Will a contribution to the Fund qualify as a capital gains tax (CGT) small business retirement exemption 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
You are over 55 years of age. You own a property. The property will be transferred to your superannuation fund (the Fund) in-specie. The intention is to disregard some or all of the capital gain under the CGT small business retirement exemption. You acquired the property in 20XX. For the entire period of ownership, the property has been used in the farming business that you carry on in a partnership. The property has recently been valued by an independent valuer. You have not utilised any of your CGT superannuation cap. Assumptions You satisfy the basic conditions to access the small business CGT concessions under Subdivision 152-A of the ITAA 1997. 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 Subdivision 152-D Income Tax Assessment Act 1997 section 152-305 Income Tax Assessment Act 1997 section 152-320 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 retirement exemption The small business retirement exemption under Subdivision 152-D of Part 3-3 of the ITAA 1997 allows individuals the choice to disregard up to $500,000 (section 152-320) in qualifying capital gains. An individual may choose to disregard all or part of a capital gain under the small business retirement exemption by satisfying the conditions outlined below: • A CGT event happens in relation to a CGT asset in an income year; • The event would have resulted in a capital gain; • The basic conditions in Subdivision 152-A of the ITAA 1997 are met; and • A choice is made to disregard all or part of the capital gain under subsection 152-305(1). This disregarded amount is known as the asset's 'CGT exempt amount'. Subsection 152-305(1) of the ITAA 1997 provides: Individual 152-305(1) If you are an individual, you can choose to disregard all or part of a *capital gain if: (a) the basic conditions in Subdivision 152-A are satisfied for the gain; and (b) if you are under 55 just before you make the choice - you contribute an amount equal to the asset ' s *CGT exempt amount to a *complying superannuation fund or an *RSA; and (c)
the contribution is made: (d) (i) if the relevant CGT event is CGT event J2, J5 or J6 - when you made the choice; or (e) (ii) otherwise - at the later of when you made the choice and when you received the proceeds. Where an individual is aged 55 years or over, there is no requirement that a contribution be made to a superannuation fund in order for the individual to meet the requirements of the CGT small business retirement exemption. 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. Paragraphs 18 to 25 discuss when an in-specie contribution is made to a superannuation fund. Paragraph 20 of TR 2010/1 states:
A contribution by way of a transfer of an asset will be made when the superannuation provider obtains ownership of the asset from the contributor. The Commissioner accepts the superannuation provider obtains ownership of an asset when beneficial ownership of the asset is acquired and that beneficial ownership can be acquired earlier than legal ownership. 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. Farming land used wholly and exclusively in a primary production business would generally 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 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 2021-22 income year, an individual's CGT cap amount is $1,615,000 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 subsection 152-305(1) of the ITAA 1997 (small business retirement exemption), subsection 292-100(7) is the appropriate subsection to consider. Paragraph 292-100(7)(b) requires an individual to make a contribution, equal to all or part of the CGT exempt amount, to their superannuation fund on or 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 retirement exemption, you can choose to disregard all or part of the capital gain up to $500,000. Accordingly, if you make an in-specie contribution of the property to your Fund, you can choose to exclude all or part of the CGT exempt amount from being a non-concessional contribution, up to your CGT cap. The choice will only be valid under subsection 292-100(9) of the ITAA 1997 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 small business retirement exempt amount from happening simultaneously for someone over the age of 55. Any amount of the in-specie contribution that is over and above the CGT exempt amount will count as a non-concessional contribution and will be assessed against your non-concessional contribution cap for the relevant income year.