Will the in-specie contribution of property to your superannuation fund qualify as a capital gains tax (CGT) small business concession contribution under section 292-100 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. This advice applies for the following period: 1 July 20XX to 30 June 20XX
1. You are a member and a director of a corporate trustee of your self-managed superannuation fund (the Fund). 2. You are a member of the Fund. The only other member of the Fund is your spouse. 3. You have jointly owned Properties with your spouse for over 15 years. 4. The Properties were used in your farming business. 5. You have recently retired. Assumptions 6. You intend to transfer the Properties to the Fund as an in specie contribution during the 20XX year of income 7. You satisfy the basic conditions to access the small business CGT concessions under Subdivision 152-A of the ITAA 1997. 8. You will obtain a current market valuation of the property prior to the transfer.
Income Tax Assessment Act 1997 section 285-5 Income Tax Assessment Act 1997 Subdivision 152-A Income Tax Assessment Act 1997 section 292-90 Income Tax Assessment Act 1997 section 292-100 Income Tax Assessment Act 1997 section 292-105 Superannuation Industry (Supervision) Act 1993 section 66 Other relevant documents Taxation Ruling TR 2010/1: Income tax: superannuation contributions
Small business 15-year exemption In accordance with section 152-105 of the ITAA 1997 you can disregard a capital gain from a CGT event happening to a CGT asset if you: • satisfy the basic conditions for the CGT small business concessions as per Subdivision 152A • continuously owned the CGT asset for the 15-year period ending just before the CGT event happened If you are an individual, you must have been: • at least 55 years old and the CGT event happened in connection with your retirement, or • permanently incapacitated at the time of the CGT event. Whether a CGT event happens in connection with an individual's retirement depends on the particular circumstances of each case. There would need to be at least a significant reduction in the number of hours the individual works or a significant change in the nature of their present activities to be regarded as a retirement. However, it isn't necessary for there to be a permanent and everlasting retirement from the workforce. In-specie contribution The term 'contribution' is not defined in the ITAA 1997. Taxation Ruling TR 2010/1: Income tax: superannuation contributions
outlines the Commissioner's view on the ordinary meaning of contribution, how a contribution can be made and when contributions are made for the purposes of the ITAA 1997. 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 contribution is or includes the market value of the property. Section 66 of the Superannuation Industry (Supervision) Act 1 993 prohibits the acquisition of an asset from a related party of a superannuation fund, unless it meets a specified exception. A member is a related party of a fund. One of the limited exceptions to this rule allows a fund trustee to acquire business real property from a related party at market value. Property that is used wholly and exclusively in a primary production business would generally meet the farming land business real property definition. Based on the information provided the Fund will acquire Properties that meet the definition of business real property at market value. CGT lifetime cap
If an individual makes an in-specie contribution of an asset to their self-managed superannuation fund with the intent of disregarding all or part of the capital gain under the CGT small business concessions, they may also be eligible to exclude all or part of that contribution from counting against their non-concessional cap and instead be counted against their CGT cap under section 292-105 of the ITAA 1997. For the 2022-23 income year, an individual's CGT cap amount is $1,650,000 reduced by any amount of contributions previously applied against the cap. Paragraph 292-90(2)(c) of the ITAA 1997 provides for certain types of contributions to be excluded from being considered a non-concessional contribution. One such contribution is a contribution covered under section 292-100 relating to certain CGT-related payments, to the extent that it does not exceed your CGT cap amount when it is made. Subsection 292-100(1) of the ITAA 1997 states that a contribution is covered under this section if it is: a) a contribution made by an individual to a fund in respect of the individual; b) the requirement in subsections (2), (4), (7) or (8) is met; and
c) the individual chooses to apply this section to an amount that is all or part of the contribution. Where an individual intends to disregard any capital gain resulting from a CGT event under section 152-105 of the ITAA 1997 (15 year exemption for individuals), subsection 292-100(2) is the appropriate subsection to consider. Paragraph 292-100(2)(b) requires an individual to make a contribution to their superannuation fund before the later of: • the day they are required to lodge their income tax return for the income year in which the CGT event happened; • 30 days after the day they receive the capital proceeds As you will qualify for the small business 15 year exemption during the 20XX-XX income year, the capital gain can be entirely disregarded. Accordingly, if you make an in-specie contribution of the property to your Fund in connection with your retirement, you are eligible to choose to exclude some or all of the contribution from being a non-concessional contribution, up to your CGT cap. The choice will only be valid if it is: • made in the approved form; and • given to the superannuation fund on or before the time the contribution is made.
With regard to the in-specie contribution, the legislation does not prevent the CGT event, choice and contribution of the 15-year exempt amount from happening simultaneously.