Private ruling: In-specie contribution to superannuation; small business concessions, retirement exemption
Date of advice: 5 July 2018
Published: September 2018
Ruling period: 1 July 20xx to 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will an in-specie contribution of an ownership interest valued at $XXX,XXX in the Motel to a superannuation fund qualify as a non-concessional contribution ? | A1: Yes | Q2: Will a contribution of cash equal to the capital gain that you disregard under section 152-305 of the Income Tax Assessment Act 1997 (ITAA 1997) on the in-specie contribution of $XXX,XXX of business real property to the taxpayer’s self-managed superannuation fund constitute the required payment under subsection 152-305(1)(b)?

Relevant facts and circumstances: You own and operate the Motel. The property also includes a leased commercial office space. You will be less than 55 years old for the entire income year. You purchased the Motel on a date in 200X for $XXX,XXX. You have had the Motel valued at $X.X million dollars in 201X. You have not made a non-concessional contribution to the fund over the non-concessional contributions cap in the previous three years. You currently hold less than $X.X million in superannuation. You will obtain further market valuations of the Motel. You will make an in-specie transfer of a $XXX,XXX share of the Motel into your Self-Managed Superannuation Fund (the fund). You and the fund will then own the Motel as tenants in common. You will apply the 50% discount and the 50% active asset discount and then the Small Business retirement exemption to reduce the Capital Gains Tax payable on the contribution of the interest in the Motel to the Super Fund. You will make a written record of your intention to apply the small business retirement exemption to the discounted capital gain. After you make the in-specie contribution you will make a cash payment to the Super Fund equal to the disregarded discount taxable gain on the in-specie transfer. After the transfer the Motel will be leased to you or a related party at an arms-length market rate. Assumptions You meet the small business concession basic conditions. The Motel is an active asset and business real property.

Relevant legislative provisions: Division 152 of the Income Tax Assessment Act 1997 | Section 285-5 of the Income Tax Assessment Act 1997 | Section 292-90 of the Income Tax Assessment Act 1997 | Section 292-100 of the of the Income Tax Assessment Act 1997 | Section 66 of the Superannuation Industry (Supervision) Act 1993

Reasons for decision: Detailed Reasoning - In-specie contributions: Generally speaking, a superannuation contribution can be made in a number of ways including by transferring an asset to the superannuation provider as an in specie contribution. This is discussed in section 285-5 of the Income Tax Assessment Act 1997 (ITAA 1997), and paragraphs 4, 10, 18-25, and 151 of Taxation Ruling TR 2010/1). 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 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. A superannuation provider may breach section 66 of the SISA when an asset is acquired from a related party of the fund, such as a member (refer SMSFR 2010/1). Subsection 66(2) of the SISA does however provide an exception to the prohibition relating to the acquisition by a superannuation fund of assets from related parties where the asset is ‘business real property’ (as defined in subsection 66(5) of the SISA) and other conditions are satisfied. | Detailed Reasoning - Non-concessional contributions: 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. Section 292-90 of the ITAA 1997 explains how to work out the sum of your non-concessional superannuation contributions. Non-concessional contributions include a personal contributions for which an income tax deduction is not claimed. A non-concessional contribution does not include a payment made to a fund equal to the amount of CGT disregarded under the small business concessions. For the 201X-1X year the non-concessional contribution cap is $100,000. The bring-forward rules allow a taxpayer under the age of 65 who has less than $X.X million in superannuation to bring forward up to three years’ worth of non-concessional contributions ($300,000) where they have not exceeded this cap in either of the prior two years, and will not exceed the total of $300,000 concessional contributions in this year and the next two. | Detailed Reasoning - Application to your circumstances: You have not made a non-concessional contribution to superannuation that exceeded $100,000 in either of the prior two years. You are under 65 and you hold less than $X.X million in superannuation. The Motel is business real property. You have a market valuation of the Motel. You can treat the in-specie contribution of an ownership interest in the Motel with a market value of up to $300,000 to the fund as a non-concessional contribution to superannuation. If you claimed the entire $300,000 as a non-concessional contribution you would use up your entire bring-forward non-concessional caps for the current year and the following two years. You could not then make any additional non-concessional contributions to superannuation in this or the next two financial years without paying excess contributions tax. | Detailed Reasoning - Question 2: Division 152 of the ITAA 1997 contains the CGT small business concessions. Subdivision 152-D contains the rules around the small business retirement exemption. Under subsection 152-305(1) of the ITAA 1997 an individual can choose the retirement exemption and disregard all or part of a capital gain if: ● the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied; and ● if the individual was under 55 just before they made the choice, they contribute an amount equal to the asset’s CGT exempt amount to a complying superannuation fund or an RSA. | Detailed Reasoning - Application to your circumstances: You are under 55 years of age. You will make an in-specie contribution of an ownership interest in the Motel valued at $XXX,XXX. The in-specie contribution is a CGT event. As you receive no proceeds on the transfer, the market value rule will apply to substitute the market value for the proceeds. As you have owned the Motel for more than 12 months, the Motel is an active asset, and you meet the basic conditions for the small business concessions, you are therefore able to apply both the 50% general discount and the 50% active asset discount to reduce the gain on the transfer. As you are under 55 and eligible to apply the retirement exemption, you can disregard the discounted gain if you make a payment equal to the CGT exempt amount to your Super Fund.