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Is the disposal of a taxpayer's superannuation policy upon the demutualisation of United Kingdom Scottish Widows Fund and Life Assurance Society a CGT Event under Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes, the disposal of the superannuation policy is a CGT event C2 pursuant to section 104-25 of the ITAA 1997.

The taxpayer had taken out an employer-sponsored superannuation policy with the United Kingdom Scottish Widows Fund and Life Assurance Society (the UK Society) after 20 September 1985.

The contributions made under the policy have been preserved in the fund for payment later when the taxpayer attains the retirement age. No contributions have been made to the fund for many years.

The UK Society demutualised and paid compensation to qualifying members for the loss of their membership rights.

On the demutualisation of the UK Society, the taxpayer surrendered a CGT asset, the membership rights. The cancellation of the membership rights was a CGT event C2, cancellation, surrender and similar endings under section 104-25 of the ITAA 1997.

The time when the CGT event happened was the date that the UK Society demutualised.

The capital gain was the difference between the cost base of the taxpayer's membership rights and the capital proceeds. The capital proceeds were the total amount the taxpayer received for the cancellation of the membership rights. The cost base of the membership rights was nil as the payments made to the UK Society only related to the superannuation policy, not the membership rights.

Under subsection 115-25(1) of the ITAA 1997 a capital gain is a discount capital gain only if it is made from a CGT asset that was acquired at least 12 months before the CGT event happened. The taxpayer was entitled to the 50% CGT discount because the membership rights were held for more than 12 months. The taxpayer, being the superannuation policyholder, was considered to have held a continuous membership interest with the UK Society.

When the first contribution was made under the superannuation policy, the taxpayer acquired the membership rights in the UK Society. The taxpayer's membership rights would not be terminated even if no further contributions were to be made. The money had to be retained and be managed in the fund until the member attained the retirement age.