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We’re now a few months into the 2017-18 financial year and the much-discussed superannuation reforms have now been implemented, the most significant of which is the $1.6 million cap on all new and existing pension accounts.
You may be familiar with our previous articles discussing the superannuation changes which were rolled out on 1 July 2017 and more specifically the $1.6 million cap and what this means. However, something we thought it worth touching on which may have been overlooked in the midst of all the changes is the use of Small Business CGT Concessions.
As you know, anyone with a balance of or in excess of $1.6 million at 30 June 2017 is no longer eligible to make non-concessional contributions into their fund from 1 July 2017. However, members may qualify to contribute money into their fund as small business CGT concessions which are treated as ‘a CGT cap amount’ rather than a non-concessional contribution (NCC). Generally speaking, these contributions are sourced from the proceeds of the sale of certain small business assets. There are two situations where this is possible.
The small business 15-year exemption
The first situation is under the ‘small business 15-year exemption’ where an SMSF member is at least 55, qualifies as a small business taxpayer and sells an active business asset (which they have owned for at least 15 years and are selling due to retirement or being permanently incapacitated), contributing the total proceeds from the sale into their SMSF.
Small business retirement CGT exemption
The second situation is under the ‘small business retirement CGT exemption’ where an SMSF member is under 55, qualifies as a small business taxpayer and contributes capital gains from the sale of an active asset of up to $500,000 into their fund.
For both the above situations, it is important to note…
(1) one qualifies as a small business taxpayer if they have a turnover of less than $2 million or a maximum net asset value under $6 million
(2) there is a CGT cap amount of $1,445,000 (for the 2017-18 financial year) which is indexed annually
In order to have these contributions treated as small business CGT concessions as opposed to non-concessional contributions, there are a number of conditions that must be satisfied. Firstly, the contribution needs to be made to a complying superannuation fund before the later of 30 days after the proceeds are received and the time the member lodges a tax return. Secondly, the member needs to elect to exclude the contribution from their NCC cap using the approved ATO form (currently NAT 71161). Thirdly, the election must be made before or at the time the member makes the contribution. If the election is done after the contribution has been made, it will be counted as an NCC which may result in tax implications.
The last point to note is that small business CGT concessions do count towards a member’s total superannuation balance (capped at $1.6 million).
If you are considering making small business CGT concessions into your fund or would like to explore other superannuation strategies that may be suited to your circumstances and objectives, please don’t hesitate to get in touch. We would be more than happy to discuss the options available to you and to help you develop a tailored strategy which enables you to get the most out of your super while remaining compliant.
Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.