Transitioning Asset Sale Proceeds into Superannuation
Leveraging the Capital Gains Tax CGT small business concessions to transition proceeds from asset sales into superannuation is a strategic move for small business owners. This guide outlines the essential steps to ensure compliance and maximise the benefits of CGT cap contributions.
Step 1: Determine Eligibility for Small Business CGT Concessions Before making CGT cap contributions, confirm eligibility for small business CGT concessions. A registered tax agent should verify basic requirements: A CGT event related to a qualifying asset has occurred. The asset meets the active asset test. Either the $2 million turnover test or the $6 million maximum net asset value NAV test is satisfied. Additional considerations: Assets owned by partnerships, affiliates, or connected entities may qualify under specific conditions.
Step 2: Assess Suitability of Superannuation Contributions While contributing proceeds to super can provide tax advantages, ensure it aligns with your broader financial goals: Preservation rules: Contributions are preserved until a condition of release is met, potentially limiting short-term access. Tax efficiency: Compare the superannuation tax rate to your marginal tax rate to determine the best investment option. Transfer balance cap: Contributions may push balances above the $1.9 million transfer balance cap, limiting the amount that can enter the tax-free retirement phase.
Step 3: Verify Eligibility to Contribute to Super To make a CGT cap contribution, ensure you are under age 75. Contributions must be made within 28 days of the month you turn 75. Clients under 55 using the CGT retirement exemption must direct exempt amounts into super.
Step 4: Calculate the Contribution Amount Determine how much of the proceeds can be contributed under the CGT cap: 15-year exemption: Contribute up to the full sale proceeds, capped at $1.78 million (24/25). Retirement exemption: Contribute up to $500,000 of exempt gains, subject to lifetime limits. Track prior contributions under the CGT cap to avoid exceeding lifetime limits.
Step 5: Adhere to Timing Rules Ensure contributions are made within the required timeframes: Individual ownership: Contributions must be made by the later of the tax return due date for the year of the CGT event or 30 days after receiving sale proceeds. Company or trust ownership: Payments to individuals must occur within two years of the CGT event, with contributions made within 30 days of receiving the payment.
Step 6: Submit the CGT Cap Election Form Provide your super fund with a completed CGT cap election form before or at the time of making the contribution. This ensures contributions are counted under the CGT cap, not the non-concessional contributions cap. The trustee can report the amount to the ATO accurately. Note that late or invalid forms may result in contributions being treated as non-concessional, potentially triggering excess contributions tax.
Example: Maximising Contributions with Timing Scenario: Lisa, aged 58, sells her business property for $1.5 million, realising a $800,000 capital gain. She uses the 15-year exemption to contribute $800,000 under the CGT cap. To maximise contributions, she also utilises the bring-forward rule to make $330,000 in non-concessional contributions in the same year. Outcome: Lisa successfully transitions $1.13 million into superannuation, benefiting from tax-effective growth.
