on their farming land.

The Commissioner accepts the above statement provided by you. Accordingly, the disposal of your client's interest in farming land that your client acquired post 20 September 1985 is a CGT event that meets the requirements of paragraph 292-100(2)(a) of the ITAA 1997.

Non-concessional contributions and CGT related amounts

Division 292 of the ITAA 1997 limits the superannuation contributions made in a financial year for a person that receive concessionally 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 a liability for 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 an income year.

A person can make non-concessional contributions to a superannuation fund for a financial year up to a particular limit. The non-concessional contributions cap is $150,000 for the 2013-14 income year.

Contributions made from certain amounts arising from the disposal of qualifying small business assets are exempt from the non-concessional caps of a person up to a lifetime limit (the CGT cap amount).

Subparagraph 292-90(2)(c)(iii) of the ITAA 1997 excludes from being a non-concessional contribution certain contributions relating to some CGT small business concessions. Section 292-100 of the ITAA 1997 states:

(1) A contribution is covered under this section if:

(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.

…

(7) The requirement in this subsection is met if:

(a) the contribution is equal to all or part of the capital gain from a CGT event that you disregarded under subsection 152-305(1); and

(b) the contribution is made on or before the later of the following days:

(i) the day you are required to lodge your income tax return for the income year in which the CGT event happened;

(ii) 30 days after the day you receive the capital proceeds from the CGT event.

…

(9) To make a choice for the purposes of paragraph (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.

In accordance with subparagraph 292-90(2)(c)(iii) of the ITAA 1997, your client's 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 client's CGT cap amount when it is made. The CGT cap amount for the year ended 30 June 2014 is $1,315,000.

Apply the law to your client's circumstances

From the information provided, your client proposes to make a contribution to a regulated SMSF during the 2013-14 income year.

As advised by you the disposal of your client's interest in the farm land that your client acquired after 20 September 1985 is a CGT event that meets the requirements of paragraph 292-100(2)(a) of ITAA 1997.

As mentioned 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 client's CGT cap amount, is not considered a non-concessional contribution for the income 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, your client 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.

Therefore on the basis of the information provided in relation to your client's proposed contribution to a regulated SMSF and provided your client satisfies all the requirements of section 292-100 of the ITAA 1997, the amount of the proposed contribution (representing the CGT related amount) will be excluded as non-concessional contributions to the extent that it does not exceed your client's CGT cap amount (a lifetime limit) when it is made. The CGT cap amount for the year ended 30 June 2014 is $1,315,000.

Provided that you client makes the choice to apply section 292-100 of the ITAA 1997 in the approved form and gives it to the Fund on or before the time when the contribution is made, all conditions under section 292-100 of the ITAA 1997 will be satisfied

Further issues to consider

The ABA request also relates to whether an in-specie contribution of a farming property is excluded from being a non-concessional contribution under section 292-90(2) of the ITAA 1997. In making our decision we have not considered whether the in-specie contribution of the property will satisfy the in-house asset rules under the Superannuation Industry (Supervision) Regulations 1994 and hence whether it can be accepted by the SMSF.