Edited version of your written advice

Authorisation Number: 1051456343897

Date of advice: 22 November 2018

Ruling

Subject: In-specie transfer of business real property

Question 1

Can an in-specie transfer of business real property jointly owned by individuals who are over 55 years of age to their self-managed superannuation fund (SMSF) and which qualifies for the CGT small business retirement exemption under section 152-305 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 ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The taxpayer is over 55 years of age.

The taxpayer and the taxpayer’s spouse, who is also over 55 years of age, are joint owners of commercial property.

The taxpayer and the taxpayer’s spouse are the directors and shareholders of an Australian registered company (the Company).

The property has been leased to the Company since 2002, and is used by the taxpayer and the taxpayer’s spouse in the carrying on of their business.

The taxpayer and the taxpayer’s spouse have a complying SMSF (the Fund) of which they are the only members.

The property will be transferred as an in-specie contribution into the Fund at market value in the 20XX-XX income year and recognised by the Fund as contributions for the members at the market value of the property.

The taxpayers have stated that they satisfy all the conditions and are eligible for:

(a) the small business retirement exemption under section 152-305 of the ITAA 1997 in relation to the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-305

Income Tax Assessment Act 1997 Section 152-305(1)

Income Tax Assessment Act 1997 Section 285-5

Income Tax Assessment Act 1997 Section 292-90

Income Tax Assessment Act 1997 Subsection 292-90(2)

Income Tax Assessment Act 1997 Section 292-100

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

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

Income Tax Assessment Act 1997 Subsection 292-100(7)

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

Reasons for decision

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 the taxpayer’s case:

● The taxpayer advised that the property that will be transferred to their Fund as an in-specie contribution in the 20XX-XX income year is used by a related party of the Fund in carrying on of their business. Based on this information the Commissioner is satisfied that the business real property requirement has been met; and

● The taxpayer further stated that the property will be transferred at market value in the 20XX-XX income year and recognised by the Fund as contributions for the members 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.

Subparagraph 292-90(2)(c)(iii) of the ITAA 1997 specifically excludes from non-concessional contributions 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.

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(7) of the ITAA 1997 (the retirement exemption) provides that the requirement in this subsection will be 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.

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 retirement exemption

The taxpayer stated that in relation to the factory, he satisfies the necessary conditions to qualify for the CGT concession under subsection 152-305(1) of the ITAA 1997. The small business retirement exemption allows individuals the choice to disregard up to $500,000 (lifetime limit) in qualifying capital gains.

Subsection 292-100(7) of the ITAA 1997 (which relates to the retirement exemption) provides that the requirement in this subsection will be met if the contribution is equal to all or part of the capital gain disregarded (under subsection 152-305(1) of the ITAA 1997), and is made on or before the later of (a) the day the taxpayer is 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.

To make the choice and have the contribution covered under subsection 292-100(1) of the ITAA 1997 the choice must be made in the approved form and be given to the superannuation fund on or before the time the contribution is made, subsection 292-100(9) of the ITAA1997.

Providing the in-specie contribution meets the above listed requirements, the capital gains disregarded under the CGT retirement exemption will be excluded from being a non-concessional contribution up to the taxpayer’s CGT retirement exemption lifetime limit. Any amount of the in-specie contribution that is over and above the amount of capital gain disregarded under the retirement exemption will count as non-concessional contributions and will be assessed against the taxpayer’s non-concessional contribution cap for the relevant financial year.