Issue
Would the transfer of a commercial property presently that is owned by an individual taxpayer to the superannuation fund, of which the taxpayer is a member, give rise to capital gains tax event E2?
Decision
Yes. The transfer of the asset will give rise to a CGT event E2.
Facts
The taxpayer and the taxpayer's spouse own a property which is presently leased to a third party who use the premises as part of their commercial operations. The market value of the property has been determined by qualified valuers. It is proposed that the property will be transferred to a superannuation fund on 1 July 2001.
The taxpayer and the taxpayer's spouse are the sole beneficiaries of a superannuation fund. The superannuation fund is a complying fund under the Superannuation Industry (Supervision) Act 1993 (SIS Act 1993). The taxpayer and the taxpayer's spouse are the sole directors and shareholders of the superannuation fund's trustee company which has the sole purpose of acting as trustee of the superannuation fund.
Reasons for Decision
Section 104-60 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a CGT event E2 happens if a person transfers a CGT asset to an existing trust. A CGT event E2 occurs at the time of the transfer of the ownership of the asset.
There are two circumstances where a CGT event E2 does not happen. The first is where the person creating the trust is the sole beneficiary of the trust and is absolutely entitled to the asset as against the trustee (disregarding any legal disability) (paragraph 104-60(5)(a) of the ITAA 1997). A beneficiary would be "absolutely entitled" to an asset as against the trustee where the interest of the beneficiary is not contingent but is vested, indefeasible and is of a kind which enables the beneficiary to direct the trustee to convey the asset to the beneficiary or otherwise ( Tomlinson v Glyns Executor & Trustee Co; Hoare Trustees V Gardiner ( 1978) STC 89).
The second instance where a CGT Event E2 does not happen is if there is effectively just a change of trustee, ie where the asset was transferred from another trust and the beneficiaries and terms of both trusts are the same (paragraph 104-60(5)(b) of the ITAA 1997).
We consider that the transfer of the asset by the taxpayer to the superannuation fund will constitute a CGT event E2 as none of the exceptions set out in section 104-60 of the ITAA 1997 are applicable.
Tomlinson v Glyns Executor & Trustee Co
Hoare Trustees v. Gardiner (1978) STC 89