Private ruling: Capital Gains Tax
Ruling period: Year ended 30 June 2008
Date scheme commenced: 1 July 2007

Ruling: Q1: Did the sale of interests in a commercial property from Applicant 1 to Applicant 2 and Applicant 3 result in a capital gains tax (CGT) event to Applicant 1? | A1: Yes | Q2: Does the Commissioner of Taxation accept that the sale Applicant 1 to Applicant 2 and Applicant 3 occurred on 30 June 2008? | A2: Yes | Q3: Does the Commissioner of Taxation accept that Applicant 2 transferred his interests to Applicant 4 effective on 30 June 2008? | A3: Yes | Q4: Does the Commissioner of Taxation accept that Applicant 3 transferred his interests Applicant 5 effective on 30 June 2008? | A4: Yes Issue 2 - Non-concessional contributions - In specie contributions | Q5: Are the in specie contributions to the Applicant 4 and Applicant 5 non-concessional contributions? | A5: Yes

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. Applicant 1 sold a proportion of its interests to Applicant 2 and lodged the transfer with the Land Registry of the State Revenue Office (SRO) during the year ended 30 June 2008. Applicant 1 sold a proportion of its interests to Applicant 3 and lodged the transfer with the SRO also during the year ended 30 June 2008. Applicant 2 subsequently transferred his interests from Applicant 1 to Applicant 4 and lodged the transfer with the Land Registry of the SRO. Applicant 3 subsequently transferred his interests from Applicant 1 to Applicant 5 and lodged the transfer with the Land Registry of the SRO. Before the transfers were registered, the Land Registry rejected all transfers as they did not consider they were properly assessed at the SRO. The matter was finalised and the transfers registered sometime after 30 June 2008 with the stamped date being the original lodgement date. You have provided bank statements indicating that Applicant 4 and Applicant 5 have been receiving rent from the commercial property since the original transfer date. Both Applicant 2 and Applicant 3 were over 65 years of age at the time of transfer. Both Applicant 2 and Applicant 3 were employees of Applicant 1 in the 2007-08 income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-5. Income Tax Assessment Act 1997 Section 104-10. Income Tax Assessment Act 1997 Section 116-30. Income Tax Assessment Act 1997 Section 292-90. Income Tax Assessment Act 1997 Section 292-80. Income Tax Assessment Act 1997 Subsection 292-85(2). Income Tax Assessment Act 1997 Subsection 292-85(3). Income Tax Assessment Act 1997 Section 292-410. Superannuation Excess Non-concessional Contributions Tax) Act 2006 Section 4 Superannuation Excess Non-concessional Contributions Tax) Act 2006 Section 5

Reasons for decision: Detailed Reasoning - Disposal of a CGT asset: Under section 104-10 of the Income Tax Assessment Act 1997 ('ITAA 1997'), a CGT event A1 happens if a taxpayer disposes of a CGT asset. A taxpayer disposes of a CGT asset if a change of ownership occurs from the taxpayer to another entity, whether because of some act or event or by operation of law. However a CGT event A1 will not happen if there is no change in the beneficial ownership of the asset, even though there may be a change in the legal ownership. The concept of 'beneficial ownership' is not defined for the purposes of the ITAA 1997. However it is generally accepted that it denotes absolute entitlement to the benefit of the relevant property. A fundamental aspect of general property law is that it is possible for legal ownership to be separated from beneficial ownership, as where a trustee of a bare trust holds the legal title to an asset while the benefits arising from that asset flow to another. In J Sainsbury v O'Connor (HMIT ) [1991] STC 318; [1991] BTC 181, Lord Justice Nourse defined 'beneficial ownership' as: "Ownership for your own benefit as opposed to ownership as trustee for another. It exists where there is no division of legal and beneficial ownership or where legal ownership is vested in one person and the beneficial ownership, or which is the same thing, the equitable interest in the property in another. Thus, to take the simplest case of divided ownership to which section 532(3) can apply, if company A is the registered holder of shares in company B as nominee, i.e. as bare trustee, for company C, the beneficial ownership of the shares or the equitable interest in them is vested in company C." | Detailed Reasoning - Question 1: Capital gains tax (CGT) event A1 happens if you dispose of a CGT asset that you own. You are taken to have disposed of an asset if there is a change of ownership of the asset from you to another entity. The time of the event will normally occur at the time that you enter into the contact for the disposal or if there is no contact - when the change of ownership occurs. Therefore; the sale of interests in the commercial property from Applicant 1 to Applicant 2 and Applicant 3 resulted in a capital gains tax (CGT) event A1 to Applicant 1. | Detailed Reasoning - Questions 2 to 4: All the sales and transfers of interests in the commercial property were lodged with the Land Registry of the SRO during the year ended 30 June 2008. Before the transfers were registered, the Land Registry rejected all transfers as they did not consider they were properly assessed at the SRO. The matter was finalised and the transfers registered sometime later with the stamped date being the original lodgement date. Although the transfers were not registered until sometime later, due to a dispute with the Land Registry of the SRO, evidence has been provided to indicate that Applicant 4 was collecting rent and paying expenses for the commercial property from the date of the original transfer. The evidence was in form of bank statements for Applicant 4. This indicates that Applicant 4 had beneficial ownership of the interests in the commercial property from the date of the original transfer. The transfers were not registered until sometime later due to a dispute with the Land Registry of the SRO, however, evidence has been provided to indicate that Applicant 5 was collecting rent and paying expenses for the commercial property from the original transfer date. This evidence was in form of bank statements for Applicant 5. This indicates that Applicant 5 had beneficial ownership of the interests in the commercial property from the original transfer date. | Detailed Reasoning - Issue 2: Non-concessional contributions - In specie contributions | Summary: The transfer of each member's interest in the property by way of an in specie contribution to their respective superannuation funds are contributions for the purposes of Part 3-30 of the Income Tax Assessment Act 1997 (ITAA 1997). As no tax deduction was claimed for the 2007-08 income year in respect of the in specie contributions they are non-concessional contributions. The in specie contribution made by Applicant 2 exceeds his non-concessional contribution cap for the 2007-08 income year. The in specie contribution made by Applicant 3 exceeds his non-concessional contribution cap for the 2007-08 income year. As neither Applicant 2 nor Applicant 3 were under age 65 during the 2007-08 income year, the 'bring forward' provision is not available. In making this decision, the Commissioner has not considered the following matters under the Superannuation Industry (Supervision) Act 1993 : · the complying status of the fund; · acceptance of superannuation contributions; · the in-house asset rules; · the real business property; and · the prohibition on acquiring assets from related parties. | Detailed Reasoning - In specie contributions: Taxation Ruling TR 2010/1 explains the Commissioner's views as to the ordinary meaning of the word 'contribution' in so far as 'contribution' is used in relation to a superannuation fund, approved deposit fund or retirement savings account in the ITAA 1997. At paragraph 4 of TR 2010/1 it is stated: 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 particular members of the fund or all of the members in general. Paragraph 10 states: The capital of a superannuation fund may be increased directly by: · transferring funds to the superannuation provider; · rolling over a superannuation benefit from another superannuation fund; · transferring an existing asset to the superannuation provider (an in specie contribution); · creating rights in the superannuation provider (also an in specie contribution); or · increasing the value of an existing asset held by the superannuation provider. Transferring an existing asset by way of an in specie contribution is discussed at paragraphs 18 to 25 of TR 2010/1 which state: 18. The fund's capital will be increased when a person transfers an asset to the superannuation provider but the provider pays no consideration or pays consideration less than the market value of the asset. 19. For example, a person might transfer shares they own in a stock exchange listed company to the superannuation provider to make a superannuation contribution. 20. A contribution by way of a transfer of an asset will be made when the superannuation provider obtains ownership of the asset from the contributor. The Commissioner accepts the superannuation provider obtains ownership of an asset when beneficial ownership of the asset is acquired and that beneficial ownership can be acquired earlier than legal ownership. 21. For many classes of property, there is no formal registration process that evidences ownership. For such property, the ownership of property will often pass when the provider acquires [physical] possession of the property. However, the Commissioner accepts that ownership of property may be acquired earlier than [physical] possession is obtained, for example, on execution of a deed of transfer of the property. 22. For a class of property, the legal ownership of which is evidenced by a system of formal registration (for example shares in a publicly listed company or Torrens System land), legal ownership will pass when the superannuation provider is registered as the owner. However, beneficial ownership may be transferred earlier. 23. A superannuation provider acquires the beneficial ownership of real property when the provider obtains possession of a properly executed transfer that is in registrable form together with any title deeds and other documents necessary to procure registration of the superannuation provider as the legal owner of the land. 24. A superannuation provider acquires the beneficial ownership of shares or units in an Australian Stock Exchange listed company or unit trust when the provider obtains a properly executed off-market share transfer in registrable form. 25. A contributor or superannuation provider who seeks to argue a contribution of property occurs when beneficial, not legal, ownership of property passes must retain sufficient evidence of the relevant transactions and events to precisely identify when the change of beneficial ownership occurs. In the present case, as previously discussed above, it is accepted that both Applicant 4 and Applicant 5 had beneficial interests in the commercial property from 30 June 2008. Accordingly, in specie contributions representing those beneficial interests were made on 30 June 2008 to each superannuation fund by the respective members. As such, the in specie contributions are contributions for the purposes of Part 3-30 of the ITAA 1997. | Detailed Reasoning - Non-concessional contributions: From 1 July 2007, non-concessional contributions made to a complying superannuation fund will be subject to an annual cap (subsection 292-85(2) of the ITAA 1997). For the 2007-08 income year onwards the annual cap is three times the concessional contributions cap. Therefore, for the 2007-08 income year the annual cap is $150,000. Non-concessional contributions include: · personal contributions for which an income tax deduction is not claimed; · contributions a person's spouse makes to the person's superannuation fund account (spouse contributions); and · transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income). An individual's non-concessional contributions in a financial year are generally contributions made by or for that individual in that year that are not included in the assessable income of a superannuation provider. However, some contributions are specifically excluded from being non-concessional contributions. These include: · a Government co-contribution; · a contribution arising from a structured settlement or an order for personal injury; · a contribution relating to some capital gains tax (CGT) small business concessions to the extent that it does not exceed the CGT cap amount ($1,000,000 indexed annually) when it is made; and · a roll-over or transfer of a superannuation benefit between complying funds. A person will be taxed on non-concessional contributions over the cap at the rate of 46.5% (section 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2006 ). The person will be required to ask their superannuation fund to release an amount that is equal to the tax liability (section 292-410 of the ITAA 1997). In the present case, an in specie contribution was made by Applicant 2 to Applicant 4 during the 2007-08 income year. No deduction was claimed in respect of this contribution. Therefore, the in specie contribution is a non-concessional contribution for the income year. As Applicant 2's non-concessional contribution cap for the 2007-08 income year is $150,000, there will be excess non-concessional contributions for that income year. Similarly, an in specie contribution of $183,260 was made by Applicant 3 to Applicant 5 during the 2007-08 income year. No deduction was claimed in respect of this contribution. Therefore, the in specie contribution is a non-concessional contribution for the income year. As Applicant 3's non-concessional contribution cap for the 2007-08 income year is $150,000, there will be excess non-concessional contributions for that income year. As neither Applicant 2 nor Applicant 3 were under age 65 during the 2007-08 income year, the 'bring forward' provision under subsection 292-85(3) of the ITAA 1997 is not available.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.