Tax Bites: Small business CGT concessions and superannuation contributions

We all know that the small business CGT concessions consist of a suite of concessions that can be applied where the taxpayer satisfies certain threshold tests.  The small business CGT concessions can be applied in situations including where a taxpayer sells a business-related asset, a taxpayer sells shares/units in an entity that owns business-related assets, or where a taxpayer sells a property that has been used in the business of a related entity.

Two of the particular small business CGT concessions available are the small business 15-year exemption and the small business retirement concession.

Where a taxpayer is eligible to apply the small business 15-year exemption, the full amount of the capital gain becomes exempt.  While not compelled, where the taxpayer, or an interposed entity of which the taxpayer is a CGT concession stakeholder, has applied the small business 15-year exemption, the taxpayer has the ability to make a small business CGT superannuation contribution into their superannuation fund up to the full amount of the capital proceeds received from the sale of the asset (capped at a maximum amount of $1,615,000 for the 2022 financial year).

Where a taxpayer is not eligible to apply the small business 15-year exemption but is eligible to apply the small business retirement concession, the taxpayer (i) is required to make a small business CGT non-concessional contribution equal to the amount of the capital gain discounted under the small business retirement concession if they are under 55 years of age (capped at a maximum of $500,000); or (ii) is not compelled but has the ability to make a small business CGT superannuation contribution if they are 55 years or older (capped at a maximum of $500,000).

Under both the small business 15-year exemption and the small business retirement concession, the small business CGT superannuation contribution is required to be made by the lodgement due date of the taxpayer’s income tax return (if the taxpayer making the capital gain is an individual) or within 30 days of the taxpayer receiving a payment which itself must be made before 7 days after the entity lodges its tax return (if the capital gain is made by an interposed entity of which the taxpayer is a CGT concession stakeholder).

A couple of other notes to making superannuation contributions under the small business 15-year exemption or the small business retirement concession:

  • The small business CGT contribution cap is additional to the yearly concessional contribution cap and the non-concessional contribution cap that taxpayers have.
  • Small business CGT superannuation contributions are excluded from the application of the $1,700,000 transfer balance cap.
  • If the capital gain is made by an interposed entity, it is possible to have multiple CGT concession stakeholders of the entity (up to 8!). In turn, this maximises the amount of superannuation contributions that can be made under the small business CGT contribution cap.
  • Where a taxpayer is 55 years of age or over and applies the small business retirement concession or is a CGT concession stakeholder of an interposed entity that applied the small business retirement concession, while not compelled to do so, the taxpayer can still make a superannuation contribution using the small business CGT contribution cap if they wish.
  • A taxpayer or a CGT concession stakeholder of an interposed entity can utilise the small business CGT contribution cap where the small business 15-year exemption would have otherwise applied but for the asset being sold being a pre-CGT asset.
  • As long as there is at least one CGT concession stakeholder that qualifies the interposed entity to apply the small business 15-year exemption, all CGT concession stakeholders of the entity get the benefit of being able to make superannuation contributions under the small business CGT contribution cap.
  • Small business CGT contributions are subject to the ordinary work test and age eligibility conditions.

If you have any further questions relating to the above or otherwise have any other tax-related matters you would like to discuss with Tim Olynyk, please don’t hesitate to contact him on (03) 9810 0700 or at t.olynyk@banksgroup.com.au.

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