Will the in-specie transfer of business real property to your superannuation fund qualify as a capital gains tax (CGT) small business contribution under section 292-100 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. Question 2 Will an amount that exceeds the CGT cap under section 292-105 of the ITAA 1997 be a non-concessional contribution. Answer Yes. This advice applies for the following period: 1 July 2024 to 30 June 2025
You are both over 55 years of age. You are partners in a Partnership. You are members of a Self-Managed Superannuation Fund (the Fund). You jointly own Property. The Property has been owned for more than 15 years and is a Partnership asset. The Property has been leased to a related Company. You are the only directors and shareholders of the Company. You have not used any of your CGT lifetime cap. You plan to transfer the Property to the Fund in-specie and then retire. The intention is to disregard some or all of the capital gain under the CGT 15-year exemption. Assumptions You intend to transfer the Property as an in-specie contribution to the Fund during 2024-25 income year. You satisfy the basic conditions to access the small business CGT concessions under Subdivision 152-A of the ITAA 1997.
Income Tax Assessment Act 1997 section 285-5 Income Tax Assessment Act 1997 Subdivision 152-A Income Tax Assessment Act 1997 section 152-105 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
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. The provisions relating to the small business 15-year exemption do not define what is meant by the phrase 'in connection with a taxpayer's retirement, nor does it give any indication of the degree of retirement required in order to take advantage of this concession. The words 'in connection with' can also apply where the CGT event occurs sometime after retirement. In your case, the Property's use was an integral part of your business and it is reasonable to conclude that it always formed part of your retirement plan.
You satisfy the basic conditions for the CGT small business concessions and have owned the asset continuously for more than 15 years. As you are over 55 years of age you will meet the 15-year exemption due to retirement when you dispose of your property during the 2025 year of income. 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 1993 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. Where a commercial property of the members is being used wholly and exclusively in a business at the time of transfer it will meet the business real property definition. Based on the information provided the Fund will acquire property that meets 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 SMSF 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. An individual's lifetime CGT contribution cap is $1,780,000 for the 2024-25 year of income and it operates separately from the non-concessional contribution 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) are 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. The contribution requirement is 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) b) the contribution is made on or before the later of the following days: • 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. The 15-year exemption contribution relates to the capital proceeds from the sale of the property and not the actual capital gain amount. You are eligible for the small business CGT concessions relating to the sale of the Property, as per section 152-105 of the ITAA 1997. As you are eligible for the 15-year exemption, you may contribute all or part of the capital proceeds from the sale of the Property provided they are made within the legislated timeframe. The choice to exclude the contribution from being a non-concessional contribution will only be valid if it is made in the approved form and given to the 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. CGT Non-concessional contributions Where you make a personal superannuation contribution using the capital proceeds under the CGT 15-year exemption, any amount which is not excluded under the election or exceeds the CGT lifetime cap of $1,780,000 for the 2024-25 income year, will be classed as a non-concessional contribution. From 1 July 2024, the non-concessional contributions cap is $120,000. Members under 75 years of age may be able to make non-concessional contributions of up to 3 times the annual non-concessional contributions cap in a single year. If eligible, when you make contributions greater than the annual cap, you automatically gain access to future year caps. This is known as the 'bring-forward' option. Your combined CGT 15-year exempt amount under the CGT lifetime cap will be 2 x $1,780,000 ($3,560,000) for the 2025 income year. Applying the bring forward provisions, the combined maximum non-concessional contribution amount for the 2025 income year will be 2 x $360,000 ($720,000).