Private ruling: Capital gains tax - investment - superannuation fund
Published: July 2012
Ruling period: Year ended 30 June 2011. | Year ended 30 June 2012.
Date scheme commenced: 1 July 2010.

Ruling: Q1: Will the proceeds received from redeeming the shares at maturity during several financial years be treated as unfranked dividends for tax purposes? | A1: Yes. | Q2: Will the in specie distribution of several investments result in a capital gains tax (CGT) event? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 104-10 | Income Tax Assessment Act 1997 - Section 202-40 | Income Tax Assessment Act 1997 - Section 202-45 Reasons for decision | Unfranked dividends: | Pursuant to subsection 202-40(1) of the Income Tax Assessment Act 1997 (ITAA 1997), a distribution is a frankable distribution to the extent that it is not unfrankable under section 202-45 of the ITAA 1997. Section 202-45 of the ITAA 1997 lists those distributions that are unfrankable distributions. Paragraph 202-45(c) of the ITAA 1997 provides that so much of the buy-back purchase price that exceeds the market value of the share at the time of the buy-back (if the buy-back did not occur or was never proposed to occur) is an unfrankable distribution. | In this case several investments matured in the fund over numerous financial years. The shares were redeemed on the maturity dates and amounts were made on the three investments due to the redemption proceeds received exceeding the amount paid to acquire each share. Therefore, the amounts made on redeeming the shares will be treated as unfranked dividends for tax purposes. The unfranked dividend will be included in the assessable income of the fund in the financial year the redemption proceeds are received. | Capital gains tax: | CGT is the tax a fund pays on certain gains they make. It is not a separate tax and any capital gain that is made is included in assessable income and taxed at marginal tax rates. | A fund will make a capital gain or capital loss, if and only if, a CGT event happens to a CGT asset that the fund owns. The most common event, CGT event A1, happens if a fund disposes of their ownership interest in an asset. | In this case the fund held several other investments. The fund made an in specie distribution of these investments to the sole member of the fund. Upon making this distribution CGT event A1 will occur as the fund has disposed of their ownership in the asset (investments). If the asset has been held by a complying superannuation fund for longer than 12 months, they may apply the CGT discount on any capital gain made on the disposal of that asset.


Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: The fund had several separate capital guaranteed investments. | Each investment was for several thousand shares. | The maturity dates for the several investments ranged over numerous years. | An investment matured and was cashed out during a particular financial year. | Several other investments matured and were cashed out during another financial year. | There was a sole member of the fund. | The trustees of the fund decided to make in specie distributions of the several remaining investments to the sole member of the fund under the terminal illness conditions because the investment had a maturity time perhaps beyond life expectancy. | The in specie distribution was made and resulted in gains to the fund.