Edited version of private advice

Authorisation Number: 1052191102542

Date of advice: 17 November 2023

Ruling

Subject: CGT - small business contribution

Question

Will the proposed in specie contribution of property by the taxpayer to the Fund qualify as a capital gains tax (CGT) small business concession contribution under section 292-100 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2024

Relevant facts and circumstances

1.    The taxpayer is 62 years of age.

2.      The Fund is a self managed superannuation fund and a complying superannuation fund under section 45 of the Superannuation Industry (Supervision) Act 1993 (SISA). The taxpayer is a member of the Fund and a director of the corporate trustee of the Fund. The other members of the Fund are the taxpayer's spouse and the sister of the taxpayer's spouse.

3.      For the period from around 1980 to 2007, the taxpayer and his parents carried on a primary production business of farming and grazing in partnership (the Partnership) on a number of properties. In 2007, the Trust took over the Partnership's primary production business and has continued to operate a primary production business on a number of properties since then. The taxpayer has controlled the Trust since it was established in 2007 as the appointor of the Trust and as a director of the corporate trustee of the Trust (his spouse being the only other director).

4.      The Trust had aggregated turnover of less than $X million for the 2023 income year and is considered a small business entity for the 2024 income year pursuant to subparagraph 328-110(1)(b)(i) of the ITAA 1997.

5.      One of the properties used in the primary production business of the Partnership initially, and then the Trust, is the Property. The taxpayer acquired a one-third interest in the Property in 2003 and the remaining two-thirds of the Property was acquired by him in 2007.

6.      Since the taxpayer has held a 100% interest in the Property (from 2007), the Trust has used the Property wholly and exclusively in its primary production business.

7.      The taxpayer has recently taken steps to retire as a primary producer. These steps have resulted in a significant reduction of hours the taxpayer spends in the Trust's primary production business and include:

a.    the Trust not renewing a lease of a property that had formerly been used in the Trust's primary production business;

b.    the Trust significantly reducing its livestock numbers; and

c.     the Trust selling plant and equipment that had been used in the Trust's primary production business.

8.      The taxpayer intends to transfer the Property to the Fund in specie and at market value. The intention is to disregard all of the capital gain under the CGT small business 15-year exemption.

9.      The taxpayer will obtain a current market valuation of the Property prior to the proposed transfer.

10.   The taxpayer has not utilised any of his CGT cap amount.

Assumptions

1.    The taxpayer will meet the basic conditions for CGT relief for small businesses in respect of any capital gain he realises from the transfer of the Property under Subdivision 152-A of the ITAA 1997.

2.      The taxpayer will meet the small business 15 year exemption conditions under section 152-105 of ITAA 1997 in respect of any capital gain he realises from the transfer of the Property.

3.      The in specie contribution to the Fund will be made by the taxpayer on or before 30 June 2024.

4.      The taxpayer's choice to apply section 292-100 of the ITAA 1997 to an amount that is all or part of the contribution will be in the approved form and given to the trustee of the Fund on or before the time when the contribution is made.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 section 152-105

Income Tax Assessment Act 1997 section 285-5

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

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)(b)

Income Tax Assessment Act 1997 subsection 292-100(2)

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

Income Tax Assessment Act 1997 subsection 292-100(4)

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

Income Tax Assessment Act 1997 subsection 292-100(8)

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

Income Tax Assessment Act 1997 section 292-105

Income Tax Assessment Act 1997 subparagraph 328-110(1)(b)(i)

Superannuation Industry (Supervision) Act 1993 section 45

Superannuation Industry (Supervision) Act 1993 section 66

Reasons for decision

All subsequent legislative references are to the ITAA 1997, unless otherwise noted.

Summary

The proposed in specie contribution of the Property by the taxpayer to the Fund will qualify as a CGT small business concession contribution under section 292-100.

Detailed reasoning

In specie contribution

The term 'contribution' is not defined in the ITAA 1997. Taxation Ruling TR 2010/1 Income tax: superannuation contributions explains the Commissioner's view as to the ordinary meaning of the word 'contribution' in so far as it is used in relation to a superannuation fund in the ITAA 1997.

In the superannuation context, a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more members of the fund (paragraph 4 of TR 2010/1).

Section 285-5 provides that a superannuation contribution can be or include a transfer of property to the superannuation provider (an in specie contribution). The amount of any in specie contribution is or includes the market value of the property.

Section 66 of the SISA prohibits the acquisition of an asset from a related party of a superannuation fund (including a member of the fund) unless it meets a specified exception.

One of the limited exceptions to this rule allows the trustee of a fund with no more than 6 members to acquire business real property of a related party at market value. Property used wholly and exclusively in a business generally qualifies as business real property.

The proposed in specie transfer of the Property by the taxpayer to the Fund at market value will constitute a contribution to a superannuation provider which is not prohibited under section 66 of the SISA.

CGT cap amount

Subsection 292-100(1) states that a contribution is covered under section 292-100 if:

a.    the contribution is made by an individual to a complying superannuation fund in respect of the individual;

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

c.     the individual chooses to apply section 292-100 to an amount that is all or part of the contribution.

For the purposes of paragraph 292-100(1)(b), where an individual intends to disregard any capital gain resulting from a CGT event under section 152-105 (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 equal to all or part of the capital proceeds from that CGT event 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; and

•         30 days after the day they receive the capital proceeds.

Provided the taxpayer will qualify for the small business 15 year exemption in respect of any capital gain he realises from the transfer of the Property to the Fund, as assumed for the purposes of this ruling, the capital gain can be entirely disregarded. Accordingly, if the taxpayer makes an in specie contribution of the Property to the Fund in connection with his retirement on or before 30 June 2024, as proposed, the taxpayer will be eligible to choose (in accordance with subsection 292-100(9)) to apply section 292-100 to some or all of the contribution (such that it will be a contribution covered by that section).

If an individual makes a contribution covered by section 292-100, they may also be eligible to exclude all or part of that contribution from counting against their non-concessional contributions cap and instead count all or part of that contribution against their CGT cap amount under section 292-105.

Paragraph 292-90(2)(c) 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, to the extent that it does not exceed one's CGT cap amount when it is made.

For the 2024 income year, an individual's CGT cap amount is $1,705,000, reduced by any amount of contributions previously applied against the cap.