Tracey Scotchbrook, SMSF Specialist Advisor, discusses the sometimes overlooked importance of Small Business CGT Concession Superannuation Contributions, which offer the valuable opportunities of tax concessions and lump sum contributions into superannuation.
In the post 30 June 2017 super world, contribution opportunities have been restricted through the reduction of contribution caps and additional rules determining eligibility for taxpayers to make non-concessional contributions.
The small business capital gains tax (“CGT”) concessions provide qualifying taxpayers an extremely valuable opportunity to make contributions into their superannuation fund. Qualifying contributions made under either the 15 year or retirement exemptions are excluded from being treated as non-concessional contributions. This means that the caps and additional limitations that apply to non-concessional contributions (“NCC”) for members with balances $1.4m to less than $1.6m and the prohibition for those with balances of $1.6m and over do not apply to contributions made under the small business CGT concessions.
The rules and their application can be complex and do require careful planning. However if appropriately applied can provide tremendous benefits. The retirement concession has a lifetime limit of $500,000 (not subject to indexation) and the 15 year exemption has a lifetime limit, indexed annually with the limit for 2018/19 $1,480,000.
Use of the concessions and the relevant caps are not restricted to a single transaction so long as the caps are not exceeded. Careful assessment of what has previously been applied to these concessions is essential.
The limits that apply to the retirement and 15 year exemptions are separate to one another. However an overall application of both concessions cannot exceed the 15 year exemption cap. That is you cannot use the retirement concession cap plus the 15 year concession cap. The use of the retirement cap will reduce the available 15 year exemption for future transactions.
Importantly, any amounts in excess of the prescribed limits or which fail to satisfy the small business CGT concessions will be treated as NCC. Excess NCC may well be the result.
Careful timing of contributions is necessary for taxpayers who are also considering making NCC. This particularly important where the small business CGT concession contribution will result in the their total superannuation balance to exceed $1.6m at 30 June in the year in which the contribution is made. If eligible to do so, they should consider making the non-concessional contribution by no later than 30 June of the same financial year. If delayed until the following financial year the taxpayer will be ineligible to make any further NCC due to their increased total superannuation balance.
When making small business CGT contributions to the taxpayers superannuation fund it is essential that an election form is lodged with the trustee on or before the contribution is made. Lodgement after the contribution has been made will be ineffective and result in the contribution being classified as a NCC.
Often careful forward planning is necessary to ensure that clients can qualify for these concessions. Do keep these concessions in mind when planning and reviewing your clients plans and strategy. These are still a highly valuable opportunity both from a tax concession point of view but more importantly, for the opportunity they provide for qualifying taxpayers to make lump sum contributions into superannuation.
Tracey Scotchbrook is a SMSF Specialist Advisor™ and consultant with 15 years’ experience. Early in her accounting career Tracey had the opportunity to work with self-managed superannuation funds, setting her on the pathway to specialisation. She is actively involved in the SMSF Association (“SMSFA”) and is the former WA Chapter Chair and National Membership Committee Member.
Her accreditations include: SMSF Specialist Advisor (SSA) with the SMSF Association, CA and CPA SMSF Specialist, and Charted Tax Advisor with the Tax Institute. Tracey is a regular presenter to industry professionals and trustees, commentator, educator, and writer. In 2009 Tracey was awarded the Praemium Scholarship by the SMSFA. Contact Tracey at tscotchbrook@iprimus.com.au You can also connect with Tracey via Twitter