Advisers need to be mindful of the strategic order of the steps required to make the most of the new non-concessional contributions (NCC) caps bring-forward rules in the event of capital gains tax (CGT) rollovers, a specialist lawyer has said.
Under section 292-100 of the Income Tax Assessment Act 1997, a CGT small business concession can be rolled over into a superannuation fund. For the 2017 financial year, the CGT cap amount is $1.415 million.
The legislation dictates a CGT rollover does not count towards an individual’s NCC cap, however, it is included in the calculation of the individual’s total superannuation balance (TSB).
The rules also stipulate if a person’s TSB exceeds $1.6 million, they are not permitted to make any additional NCCs.
“Let’s say you’ve got nothing in the till and you put in your $1.415 million [CGT rollover], you look at your NCC position and you’ve got $1.415 million in it. That narrows down what you can put in via NCC,” DBA Lawyers director Daniel Butler said at his firm’s strategy seminar in Sydney today.
“That’s because when we look at putting in NCCs we’ve already got $1.415 million against our TSB, therefore we’ve got very little cap space left.
“So if you have a client who was going to get their CGT relief, you would be inclined to make sure you brought forward as much as you could of your NCCs before you put in your CGT.
“It means you’ll have filled the piggy bank up with your NCCs and then put your CGT on top, which doesn’t count and will put you over the $1.6 million TSB limit, but it’s not going to foul you up.
“But if you put your CGT in, it takes up your TSB and then your NCCs are fouled up.”