ATO Interpretative Decision

ATO ID 2003/454

Income Tax

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Issue

If a taxpayer disposes of a CGT asset to a superannuation fund for market value and directs that the proceeds from the sale be credited to their members account with that fund, has the taxpayer received 'capital proceeds from the CGT event' for the purposes of subsection 152-310(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. If a taxpayer disposes of a CGT asset to a superannuation fund for market value and directs that the proceeds from the sale be credited to their members account with that fund, the taxpayer has received 'capital proceeds from the CGT event' for the purposes of subsection 152-310(2) of the ITAA 1997.

Facts

The taxpayer purchased a commercial property in 1987.

A company, of which the taxpayer is the sole shareholder and director, operates a business from the property. The taxpayer leased the property to the company under a formal lease.

During the year ended 30 June 2003 the taxpayer disposed of the property under a contract for sale for its market value to a superannuation fund and made a capital gain. The taxpayer and the taxpayer's spouse are the only members of the fund.

The parties agreed that the proceeds of the sale be credited to the taxpayer's member's account in the fund and treated as an undeducted contribution.

The taxpayer intends to choose the small business retirement exemption in subsection 152-305(1) of the ITAA 1997. The taxpayer was under 55 at the time of the disposal of the property.

The basic conditions in section 152-10 of the ITAA 1997 were satisfied for the capital gain.

Reasons for Decision

Under subsection 152-305(1) of the ITAA 1997 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 receiving an amount of capital proceeds from the CGT event, an amount equal to the eligible termination payment (ETP) referred to subsection 152-310(2) of the ITAA 1997 is rolled over into a complying superannuation fund, a complying approved deposit fund or a retirement savings account.

If an amount is chosen to be disregarded, the capital proceeds from the disposal, to the extent of the amount chosen, are taken to be an ETP made to the individual under subsection 152-310(2) of the ITAA 1997. However, in working out those capital proceeds, the market value substitution rule in section 116-30 of the ITAA 1997 is ignored (subsection 152-310(3) of the ITAA 1997).

This means that if there are no capital proceeds, or the capital proceeds are less than the market value of the CGT asset (such that the market value substitution rule in section 116-30 of the ITAA 1997 has applied), the retirement exemption is not available or only available up to the amount of the actual capital proceeds (ATO Interpretative Decision ATO ID 2002/269).

Under subsection 103-10(1) of the ITAA 1997 a taxpayer is taken to have received money or other property if it has been applied for their benefit or as they direct. In this case, the taxpayer has directed that the proceeds from the disposal of the property be credited to his account in the superannuation fund. The taxpayer is therefore taken to have received money or other property, and accordingly, there are capital proceeds from the disposal under section 116-20 of the ITAA 1997.

Having received market value capital proceeds via the operation of subsection 103-10(1) and section 116-20 of the ITAA 1997, the market value substitution rule in section 116-30 of the ITAA 1997 has no application. Therefore subsection 152-310(3) of the ITAA 1997 also has no application.

Accordingly, the taxpayer has received capital proceeds from the disposal for the purposes of subsection 152-310(2) of the ITAA 1997 and the retirement exemption will be available if the other conditions are satisfied.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   subsection 103-10(1)
   section 116-20
   section 116-30
   section 152-10
   subsection 152-305(1)
   subsection 152-310(2)
   subsection 152-310(3)

Related ATO Interpretative Decisions
ATO ID 2002/269

Keywords
Capital gains tax
Capital Gains Tax CoE

Business Line:  Losses & CGT Centre of Expertise

Date of publication:  20 June 2003

ISSN: 1445-2782