CGT concessions and super contributions
Posted by Northadvisory on April 28, 2022
Did you know that there are significant capital gains tax (CGT) concessions available to business owners?
The Australian Government offers substantial financial benefits depending on your personal circumstances and how long you’ve owned your business.
Here at North Advisory, our team of Chartered Accountants and business advisors knows how to determine your eligibility and help you access any concessions available to you. Plus, we can provide guidance on the most tax effective strategy when you want to sell your business… including making additional super contributions.
Understanding eligibility criteria
Eligibility is central to gaining access to the range of CGT concessions. And the concessions you may be able to utilise will depend on some key personal factors – such as your age and stage of life.
The ATO website outlines a detailed list of eligibility criteria but some of the initial points are:
“You must be one of the following:
- a small business entity with an aggregated turnover of less than $2 million
- not carrying on a business (other than as a partner) but your asset is used in a closely connected small business (passively-held assets)
- a partner in a partnership that is a small business entity, and the asset is either
- an interest in a partnership asset (partnership assets)
- an asset you own that is not an interest in a partnership asset (partner’s assets) but is used in the business of the partnership
- you satisfy the maximum net asset value test.
The asset satisfies the active asset test.”
We understand that this is complex, but we have the experience to be able to assess your current situation and determine whether you meet the requirements.
Four CGT concessions
After determining your eligibility, we need to work out which of the four different CGT concessions is applicable to you when you want to sell your business.
It’s an important process to go through because you want to make sure you minimise your tax obligations. Selling a business can create a hefty capital gain, so finding ways to reduce your liability is pertinent. Plus, as some of the concessions provide the opportunity to make lump sum contributions to your super, it’s a good idea to review all your options.
Again, the ATO’s website lists all the information about each concession, but here is a brief summary:
“Small business 15-year exemption
You will not pay CGT when you dispose of an active asset if you meet both of the following additional requirements:
- you are aged 55 years or older and retiring, or are permanently incapacitated
- you have continuously owned the asset for at least 15 years.
Small business 50% active asset reduction
You will only pay tax on 50% of the capital gain when you dispose of an active asset.
The small business 50% active asset reduction applies if you meet the basic eligibility conditions.
Small business retirement exemption
Capital gains from the disposal of active assets are exempt from CGT up to a lifetime limit of $500,000. If you are under 55, the exempt amount from the proceeds on disposal of the asset must be paid into a complying superannuation fund or a retirement savings account.
Small business rollover
The small business rollover allows you to defer all or part of a capital gain made from a CGT event happening to an active asset. For example, you can defer your capital gain until a later year if you buy a replacement asset or improve an existing active asset.”
Boost your super balance
Out of these four concessions there are two that offer you the opportunity to boost your super balance and further reduce your tax liability.
The 15-year exemption and the small business retirement exemption enable you to make lump sum contributions into your super without impacting your other super contribution caps.
This is where we can work with you to make sure all the right boxes are ticked. You can achieve different outcomes depending on the way you apply the concessions, so we look at the best way to order them to achieve the optimal result.
For example, if you sold your business for $1 million, you may be able to contribute the full amount tax free into your super without affecting your standard concessional and non-concessional contribution caps, as long as you have owned your business for more than 15 years and are transitioning to retirement.
Professional accountant advice
There’s no doubt that these CGT concessions can be extremely beneficial if you are a business owner nearing retirement. But they can be difficult to navigate on your own.
Our professional accountant advice can save you the headache of trying to work it out yourself! We have the knowledge and expertise to help you assess your eligibility and implement tax effective strategies. If you’d like to find out more about our services, please contact us today.
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