Edited version of private advice

Authorisation Number: 1051524609002

Date of advice: 03 June 2019

Ruling

Subject: CGT Retirement Exemption

Issue 1

Unless otherwise stated, all legislative references under Issue 1 are to the Income Tax Assessment Act 1997 (ITAA 1997).

Question 1

In relation to the proposed contributions of $x each to taxpayers A and B's respective superannuation fund accounts, would they be considered as concessional contributions under section 291-25 or non-concessional contributions under section 292-100 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following periods:

01 July 20XX to 30 June 20XX

The scheme commences on:

01 July 20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The taxpayer A has been a director of an entity (the entity) since its incorporation.

The taxpayer B has been a director and a secretary of the entity since 20XX.

Since June 20XX, taxpayers A and B have no other structure of a business nature except for the entity. Their other assets comprise their main residence, investment properties, and person effects etc.

Taxpayers A and B have never utilised any Capital Gain Tax (CGT) small business relief concession in the past.

Upon sale of a business asset by the entity and subsequent to receipt of all payment amount(s) from the sale, the entity proposes to make contributions of $X each to taxpayers A and B's respective complying superannuation funds on behalf of themselves. $X is less than $500,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 291-B

Income Tax Assessment Act 1997 Subdivision 292-C

Income Tax Assessment Act 1997 Subdivision 295-C

Reasons for decision

Detailed reasoning

Pursuant to section 291-25, the amount of concessional contributions of an individual for a financial year is the sum of:

(1)  each contribution covered under subsection 291-25(2), that is, a contribution that:

(a)  is made in the financial year to a complying superannuation plan in respect of the individual, and

(b)  is included:

(i)    in the assessable income of the superannuation provider, or

(ii)   by way of a roll-over superannuation benefit, in the assessable income of a complying superannuation fund or RSA provider in the circumstances mentioned in subsection 290-170(5), where the superannuation interest of an individual has been transferred from a fund to a successor fund after the funds have merged, or mentioned in subsection 290-170(6), where, in relation to a MySuper product, a fund transfers a member's accrued default amount to another fund, and

(c)  is not an amount mentioned in subsection 295-200(2), that is, an amount transferred to a complying superannuation fund from a foreign superannuation fund where the former member of the foreign fund chooses that the amount be included in the assessable income of the receiving fund rather than the member being taxed on the amount, and

(d)  is not an amount mentioned in item 2 in the table in subsection 295-190(1), that is, a roll-over superannuation benefit that an individual is taken to receive, to the extent that it consists of an element untaxed in the fund and is not an excess untaxed roll-over amount, and

(2)  an amount covered by subsection 291-25(3), that is, an amount allocated by the superannuation provider for the individual in accordance with conditions specified in the regulations.

Subsection 295-190(2) refers to item 1 in the table in subsection 295-190(1) and states that a contribution made to a complying superannuation fund is included in assessable income in the income year when it is received if a valid and acknowledged notice is given to the superannuation provider by the day the provider lodges its income tax return for that income year.

On the facts and unless taxpayers A and/or B provide(s) a valid and acknowledged notice to the superannuation provider(s), the contributions would not be included in the assessable income of the superannuation provider(S) and would not be considered as concessional contribution.

Pursuant to subsection 292-100(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 292-100(2), 292-100(4), 292-100(7) or 292-100(8) is met; and

(c)  you choose, in accordance with subsection 292-100(9), to apply this section to an amount that is all or part of the contribution.

The requirement in subsection 292-100(8) is met if:

(a)  just before a CGT event, you were a CGT concession stakeholder of an entity that could, under subsection 152-305(2), disregard all or part of a capital gain arising from the CGT event; and

(b)  the entity makes a payment to you that satisfies the conditions in section 152-325; and

(c)  the contribution is equal to all or part of the capital gain arising from the CGT event (but not exceeding the amount of the payment mentioned in paragraph 292-100(8)(b)); and

(d)  the contribution is made within 30 days after the payment mentioned in paragraph 292-100(8)(b).

To make a choice for the purposes of paragraph 292-100(1)(c), subsection 292-100(9) states that, 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.

Current status of both the taxpayers A and B's superannuation funds is complying.

On the facts, both taxpayers A and B have never utilised or accessed any retirement exemption in the past.

On the basis that the relevant conditions are satisfied, the entity would be eligible to choose to disregard a capital gain amount of $Y in total under Subdivision 152-D.

Just before the relevant CGT event, both taxpayers A and B were CGT concession stakeholders of the entity that could disregard a capital gain amount of $Y arising from the relevant CGT event.

Should the entity make the choice in accordance with subsection 292-100(9), on the same day when the entity is to specify such choice in writing, the entity will lodge its company tax return for the relevant income year to identify contributions of the disregarded capital gains on behalf of taxpayers A and B, transfer the payments of $X each to the respective superannuation fund accounts and concurrently provide the notice to the relevant superannuation providers. Accordingly, the requirements of subsection 292-100(8) and subsection 292-100(9) are satisfied.

As all three limbs of subsection 292-100(1) are satisfied, the contributions are covered under section 292-100, therefore it will not be considered as a non-concessional contribution by virtue of subparagraph 292-90(2)(c)(iii) to the extent that it does not exceed the taxpayers' CGT cap amount when it is made.

As the contributions are under the indexed cap and the taxpayers have confirmed they have not utilised any other cap amounts, the contributions will be completely excluded from being non-concessional contributions.