The Cgt Retirement Exemption Can You Contribute Real Property ?
Firstly, lets just get our frame of reference. These are the facts of the situation that the ATO has used:
* It involves an individual taxpayer, who is less than 55 y.o.
* They have made a capital gain from the sale of an active asset.
* The individual is considering choosing the small business retirement exemption to disregard the capital gain.
Now just to refresh, remember that the small business retirement exemption is where you can disregard the capital gains from the sale of a business active asset, up to a lifetime limit of $500,000. If you are under 55 years of age, then the exempt amount must be paid into your super fund to get the exemption.
Now heres the twist in this situation:
In this example, the individual wants to:
* use the capital proceeds to pay out a mortgage on real property
* then make an in specie transfer of the real property, instead of paying cash, to their self managed superannuation fund.
What do you think ? Will they be allowed to do this ?
Decision
Well, the decision was yes, they can. Specifically:
If an individual chooses the retirement exemption in Subdivision 152-D of the ITAA 1997, the contribution required under paragraph 152-305(1)(b) of the ITAA 1997 can be made by transferring real property to a complying superannuation fund if the transfer satisfies the relevant provisions of the SISA.
Firstly, lets look at the reasons for the decision:
To begin with, the ATO point out that an individual can choose the retirement exemption and disregard all or part of a capital gain if:
* the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied; and
* if the individual was under 55 just before they made the choice, they contribute an amount equal to the assets CGT exempt amount to a complying superannuation fund or an RSA.
And that the key question is whether the requirement in paragraph 152-305(1)(b) of the ITAA 1997 can be satisfied by the transfer of real property from the individual to a complying superannuation fund.
Now we do know that a superannuation contribution can be made in a number of ways, and this does include a transfer of an asset to a SMSF.
And as such, the ATO consider that a transfer of real property to a complying superannuation fund can satisfy the requirement in paragraph 152-305(1)(b) of the ITAA 1997 to contribute an amount however this is only if the transfer of the real property satisfies the relevant provisions of the SISA.
So here is the part you need to be really aware of look at the last 6 words above for the clue.
The ATO go on to make it clear that a DIY Superannuation fund may breach section 66 of the SISA when an asset is acquired from a related party of the fund, such as a member.However there is an exception to the rule where the asset is business real property (as defined in subsection 66(5) of the SISA) and other conditions are satisfied.
So carefully consider the type of property first, and as usual, get good advice and consider all aspects of the SISA before acting.
by: Graham Parkes
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