SMSF Rules

[Fred51]

I also take the view further and don't believe that a small business super contribution can be made before the CGT event.

What you seem to be missing is that the CGT Event date is the contract date - not the settlement date.

You appear to have "capital proceeds" this year as well as the CGT event to which the small business concessions can apply.

CGT event A1 occurs when the contract/agreement is made, s.104-10(3)(a).

Therefore it appears that the opportunity to disregard any capital gain starts at the date of the agreement.

Capital proceeds from that CGT event is the money received or *RECEIVABLE* , s.116-20(1)(a) ITAA97.

It appears that you have capital proceeds this year from the CGT event.

Part 3-3 ITAA97 (including small business CGT concessions) applies to you if you are entitled to receive money but you will not receive it until a later time, s.103-10(2)(b)(I) ITAA97.

The physical source of those funds may not be relevant and your argument appears to have merit.

Please re-read what Rob has written and critique that but it is not helpful for you just to make gut statements without any legislative support or backing.

 

[Paul@PFI]

The definition of gainful employment in s 1.03 is pretty broad:
gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

Doesn't sound too hard to document and report on a tax return some paid baby-sitting or mowing for friends or family.

Bruce...You may be surprised how many times in a SMSF audit the gainfully employed test is failed as the person claims to work yet have no income. eg voluntary work, business income when a business is being sold and the handover is unpaid efforts as part of the sale !!.

G However, gainful employment doesn't have to mean just wages.. It may include fringe benefits etc. However it is far easier to have wages for the period and a payslip or other record of the time spent to generate that same income so the test is demonstrated.

When dealing with a $1.4m CGT item that's not something to get wrong yet its surprising some do. I wouldn't rely on a brief period of cursory "income" from associates for a venture that has no ABN, commences and ends in a period of weeks and may lack evidence of reward (cash). The Commissioner could argue Part IVA and dispute that its not genuine income but reimbursement for costs etc. Im not saying it isn't gainful employment but it looks more a scheme between associates than employment or a business nature.

 

[Paul@PFI]

What you seem to be missing is that the CGT Event date is the contract date - not the settlement date.
QUOTE]

The contract occurs in the 2015 year and yes that is where the CGT event and small business issue arise. That's basic tax. That has no relationship to a contribution. At the time (2016) when that contribution is received by the fund is when any work test must be satisfied in order for the trustee to receive the contribution. The CGT proceeds under the 15yr exemption cannot be contributed earlier than when received as the CGT Cap refers to contribution "proceeds".

This may be an instance where SIS Reg 7.04(6) may operate to allow contributions to be received in a different period to which it relates. The ATO ruling on contributions does accept employer based contributions fall under this Reg. (Often argued on appeal) However for a CGT Cap amount I would be inclined to consider it may.

To the extent that Reg 7.04(6) operates then the work test has been satisfied when the CGT event occurs and the fund acceptance is under Reg 7.04(6) and thus no work test needs to be satisfied in respect of 2016 - Only 2015. Tick.

However this would depend whether the member has used the 15yr exemption or the CGT retirement exemption. Reg 7.04(6) could only be used with respect to the CGT "proceeds" approach.

A good technical paper on this decision between the cap methods and also using the NCC can be found here

#1 . The 15yr exemption refers to proceeds. If proceeds are not used the sub-cap of the $500K CGT cap apply instead. This may influence a strategy to borrow but lose the greater cap. The NCC cap may also be used.
#2. The member must provide the CGT cap election in the approved form prior or at time of the contribution. (not later)

 

[GaryT]

Going back to your original (very interesting) question:

In the absence of any unusual drafting, once the sale settles the disposal date for CGT purposes should be 1 April 2015 i.e. the CGT Event date.

The work test only needs to be satisfied at some point during the relevant year in which the contribution is to be made, irrespective of when the contribution is actually made during that year.

I believe that it would be possible to borrow and make the contribution on 30 June 2015. The relevant wording in section 292-100, specifically para(2)(a) is:

(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 section152-105 (or would be able to do so, assuming that a capital gain arose from the event);

It sees to me that the contribution simple has to be equal to all or part of the proceeds and as Rob has pointed out "proceeds" is money received or receivable.

The time frame for the contribution seems to be from the CGT Event date to (effectively) the lodging of the tax return date i.e. from 1 April 2015 to about May 2016.

Obviously more specific advise may be appropriate.

 

[brucea]

When dealing with a $1.4m CGT item that's not something to get wrong yet its surprising some do. I wouldn't rely on a brief period of cursory "income" from associates for a venture that has no ABN, commences and ends in a period of weeks and may lack evidence of reward (cash). The Commissioner could argue Part IVA and dispute that its not genuine income but reimbursement for costs etc. Im not saying it isn't gainful employment but it looks more a scheme between associates than employment or a business nature.

For a $1.4m item I too would be cautious Paul but I'd be happy to satisfy the work test by undertaking actual work for recompense as long as the effort and reward were genuine and documented. For a $1.4m item I'd probably want a ruling from the ATO before relying on an arrangement that does not require a PAYG Payment Summary but for those wishing to meet it simply to contribute to super from age 65 I'd be far less worried about any of the Part IVA tests being able to be met simply because the work being undertaken was lowly paid and only undertaken for the period required to qualify.