Private ruling: Transfer of assets from a testamentary trust to a self-managed superannuation fund
Published: September 2013
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: If you transfer assets to which you are absolutely entitled to a self-managed superannuation fund (SMSF) will a capital gains tax (CGT) event occur? | A1: Yes

Relevant facts and circumstances: You and your spouse are the trustees of a testamentary trust. You and your spouse are the beneficiaries of the testamentary trust. In accordance with the will, and a deed of variation that altered the terms of the will, upon the vesting date you will be entitled to specified assets of the testamentary trust. A deed of variation was entered into to extend the vesting date. All assets held by the testamentary trust are cash or shares listed on the Australian Stock Exchange. You and your spouse are trustees of a SMSF. You and your spouse are also members of the SMSF.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-60 | Income Tax Assessment Act 1997 Section 106-50

Reasons for decision: Summary: Where a beneficiary is absolutely entitled to a CGT asset as against the trustee, section 106-50 of the Income Tax Assessment Act 1997 (ITAA 1997) states that any act done in relation to the CGT asset by the trustee will be treated as if the act was done by the absolutely entitled beneficiary. Example: An individual becomes absolutely entitled to a CGT asset of a trust. The trustee later sells the asset. Any capital gain or loss from the sale is made by the individual, not the trustee. Draft Taxation Ruling TR 2004/D25, discusses the circumstances in which a beneficiary of a trust is considered to be absolutely entitled to a CGT asset of a trust as against its trustee. TR 2004/D25 explains that the provisions dealing with capital gains and losses treat an absolutely entitled beneficiary as the relevant taxpayer in respect of the asset. The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction. You, as a beneficiary of the testamentary trust are not entitled to call for the relevant assets to be transferred to you until the vesting date. Accordingly, until the vesting date has been reached, you are not absolutely entitled to any assets of the testamentary trust and section 106-50 of the ITAA 1997 will not apply. | Detailed Reasoning - Transferring assets after the vesting date: On the vesting date, you will become absolutely entitled to a number of assets of the testamentary trust. From this point, section 106-50 of the ITAA 1997 will apply to treat any act done in relation to those assets, as an act done by you. Section 104-60 of the ITAA 1997 provides CGT event E2 happens when a CGT asset is transferred to an existing trust. However, subsection 104-60(5) provides CGT event E2 does not happen if you are the sole beneficiary of the trust and you are absolutely entitled to the asset as against the trustee (disregarding any legal disability) and the trust is not a unit trust. In relation to superannuation funds, TR 2004/D25 provides that a member of a superannuation fund is not treated as if they were absolutely entitled for CGT purposes to the assets of the fund or to assets held in the member's account. We take this view regardless of whether the member has met a condition of release for the payment of benefits. Paragraphs 176 and 177 of TR 2004/D25 provide the following example: Bill contributes to his own self-managed superannuation fund. He transfers some shares to the fund which he had previously purchased in his own name. Bill is the only member of the fund. The transfer of the shares from Bill to the fund will cause CGT event E2 to happen. The exception to CGT event E2 that applies if the transferor of assets to a trust is the sole beneficiary of the trust and is absolutely entitled to the assets does not apply in the case of a transfer of an asset to a superannuation fund. Accordingly, if you transfer the relevant assets from the testamentary trust to the SMSF on or after the vesting date, CGT event E2 will occur and you may make a capital gain or loss.