Edited version of your written advice

Authorisation Number: 1051443239197

Date of advice: 18 October 2018

Ruling

Subject: Superannuation contributions

Question

Can the in-specie transfer of business real property owned by an individual to their SMSF and which qualifies for the CGT small business 15 year exemption under section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997), be simultaneously treated as a contribution for the purposes of section 292-100 of the ITAA 1997?

Answer

Yes.

This advice applies for the following period:

Income year ending 30 June 20XX

The arrangement commences on:

1 July 20XX

We considered these to be relevant facts

Your client is over XX years of age.

Your client intends to retire in the last quarter of 20XX.

Your client owns the property which is actively used in relation to a small business which is operated by them. The property has received market appraisal for its value.

Your client is a member of a complying self-managed superannuation fund, the Fund.

On a date after your client’s retirement date, but before a date in the first quarter of 20XX, the property will:

● be transferred as an in-specie contribution into the Fund at market value, and

● be recognised by the Fund as a contribution for the member at the market value of the property.

At the time of the transfer, your client will lodge a CGT election form.

You have stated that your client satisfies all the conditions and is eligible for the CGT small business 15-year exemption under section 152-105 of the ITAA 1997 in relation to the property.

You state that the in-specie contribution will be recognised in the Fund against your client’s member balance.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-105

Income Tax Assessment Act 1997 Section 285-5

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 (2)

Reasons for decision

Summary

Where an individual is able to disregard a capital gain under the CGT small business 15-year exemption in accordance with section 152-105 of the ITAA 1997, a contribution of all or part of the proceeds from the CGT event made to a complying superannuation fund can be considered under section 292-100 of the ITAA 1997. A choice can be made to apply subsection 292-100(1) to exclude all or part of the contribution from being considered a non-concessional contribution, to the extent that it does not exceed the ‘CGT cap amount’ when it is made.

Detailed reasoning

In specie transfer of business real property

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, or the market value reduced by the value of any consideration given for the transfer of the property.

In your client’s case:

● you have advised that the property your client will transfer to the Fund as an in-specie contribution into the Fund is used actively in a business and meets the business real property requirement; and

● you have stated that the property will be transferred at market value and recognised by the Fund as a contribution for the member at the market value of the property.

Non-concessional contributions

As far as relevant in this case, non-concessional contributions are defined in section 292-90 of the ITAA 1997 as the sum of:

(a) each contribution covered under subsection (2); and …

With certain exceptions, a contribution is covered under subsection 290-90(2) of the ITAA 1997 if it is made in the financial year to a complying superannuation fund in respect of a person and it is not included in the assessable income of the superannuation fund.

Specifically excluded from being covered under subsection 292-90 (2) of the ITAA 1997 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 when it 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 (for the 2018-19 income year the CGT cap amount is $1,480,000).

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.

*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

Subsection 292-100(2) of the ITAA 1997 (15-year exemption) provides that the requirement in this subsection will be met if:

(a) the contribution is equal to all or part of the *capital proceeds from a *CGT event for which you can disregard any *capital gain under section 152-105 (or would be able to do so, assuming that a capital gain arose from the event); 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.

*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

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.

Application to the 15-year exemption

You have stated that in relation to the property your client satisfies the necessary conditions to qualify for the CGT concession under section 152-105 of the ITAA 1997.

The requirements of subsection 292-100(2) of the ITAA 1997 (relating to the 15 year exemption) are met where the contribution is equal to all or part of the capital proceeds from a CGT event where the individual was able to disregard a capital gain under section 152-105 of the ITAA 1997, and the contribution is made on or before the later of (a) the day the individual was required to lodge their income tax return for the year in which the CGT event happened, and (b) 30 days after receipt of the capital proceeds.

As the in-specie contribution of the real property would meet the requirements in subsection 292-100(2) of the ITAA 1997, your client could choose to apply subsection 292-100(1) to the amount of the contribution to exclude it from being a non-concessional contribution, up to the individual’s CGT cap amount for the relevant year.

The choice will only be valid if it is made in accordance with subsection 292-100(9) of the ITAA 1997.