Private ruling: Non-concessional contributions and CGT small business concession
Date of advice: 8 July 2020
Published: August 2020

Ruling: Q1: Will the contribution by the Taxpayer of an amount equal to the capital proceeds arising from the sale of a CGT asset by the Trust in the year ended 30 June 2019, satisfy the requirements in subsection 292-100(4) of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: All references are to the Income Tax Assessment Act 1997 unless otherwise noted. The Trust ran a business for more than 15 years. The business was sold in the 2019 financial year. The Trust met the requirements in section 152-110 to qualify for the CGT small business 15 year exemption. The Trust received proceeds from the CGT event and made a capital gain after taking into account the cost base of the goodwill (the active asset). The Taxpayer is entitled to receive capital distributions from the Trust and will receive 100% of the capital proceeds from the sale of the goodwill. The payment of the capital proceeds will be made to the Taxpayer by the Trust before two years after the CGT event. The Taxpayer will contribute all of the capital proceeds to a complying superannuation fund within 30 days of the payment of the capital proceeds to them from the Trust. The Taxpayer will make the choice, available in section 292-100, to exclude the contribution from their non-concessional contributions in the approved form which they will give to the trustee of the complying superannuation fund on or before the time the contribution is made. The Taxpayer's stakeholder's participation percentage in the Trust for the purposes of section 152-125 is 100%. The Taxpayer was a significant individual and CGT concession stakeholder of the Trust just before the sale. The Taxpayer was over 55 years of age at the time of the sale and retired in connection with the CGT event.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-110 | Income Tax Assessment Act 1997 section 152-125 | Income Tax Assessment Act 1997 section 292-90 | Income Tax Assessment Act 1997 section 292-100

Reasons for decision: Summary: The Trust can make a payment of the capital proceeds to the Taxpayer, who can contribute that amount into a complying superannuation fund. The Taxpayer can make the choice available in section 292-100 to exclude the contribution from their non-concessional contributions. The contribution will be excluded from the Taxpayer's non-concessional contributions to the extent it does not exceed their CGT Cap amount when it is made. | Detailed Reasoning - Detailed reasoning: Under paragraph 292-90(2)(c) a contribution is excluded from a person's non-concessional contributions if the contribution is covered under section 292-100 to the extent it does not exceed the person's CGT cap amount when it is made. Subsection 292-100(1) states that a contribution is covered under this section if: (a) the contribution is made by you to a *complying superannuation plan in respect of you in a *financial year; and (b) the requirement in subsection (2), (4), (7) or (8) is met: and (c) you choose, in accordance with subsection (9), to apply this section to an amount that is all or part of the contribution. As the Trust can disregard the capital gain under section 152-110, subsection 292-100(4) is the relevant subsection to consider. Subsection 292-100(4) states the requirement in this subsection is met if: (a) just before a *CGT event, you were a *CGT concession stakeholder of an entity that could, under section 152-110, disregard any *capital gain arising from the CGT event (or would be able to do so, assuming that a capital gain arose from the event); and (b) the entity makes a payment to you before the later of: (i) 2 years after the CGT event; and (ii) if the CGT event happened because the entity *disposed of the relevant *CGT asset - 6 months after the latest time a possible *financial benefit becomes or could become due under a *look-through earnout right relating to that CGT asset and the disposal; and (c) the contribution is equal to all or part of your stakeholder's participation percentage (within the meaning of subsection 152-125(2)) of the *capital proceeds from the CGT event (but not exceeding the amount of the payment mentioned in paragraph (b)); and (d) the contribution is made within 30 days after the payment mentioned in paragraph (b). The Trust can disregard the gain from the sale of the goodwill under section 152-110 and the Taxpayer was a CGT concession stakeholder of the Trust just before the sale. The requirement in paragraph 292-100(4)(a) is met. The Trust will make a payment of the capital proceeds to the Taxpayer before 2 years after the CGT event satisfying the requirement in paragraph 292-100(4)(b). The Taxpayer will contribute the amount of the capital proceeds to a complying superannuation fund. As the Taxpayer's stakeholder's participation percentage is 100% this will satisfy the requirement in paragraph 292-100(4)(c). The requirement in paragraph 292-100(4)(d) will be satisfied as the contribution will be made within 30 days of the payment from the Trust to the Taxpayer. The Taxpayer can make the choice in section 292-100 and to the extent that the contribution does not exceed their CGT cap amount it will not be a non-concessional contribution. The request for advice raises the issue of whether section 152-125 limits the amount of the payment the Trust can make to the Taxpayer for the purposes of paragraph 292-100(4)(b) to the amount of the capital gain that is disregarded under section 152-110. Section 152-125 specifically deals with payments relating to the amount that is regarded as the exempt amount. Accordingly, payments relating to the exempt amount can't exceed 100% of the exempt amount. Section 152-125 does not deal with payments not related to the exempt amount and does not impact on other payments an entity can make to an individual who is a CGT concession stakeholder. Accordingly, section 152-125 does not limit the amount the Trust can pay to the Taxpayer. In this case, the Trust will pay the amount of the capital proceeds to the Taxpayer. As section 152-125 only deals with payments relating to the exempt amount it is only the amount of the gain disregarded under section 152-110 which is taken into account when applying this provision. However, for the purposes of paragraph 292-100(4)(b) the payment referred to there is the amount of the capital proceeds.