Transfer property to Super Fund – not tax avoidance

An arrangement by a small business owner to transfer a commercial property owned by him to his super fund, treating the proceeds as an undeducted contribution, is considered NOT to be a ‘scheme’ to which Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) applies.

A Tax Office Interpretive Decision (ATO ID 2003/505) envisages a situation where a commercial property indirectly owned by a taxpayer is sold at market value to his super fund, and the CGT retirement exemption claimed on the capital gain arising from the sale.

One of the four capital gains tax concessions available to a small business, is the small business retirement exemption.

This CGT concession allows a small business owner to claim up to $500,000 (a lifetime limit) capital gains tax free on capital proceeds from disposal of the business which are used for retirement.

“Used for retirement” does not necessarily mean actual retirement at that point; the proceeds can be contributed to a super fund to meet the retirement purpose and if aged under 55 the CGT exempt amount will be required to be rolled over.

Instead of being paid in cash, the taxpayer had the proceeds of the property sale credited as an undeducted superannuation contribution in the fund which bought the property.

Is this a tax avoidance scheme, of the kind prohibited by the general anti-avoidance provisions of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936)?

The Tax Office says “no” – primarily on the basis that the dominant purpose of the arrangement was not tax avoidance, but a decision taken for “reasons of asset protection”. The crediting of proceeds was explainable as a means of reducing banking and handling fees.

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This page was last modified 2020-03-25