Tax Bites: Using the Small Business CGT concessions to make lump sum superannuation contributions

In an era where there are significant restrictions on the amount of money that is able to be contributed into superannuation, advisors are acutely aware of the ability of an individual to contribute lump sum amounts into superannuation by applying the Small Business 15 year exemption or the Small Business retirement concession.

Where the Small Business 15 year exemption is applied, a taxpayer is able (but not obliged) to contribute up to $1,455,000 of the capital proceeds from the CGT event into superannuation under the Small Business CGT contribution cap.  Where the Small Business retirement concession is applied, an individual over 55 is able (but not obliged) to contribute up to $500,000 of a capital gain into superannuation under the Small Business CGT contribution cap.

However, in order to make any superannuation contribution at all, a taxpayer may need to firstly satisfy the work test pursuant to the SIS Regulations.  Specifically, a superannuation fund cannot accept a superannuation contribution from an individual aged between 65 and 74, if the individual does not satisfy the work test for the financial year (broadly representing at least 40 hours of gainful employment within a 30 consecutive day period).

For individuals aged between 65 and 74, this means that where the Small Business CGT concessions are applied in a particular financial year resulting in the individual ceasing to be employed in any gainful employment thereafter (eg the taxpayer sold their business and retired in the prior financial year), the individual will not be able to contribute funds into superannuation in the following year using the Small Business CGT contribution cap (i.e. irrespective of having satisfied the criteria of the Small Business 15 year exemption or the Small Business retirement concession).

If on the other hand individuals aged between 65 and 74 continue to consult to the new business owners in the following financial year, the individual may still satisfy the work test and be eligible to contribute funds into superannuation using the non-concessional contribution cap for the Small Business 15 year exemption or the Small Business retirement concession.

If you have any further questions, please do not hesitate to contact Tim Olynyk on (03) 9810 0700 or at t.olynyk@banksgroup.com.au.

Talk to us…

Banks Group is an association of independent firms that operate in Melbourne, Sydney, Perth and Auckland under the same trading name. Neither the Melbourne Banks Group, Sydney Banks Group, Perth Banks Group or Auckland Banks Group are partners or agents of each other and shall not be liable for any act or omission of each other. Liability limited by a scheme approved under Professional Standards Legislation

MAG_WEB

All services are provided as a Corporate Authorised Representative of Magnitude Group Pty Ltd (ABN 54 086 266202, AFSL 221557).

Count_WEB

Financial Planning Services provided as an authorised representative of Count Financial Limited ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Count advisers are authorised representatives of Count. www.count.com.au

"Please note that any taxation and accounting services are not endorsed nor the responsibility of Count Financial Limited".