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Interaction between the Small Business CGT Concessions and Superannuation Contributions

This article explains the interaction between the Small Business CGT Concessions and superannuation contributions.

Particularly, an overview of the interaction, the requirements that must be satisfied to make contributions as CGT cap amounts instead of as non-concessional amounts, and some other things to consider.

Overview

Contributions into a superannuation fund might ordinarily be non-concessional contributions of an individual.

Such contributions should count towards the individual’s non-concessional contributions cap which is $110,000 for the 2022 tax year before any adjustments in relation to the bring forward rule or reductions in relation to the general transfer balance cap.

However, contributions in respect of the capital gains disregarded under the small business 15-year exemption or the small business retirement exemption can be excluded from being non-concessional contributions, and therefore should not count towards the individual’s non-concessional contributions cap, where certain requirements are met.

Requirements

In all cases, there are 2 common requirements and some additional requirements depending on the type of taxpayer and the Small Business CGT Concession that is applied.

The 2 common requirements are:

  1. The contribution does not exceed the individual’s CGT cap amount when the contribution is made.  Each individual has a CGT cap amount lifetime limit which is $1,615,000 for the 2022 tax year; and

  2. A choice to treat the contribution as a CGT cap amount is made in an approved form and given to the superannuation fund on or before the time the contribution is made.

If the taxpayer is an individual that is applying the small business 15-year exemption, then there are 2 additional requirements.  They are:

  1. The contribution is equal to all or part of the capital proceeds from the CGT event for which the capital gain was disregarded by the small business 15-year exemption; and

  2. The contribution is made by the later of the day the individual is required to lodge their income tax return for the tax year in which the CGT event happened, and 30 days after they receive the capital proceeds.

If the taxpayer is an individual that is applying the small business retirement exemption, then there are 2 additional requirements.  They are:

  1. The contribution is equal to all or part of the capital gain from the CGT event which was disregarded by the small business retirement exemption; and

  2. The contribution is made by the later of the day the individual is required to lodge their income tax return for the tax year in which the CGT event happened, and 30 days after they receive the capital proceeds.

If the taxpayer is a company or trust that is applying the small business 15-year exemption, then there are 4 additional requirements.  They are:

  1. The individual was a CGT concession stakeholder of the company or trust just before the CGT event;

  2. The company or trust makes its required payment under the small business 15-year exemption rules to the individual within two years after the CGT event;

  3. The contribution is equal to all or part of the individual’s participation percentage of the capital proceeds from the CGT event for which the capital gain was disregarded by the small business 15-year exemption, but not exceeding the required payment just mentioned; and

  4. The contribution is made within 30 days after the payment to the individual is made.

If the taxpayer is a company or trust that is applying the small business retirement exemption, then there are 4 additional requirements.  They are:

  1. The individual was a CGT concession stakeholder of the company or trust just before the CGT event;

  2. The company or trust makes its required payment under the small business retirement exemption rules to the individual or superannuation fund as the case may be;

  3. The contribution is equal to all or part of the capital gain from the CGT event which was disregarded by the small business retirement exemption that is referable to the individual, but not exceeding the required payment just mentioned; and

  4. The contribution is made within 30 days after the payment to the individual is made.

Other things to consider

One thing to consider is whether to make contributions as CGT cap amounts.

Individuals can choose for qualifying contributions to be entirely as non-concessional contributions subject to the contribution caps, entirely as CGT cap amounts subject to the individual’s lifetime limit, or a mixture of the two.

And what’s right for the individual may depend on many factors, including the amount of other contributions that might be expected over the subsequent three years which would count towards non-concessional contribution caps, and the likelihood that the individual may be able to utilise the Small Business CGT Concessions in the future, therefore providing further access to the individual’s CGT cap amount lifetime limit.

Another thing to consider is whether the superannuation fund can accept contributions on behalf of the individual.  This may depend on many factors including the age of the individual, whether the individual has been gainfully employed, and the individual’s superannuation balance.

Disclaimer – The above is intended as commentary and general information only.  It should not be relied upon as taxation advice.  Formal taxation advice should be sought for particular transactions or on matters of interest arising from the above.

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