Edited version of private advice

Authorisation Number: 1052086167213

Date of advice: 14 February 2023

Ruling

Subject: CGT small business contribution - 15 year exemption

Question 1

Will the proposed in-specie contribution of property made to a complying superannuation fund qualify for the CGT cap pursuant to subsection 292-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provided that the contribution is made by the relevant due date and is on the approved form?

Answer

Yes.

Question 2

Is it the amount for which a capital gain has been disregarded under the CGT 15 year exemption, eligible for exclusion from being a non-concessional contribution under the CGT cap pursuant to subsection 292-100(1) of the ITAA 1997, provided the amount does not exceed the CGT cap for the relevant year, the contribution is made by the relevant due date and is on the approved form?

Answer

Yes.

This advice applies for the following period:

Period ended 30 June 20XX

Relevant facts and circumstances

Both partners were partners in partnership (the Partnership).

On 1 August 19XX the partnership purchased the commercial premises.

The commercial premises was used exclusively to operate a reception centre (the business).

The Partnership operated the business from DD MM YYYY to DD MM YYYY before selling the business to an external unrelated party.

From DD MM YYYY the partners commenced a joint partnership with the existing business owners.

The commercial premises is intended to be transferred to both partner self-managed super fund in the 20XX income year.

The reception centre business will continue to operate but both partners will cease their activities.

Both partners intend to retire.

The partners have owned the commercial premises for over 15 years.

Turnover for the joint partnership is under $X million.

You applied for a private ruling application on 4 October 20XX on your clients' eligibility to disregard any capital gain made on disposal/transfer of the property under the CGT 15 year exemption for small business.

Assumptions

Your clients meet the basic conditions for CGT relief for small businesses under section 152-5 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 285-5

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 section 292-90

Income Tax Assessment Act 1997 section 292-100

Income Tax Assessment Act 1997 section 292-105

Superannuation Industry (Supervision) Act 1993 section 66

Other relevant documents

Taxation Ruling TR 2010/1: Income tax: superannuation contributions

Reasons for Decision

Small business 15-year exemption

In accordance with section 152-105 of the ITAA 1997 you can disregard a capital gain from a CGT event happening to a CGT asset if you:

•         satisfy the basic conditions for the CGT small business concessions

•         continuously owned the CGT asset for the 15-year period ending just before the CGT event happened.

If you are an individual, you must have been:

•         at least 55 years old and the CGT event happened in connection with your retirement, or

•         permanently incapacitated at the time of the CGT event.

You have received a private ruling that the disposal of the property is in connection with retirement under subparagraph 152-105(d)(i). We have assumed you satisfy the basic conditions for the CGT small business concessions.

In-specie contribution

The term 'contribution' is not defined in the ITAA 1997. Taxation Ruling TR 2010/1: Income tax: superannuation contributions outlines the Commissioner's view on the ordinary meaning of contribution, how a contribution can be made and when contributions are made for the purposes of the ITAA 1997.

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 contribution is or includes the market value of the property.

Section 66 of the Superannuation Industry (Supervision) Act 1993 prohibits the acquisition of an asset from a related party of a superannuation fund unless it meets a specified exception.

A member is a related party of a fund.

One of the limited exceptions to this rule allows a fund trustee to acquire business real property from a related party at market value. Property used wholly and exclusively in a business would generally meet the business real property definition.

Based on the information provided, the Fund will acquire property that meets the definition of business real property at market value.

CGT lifetime cap

If an individual makes an in-specie contribution of an asset to their self-managed superannuation fund with the intent of disregarding all or part of the capital gain under the CGT small business concessions, they may also be eligible to exclude all or part of that contribution from counting against their non-concessional cap and instead be counted against their CGT cap under section 292-105 of the ITAA 1997.

For the 2022-23 income year, an individual's CGT cap amount is $1,650,000 reduced by any amount of contributions previously applied against the cap.

Paragraph 292-90(2)(c) of the ITAA 1997 provides for certain types of contributions to be excluded from being considered a non-concessional contribution. One such contribution is a contribution covered under section 292-100 relating to certain CGT-related payments, to the extent that it does not exceed your CGT cap amount when it is made.

Subsection 292-100(1) of the ITAA 1997 states that a contribution is covered under this section if it is:

a)    a contribution made by an individual to a fund in respect of the individual;

b)    the requirement in subsections (2), (4), (7) or (8) is met; and

c)    the individual chooses to apply this section to an amount that is all or part of the contribution.

Where an individual intends to disregard any capital gain resulting from a CGT event under section 152-105 of the ITAA 1997 (15 year exemption for individuals), subsection 292-100(2) is the appropriate subsection to consider. Paragraph 292 100(2)(b) requires an individual to make a contribution to their superannuation fund before the later of:

•         the day they are required to lodge their income tax return for the income year in which the CGT event happened;

•         30 days after the day they receive the capital proceeds

As you will qualify for the small business 15 year exemption during the 20XX income year, the capital gain can be entirely disregarded. Accordingly, if you make an in-specie contribution of the property to your Fund in connection with your retirement, you are eligible to choose to exclude some or all of the contribution from being a non-concessional contribution, up to your CGT cap.

The choice will only be valid if it is:

•         made in the approved form; and

•         given to the superannuation fund on or before the time the contribution is made.

With regard to the in-specie contribution, the legislation does not prevent the CGT event, choice and contribution of the 15-year exempt amount from happening simultaneously.