Using the Small Business CGT Retirement Concession to Boost Your SMSF

A modern office workspace featuring a wooden desk, chair, laptop, and bright natural light.

Introduction

For small business owners, selling business real property to a self-managed super fund (SMSF) can be a smart way to manage capital gains tax (CGT) while growing retirement savings. Normally, SMSFs can’t acquire assets from related parties, but business real property is an exception. If the seller qualifies for the small business CGT retirement concession, they may be able to reduce or even eliminate their CGT liability on the sale.

For SMSFs without sufficient liquid assets, a limited recourse borrowing arrangement (LRBA) can help finance the purchase. However, any contributions made to assist with loan repayments must comply with contribution caps. Qualifying for the retirement concession also allows eligible individuals to make additional superannuation contributions under the small business lifetime CGT cap.

Why Consider This Strategy?

Selling business real property to an SMSF offers multiple benefits:

  • Tax Efficiency – Superannuation is typically more tax-effective than owning property personally, through a company, or via a trust.
  • Capital Gains Tax Relief – The small business CGT retirement concession can reduce or eliminate capital gains tax.
  • Increased Super Contributions – Eligible individuals can make additional contributions under the small business lifetime CGT cap ($1.705 million), in addition to the usual non-concessional cap ($110,000 per year or $330,000 using the bring-forward rule).
  • Retirement Planning – Owning business real property in an SMSF can provide stable returns and enhance long-term retirement benefits.

Who Is This Strategy Best For?

This strategy is ideal for small business owners who:

  • Own business real property and want to sell it to their SMSF.
  • Qualify for the small business CGT retirement concession (up to $500,000 per individual).
  • Want to make additional super contributions beyond standard non-concessional caps.

Key Eligibility Criteria

To use this strategy, the following conditions must be met:

  1. The property must qualify as business real property under SMSF rules.
  2. The seller must meet the basic conditions for small business CGT concessions and specific conditions for the retirement concession.
  3. The SMSF’s trust deed must allow for an LRBA if borrowing is required.

Key Considerations

While this strategy offers significant benefits, it’s important to understand the details:

  • Financial advisers cannot provide tax advice, so seeking guidance from a registered tax agent is essential.
  • The property must be wholly and exclusively used in a business to qualify as business real property.
  • The sale to the SMSF is a CGT event, but the small business CGT concessions can minimise tax implications.
  • Contributions made under the small business lifetime CGT cap must be accompanied by an approved ATO Capital Gains Tax Cap Election Form (NAT 71161), which must be submitted before or at the time of contribution.

Case Study: Small Business Owners Using the Retirement Concession

Kylie (51) and Tony (55) run a florist business and own the business premises through their company, K & T Blooms Pty Ltd. As equal shareholders, they are both CGT concessional stakeholders.

They want their SMSF to purchase the property, believing it will be a strong long-term investment for their retirement. The property is valued at $1.6 million, with a cost base of $600,000. Their SMSF has $700,000 in liquid assets, meaning it will need to borrow $900,000 through an LRBA.

How the CGT Retirement Concession Works for Them

The sale to the SMSF triggers a CGT event, resulting in a $1 million capital gain for K & T Blooms Pty Ltd. Their accountant confirms they qualify for the small business CGT retirement concession. Instead of applying the small business 50% reduction (which could lead to unfranked dividends), they choose to exempt $500,000 each under the retirement concession.

Tax and Superannuation Implications

  • The company must nominate its choice to use the retirement concession before lodging its tax return.
  • The company must pay $500,000 each to Kylie and Tony within seven days of either making the choice or receiving the sale proceeds.
  • As Kylie is under 55, her $500,000 must be contributed directly into superannuation to qualify for the concession.
  • Tony, being over 55, can receive the $500,000 tax-free, though he may choose to contribute it to super.
  • The remaining sale proceeds of $600,000 (the cost base) may be paid to Kylie and Tony as shareholders, though this could have dividend tax implications.

By using the CGT retirement concession and contributing under the small business lifetime CGT cap, Kylie and Tony avoid exceeding their non-concessional contribution caps. This also provides additional liquidity to their SMSF, helping repay the LRBA and potentially leaving the fund debt-free.

Final Thoughts

Selling business real property to an SMSF using the small business CGT retirement concession can be a powerful strategy for small business owners looking to reduce tax, boost their super, and secure their retirement. However, it’s essential to navigate the rules carefully and seek professional advice to ensure compliance and maximise benefits.

If this strategy sounds like a good fit for your situation, speak to a financial adviser and a registered tax agent to explore the best way forward.

Disclaimer: This content is for professional financial planners and advisers only and is not intended for client distribution. It is general information and does not consider individual circumstances. Always seek professional advice before making financial decisions.

Scroll to Top