Private ruling: Capital proceeds
Date of advice: 7 November 2018
Published: March 2019

Ruling: Q1: Are the capital proceeds received from the sale of your home allowable superannuation contributions as per the Downsizer Measures? | A1: Yes

Relevant facts and circumstances: You and your spouse have resided in a residence (the Property) for more than 20 years. The Property has been your main residence. The Property was purchased on behalf of your Family Trust (the Trust) of which you and your spouse were beneficiaries. The Corporate Trustee of the Trust is a company of which you and your spouse are the sole directors. The Family Trust Deed (the Deed) was provided to determine the rights and benefits of the beneficiaries. You were granted a continuous right to occupy this property in accordance with the powers conferred on the trustee under the Deed. Less than 10 years ago, the Property was transferred by Deed of Distribution In-Specie from the Trust to you and your spouse. The property was registered in both your names. . You and your spouse currently own the property as tenants in common. Both you and your spouse are aged over 65 years. The Property is under contract with the proposed settlement date to be in the 2018-19 income year. This advice is reliant on the assumption that settlement does in fact occur and the property is disposed of. You are able to disregard, in whole or part, the capital gain or loss arising from the disposal of the property under Subdivision 118-B of the ITAA (the main residence exemption).

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 118-110 | Income Tax Assessment Act 1997 Subsection 292-102(1) | Income Tax Assessment Act 1997 Subsection 292-102(2) | Income Tax Assessment Act 1997 Section 118-130(1)

Reasons for decision: Summary: A continuous right to occupy the property is evident and will be considered to count towards the 10 year ownership period as the transition between this ownership interest and the subsequent legal interest that it to be disposed of was seamless. The capital proceeds to be received from the sale of the Property are considered to be eligible as the basis of a Downsizer contribution. | Detailed Reasoning - Detailed reasoning: From 1 July 2018, individuals aged 65 years and older may be eligible to make a downsizer contribution into their superannuation of up to $300,000 from the proceeds of selling their property. There is no maximum age limit applicable. These contributions do not count towards the concessional or non-concessional contribution caps and the individual making the contribution will not need to meet the existing maximum age or work tests for contributing to super. Eligibility to make a downsizer contribution is also not affected by the individual’s total superannuation balance. The ownership interest in the dwelling that is disposed of, or an ownership interest in the land on which the dwelling is situated, must have been held at all times during the 10 years prior to the disposal. Both members of a couple may be able to contribute to super under this measure from the proceeds of the sale. | Detailed Reasoning - Eligibility for Downsizer Contributions: Subsection 292-102(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the following conditions must be met in order to be eligible to make a Downsizer Contribution: (1) A contribution is covered under this section if: (a) the contribution is made to a complying superannuation plan in respect of you when you are aged 65 years or over; and (b) the contribution is an amount equal to all or part of the capital proceeds received from the disposal of an ownership interest (the old interest ) in a dwelling; and (c) you or your spouse held the old interest just before the disposal; and (d) any capital gain or capital loss from the disposal of the old interest: (i) for the case where you held it just before the disposal—is wholly or partially disregarded under Subdivision 118-B (or would have been if you had *acquired it on or after 20 September 1985); or (ii) otherwise—would have been wholly or partially disregarded under Subdivision 118-B had you held the old interest for a period before the disposal; and (e) the condition in subsection (2) is met for the disposal; and (f) the dwelling is located in Australia, and is not a caravan, houseboat or other mobile home; and (g) the contribution is made within 90 days, or such longer period as the Commissioner allows, after the time the change of ownership occurs as a result of the disposal; and (h) you choose, in accordance with subsection (8), to apply this section to the contribution; and (i) there is not already a contribution covered under this section, and made to a complying superannuation plan in respect of you, from an earlier choice you made in relation to the disposal of: (i) another ownership interest in the dwelling that was not a related spousal interest to the old interest; or (ii) an ownership interest in another dwelling. | Detailed Reasoning - Ownership Interest: Subparagraph 292-102(2)(a) of the ITAA 1997 requires that at all times during the 10 years just before disposal: i. The old interest was held by you, your spouse or your former spouse; or ii. An ownership interest in the land on which the dwelling is situated was held by you, your spouse or your former spouse. Subparagraph 118-130(1) of the ITAA 1997 provides that a person has an ownership interest in a land or dwelling if you have a legal or equitable interest in it or a right to occupy it. We note that subparagraph 292-102(2)(ii) doesn’t require that the individual (or their spouse) hold an ownership interest of the same nature over the period of the ten years. For example, the relevant interest could be a right to occupy for part of that period, and a different kind of interest for the rest of the period, as long as an ownership interest is held for the ten years preceding the disposal. As such, a right to occupy does convey the required ownership interest to count toward the 10 year ownership requirement. A person with a right to occupy the dwelling for a period will be entitled to take that period into account. If their right to occupy is seamlessly replaced with another ownership interest in the property, they are able to aggregate these periods. For the purposes of the Downsizer Contribution Eligibility it is apparent that a right to occupy was validly granted through the Family Trust, and this interest and the eventual legal ownership interest of the property was held at all times during the 10 years preceding the sale. This transition was seamless, so that an ownership interest was held at all times during the proceeding ten years, whether that is via the right to occupy or the subsequent legal interest which was later acquired. Less than 10 years ago, the Property was transferred from the Family Trust to you and your spouse. You continued to reside in this Property and the Property will be sold, with settlement anticipated in the 2018-19 income year. Therefore, as you and your spouse are over the age of 65, the sale of the Australian property has occurred after 1 July 2018, the capital proceeds of the home are exempt, in whole or part, from capital gains tax under the main residence exemption and your occupation of the property inclusive of the seamless transition between equitable and legal interests is more than 20 years; you have qualified to make a Downsizer Contribution.