For small business owners, the ability to contribute proceeds from the sale of business assets into superannuation is a valuable opportunity to enhance retirement savings while minimising tax liabilities. The small business CGT 15-year exemption allows eligible business owners to disregard capital gains tax (CGT) on the sale of a business asset and contribute proceeds to superannuation under the CGT cap. This strategy is particularly beneficial for those selling pre-CGT assets (purchased before 20 September 1985), as it enables them to take advantage of the exemption despite these assets normally not being subject to CGT.
Understanding the Small Business CGT 15-Year Exemption
The small business CGT 15-year exemption applies to the sale of a business asset if the owner has held the asset for at least 15 years and meets the following conditions:
- The owner is 55 or older and the sale is in connection with retirement, or
- The owner is permanently incapacitated at the time of sale.
If the exemption applies, the entire capital gain is disregarded for tax purposes. The proceeds can then be contributed to superannuation under the CGT cap, which was $1.65 million for 2022/23. This cap is separate from the standard concessional and non-concessional contribution caps, allowing for significant additional super contributions.
Applying the Exemption to Pre-CGT Assets
Normally, assets acquired before 20 September 1985 are pre-CGT assets and are not subject to capital gains tax upon sale. However, small business owners who meet the 15-year exemption conditions can still contribute the proceeds of pre-CGT asset sales to superannuation using the CGT cap.
For eligibility, the pre-CGT asset must be treated as a post-CGT asset for the purposes of the exemption. This means that all standard requirements of the 15-year exemption must still be met.
Who Can Benefit from This Strategy?
This strategy is ideal for small business owners who:
- Are aged 55 or older and selling their business assets for retirement.
- Are permanently incapacitated and selling their business assets.
- Directly or indirectly own pre-CGT business assets that will be sold.
- Want to contribute sale proceeds to superannuation under the CGT cap.
- Have already maximised their standard non-concessional contribution cap.
- Have a total superannuation balance of at least $1.7 million, preventing further non-concessional contributions.
Key Superannuation Contribution Rules
To contribute sale proceeds to superannuation under the CGT cap, the following conditions must be met:
- The contribution must be made within 30 days of receiving the proceeds (or the tax return lodgement deadline, whichever is later).
- If the asset is owned by a company or trust, the entity must pay the proceeds to a CGT concession stakeholder within two years of the sale.
- The ATO form NAT 71161 must be submitted to the super fund before or at the time of contribution.
Case Study: Paul’s Pre-CGT Asset Sale
Scenario
Paul, 63, is a retired business owner who directly owned business assets, including premises and goodwill, which he purchased before 20 September 1985. In October 2022, he sold these assets for $1 million, receiving the proceeds in December 2022. Since these were pre-CGT assets, no capital gains tax was payable.
Strategy
Paul wanted to contribute the full $1 million to superannuation but was restricted by the non-concessional cap. His financial adviser informed him that he could contribute the proceeds under the CGT cap, provided he met the 15-year exemption conditions.
Paul’s accountant confirmed that if his assets had been post-CGT assets, he would have qualified for the exemption. Since he met all the necessary conditions, he was eligible to contribute the full $1 million under the CGT cap.
Outcome
By utilising the CGT cap, Paul successfully contributed the entire $1 million to superannuation, significantly boosting his retirement savings without exceeding contribution limits.
Final Thoughts
The ability to contribute proceeds from pre-CGT asset sales under the small business CGT 15-year exemption provides a powerful retirement planning opportunity for eligible business owners. By structuring contributions correctly, individuals can maximise their superannuation savings while ensuring compliance with tax and contribution rules.
Given the complexities involved, seeking professional tax and financial advice is crucial to ensure eligibility and proper timing of contributions.