Private ruling: CGT - transfer of shares to SMSF
Published: February 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will a capital gains tax (CGT) event occur if shares are transferred to a self-managed superannuation fund (SMSF)? | A1: Yes

Relevant facts and circumstances: The trust is a discretionary trust. The trust intends to transfer a number of listed shares to a SMSF as an in-specie transfer. The trust and the SMSF both have the same trustees.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-60 | Income Tax Assessment Act 1997 Section 116-30 | Income Tax Assessment Act 1997 Subdivision 126-G

Reasons for decision: Summary: Section 104-60 of the Income Tax Assessment Act 1997 (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. Draft Taxation Ruling TR 2004/D25 is about the meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust'. In summary, paragraph 139 states a member of a superannuation fund is not treated as if they are absolutely entitled for CGT purposes to the assets of the fund or to assets held in the member's account. Paragraphs 176 and 177 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. Prior to 1 November 2008, sections 104-55 and 104-60 of the ITAA 1997 contained an exception to the happening of CGT events E1 and E2, widely known as the 'trust cloning' exception. Under these provisions, the CGT event was disregarded where the assets were transferred to a trust from another trust and the beneficiaries and terms of both trusts were the same. From 1 November 2008, the Tax Laws Amendment (2009 Measures No. 6) Act 2010 repealed the trust cloning exceptions to CGT events E1 and E2 and, under Subdivision 126-G of the ITAA 1997, introduced a limited CGT roll-over for the transfer of assets between certain trusts with the same beneficiaries with the same interests in each trust. However, the roll-over under Subdivision 126-G of the ITAA 1997 is not available if either of the trusts are discretionary. In this case, CGT event E2 will occur when the trust transfers a number of shares to a SMSF. The exception contained in subsection 104-60(5) of the ITAA 1997 will not apply as members of a SMSF cannot be absolutely entitled to the assets. Additionally, as the trust is a discretionary trust, the rollover contained in subdivision 126-G of the ITAA 1997 will not apply.