For many small business owners, capital gains tax (CGT) can pose a significant financial burden when selling business assets. However, strategic superannuation contributions can help business owners not only secure their financial future but also improve their eligibility for small business CGT concessions. Understanding how superannuation interacts with CGT rules can lead to substantial tax savings and enhanced retirement planning.
Understanding the Net Asset Value Test
One of the fundamental eligibility criteria for small business CGT concessions is the net asset value (NAV) test, which requires a business owner to have net CGT assets valued at no more than $6 million (if they do not meet the alternative $2 million aggregated turnover test). Importantly, superannuation benefits do not count towards the NAV calculation, providing a valuable planning opportunity for business owners approaching the threshold.
Why Contribute to Superannuation?
Superannuation is an effective investment vehicle that provides tax advantages while also helping small business owners qualify for CGT concessions. By strategically contributing excess capital to superannuation, business owners can:
- Reduce their net asset value below the $6 million threshold.
- Benefit from long-term tax advantages within the superannuation system.
- Enhance their retirement savings while minimising CGT liabilities.
Who Can Benefit from This Strategy?
This strategy is ideal for business owners who:
- Are interested in leveraging the tax effectiveness of superannuation.
- Operate a small business and have assets nearing or exceeding $6 million.
- Do not qualify under the $2 million aggregated turnover test.
- Want to legally reduce their net asset value to become eligible for CGT concessions.
Key Considerations
While this approach offers significant benefits, business owners should be aware of the following:
- Financial advisers cannot provide tax advice, so it is essential to consult a registered tax agent to ensure compliance.
- Contributions should be structured within the concessional ($25,000) and non-concessional ($300,000 bring-forward rule) caps to maximise benefits.
- The strategy should be part of a broader financial plan that considers investment diversification, retirement goals, and cash flow needs.
Case Study: How Superannuation Helped Tom Access CGT Concessions
Tom, 58, is a retired business owner planning to sell his commercial property. He wants to access small business CGT concessions to eliminate his capital gains tax liability.
However, Tom’s total net CGT assets, including another investment property and a share portfolio, exceed the $6 million NAV test. Since he no longer operates his business, he is ineligible for the turnover test.
The Solution
Tom decides to restructure his assets by:
- Selling his investment property and a portion of his share portfolio.
- Contributing these proceeds to superannuation using both the concessional and non-concessional caps.
Outcome
| Assets | Before Restructure | After Restructure |
| Business Property | $5,700,000 | $5,700,000 |
| Investment Property | $300,000 | $0 |
| Share Portfolio | $150,000 | $125,000 |
| Superannuation (Excluded from NAV) | $0 | $325,000 |
Final Thoughts
Making strategic superannuation contributions can be a powerful tool for small business owners looking to minimise capital gains tax while securing their financial future. By carefully structuring contributions, business owners can enhance their retirement savings and unlock valuable tax concessions. However, it is crucial to seek professional financial and tax advice to ensure compliance with all eligibility requirements.