Private ruling: CGT Cap
Published: June 2014

Ruling: Q1: Will the proposed in-specie contribution of post capital gains tax (CGT) property made to a complying superannuation fund qualify for the CGT cap pursuant to subsection 292-100(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provided the contribution is made by the relevant date and is on the approved form? | A1: Yes | Q2: Will the proposed in-specie contribution of pre CGT property made to a complying superannuation fund qualify for the CGT cap pursuant to subsection 292-100(2) of the ITAA 1997 provided the contribution is made by the relevant date and is on the approved form? | A2: Yes | Q3: Can the CGT event, choice to disregard all the gain and the contribution of the property all occur simultaneously? | A3: Yes

Relevant facts and circumstances: You and your partner are considering transferring real property owned individual into the Self-managed Super Fund. You were born in 19xx. Your partner was born in 19xx. You will both satisfy the work test for the 2014 financial year. You carry on an enterprise and will satisfy the requirements of the Small Business 15 year exemption. You are considering transferring the following properties at a market value determined by a qualified independent third party: • Pre CGT Property 1 owned by you, market value of $x; • Pre CGT Property 2 owned by your partner, market value of $x; • Post CGT Property 3 owned jointly by you and your partner, market value of $x. All the properties are real property used in the enterprise you carry on. No part of the properties greater than two hectares is used for private purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 292-100 | Superannuation (Industry) Supervision Act 1993 section 66

Reasons for decision: Summary: The proposed in-specie transfer of post and pre CGT property to a complying superannuation fund will satisfy all the requirements of section 292-100 of the ITAA 1997 as you will be transferring business real property eligible for the small business 15 year exemption at market value, this is provided that the contribution is made on the relevant date and on the approved form, and only to the extent that it does not exceed your CGT cap amount. The relevant date in this instance will be the date the property is transferred to the superannuation fund. This will also be the date whereby you are required to make the choice and lodge the approved form with your superannuation provider. | Detailed Reasoning - In specie transfer of business real property: Section 285-5 of the ITAA 1997 provides that a superannuation contribution can be made by transferring property to the superannuation provider (an in-specie contribution) providing the payment is or includes the market value of the property. Subsection 66(1) of the Superannuation (Industry) Supervision Act 1993 (SISA) provides that subject to subsection (2), a trustee or an investment manager of a regulated superannuation fund must not intentionally acquire an asset from a related party of the fund. Subsection 66(2) of the SISA explains that subsection (1) does not prohibit a trustee or investment manager acquiring an asset from a related party of the fund if the fund is a superannuation fund with fewer than 5 members and the asset is business real property of the related party acquired at market value. Subsection 66(5) of the SISA states that business real property in relation to an entity is defined as meaning: • any freehold or leasehold interest of the entity in real property, or • any interest of the entity in Crown land, other than a leasehold interest, being an interest that is capable of assignment or transfer, where the real property is used wholly and exclusively in one or more businesses (whether carried on by the entity or not), but does not include any interest held in the capacity of a beneficiary of a trust estate. Subsection 116-30(1) of the ITAA 1997 provides that if you received no capital proceeds from a CGT event, you are taken to have received the market value of the CGT asset that is the subject of the event (the market value is worked out as at the time of the event). In cases where a taxpayer has directed that the proceeds from the disposal of the property to their superannuation fund be credited to their member account in the superannuation fund, they are taken to have received money or other property if it has been applied for their benefit or as they direct (subsection 103-10(1) of the ITAA 1997). ATO Interpretative Decision ATO ID 2010/217 discusses the transfer of real property to a superannuation fund to satisfy the payment of the CGT retirement exemption amount. It explains that, for an individual, the transfer of real property to a complying superannuation fund satisfies the contribution required under the retirement exemption as long as the transfer satisfies the relevant provisions of the SISA. While the CGT retirement exemption concession is a separate concession to the CGT 15-year exemption concession, it is considered that the Commissioner's view on the transfer of real property for the retirement exemption will also apply to the 15-year exemption. In your case: • you have provided that the activity is being carried on all the properties, and • there is no part of the land used for private purposes that is greater than 2 hectares, and • you have stated that the property will be transferred at market value. Therefore, the property can be transferred to your SMSF if you wish to do so. | Detailed Reasoning - CGT Cap - exclusion from non-concessional contributions cap: Section 292-90 of the ITAA 1997 explains that some contributions are specifically excluded from being non-concessional contributions. One of the contributions that is excluded is a contribution covered under section 292-100 of the ITAA 1997 (certain CGT related payments) to the extent that it does not exceed the CGT cap amount ($1,315,000 for the 2013-14 financial year) when the contribution is made. The CGT cap is a lifetime limit which is indexed annually. The CGT cap is reduced by the amount of each contribution that a person has elected to be covered by the exemption from the non-concessional contributions cap under section 292-100 of the ITAA 1997. To qualify for the CGT concession under subsection 292-100(1) of the ITAA 1997 certain conditions must be met. These are: 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. Subsection 292-100(2) of the ITAA 1997 (about the 15 year exemption) provides that the requirement in this subsection will be met if: a) the contribution is equal to all or part of the capital proceeds from a CGT event for which you can disregard any capital gain under section 152-105 (or would be able to do so, assuming that a capital gain arose from the event); and, b) the contribution is made on or before the later of the following days: i. the day you are required to lodge your income tax return for the income year in which the CGT event happened; ii. 30 days after the day you receive the capital proceeds Subsection 292-100(5) operates to treat a pre-CGT asset as a post-CGT asset for the purpose of determining the requirement of subsection 292-100(20 of the ITAA 1997. Subsection 292-100(9) of the ITAA 1997 explains that to make a choice for the purposes of paragraph 292-100(1)(c), you must: a) make the choice in the approved form; and b) give it to the superannuation provider in relation to the complying superannuation plan on or before the time when the contribution is made. Application to you circumstances As previously discussed you will not be precluded from transferring the property in-specie to your SMSF under the SISA, as the property will be business real property and the transfer will be at market value. You have provided that you will be eligible for the 15 year exemption and consequently you will satisfy paragraph 292-100(2) of the ITAA 1997. Therefore, provided you satisfy the other necessary conditions to qualify for the CGT concession under subsection 292-100(9) of the ITAA 1997, to the extent that the market value of the property is under the CGT cap amount for the relevant year, the value of the property will be excluded from being a non-concessional contribution in your superannuation fund.