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Reminder over business sale impact on caps

Small business owners must be mindful of a future sale’s impact on the superannuation contributions caps that apply from 1 July 2017, a technical expert has warned.

SMSF Association head of technical Peter Hogan was referring to owners selling their business or business assets and using the proceeds to contribute to their SMSF free of capital gains tax (CGT).

Hogan said because there had not been any changes to the rules surrounding the small business CGT cap, its potential impact on concessional contributions (CC) and non-concessional contributions (NCC) caps had largely gone under the radar.

The small business CGT cap allows for the capital gain realised on the sale of any small business asset up to $500,000 per eligible taxpayer to be contributed to super free of CGT, where certain conditions are met.

If the asset has been held for more than 15 years, that threshold rises to $1.415 million for the 2017 financial year.

It applies to small businesses with a turnover of less than $2 million or eligible taxpayers seeking to use the exemption having a net asset value of less than $6 million.

“What has to be remembered is that once this tax-free contribution is placed in an SMSF using the CGT cap, these amounts count as part of a member’s total superannuation account and are assessed accordingly in terms of eligibility for catch-up CCs and available NCCs caps from 1 July 2017 onwards,” Hogan noted.

“It will also have an impact on the total amount in an SMSF that adds towards the $1.6 million transfer balance cap.

“So, although the small business CGT cap has been left alone by the legislation, small business owners need to carefully assess the impact of making such a contribution on the sale of a business or business asset.

“Ideally, any small business contribution should be made after any contribution, especially where the small business CGT contribution will push account balances over the various account thresholds.”

He highlighted that in these circumstances, it was imperative small business owners sought advice from an SMSF specialist to maximise their retirement savings and the tax effectiveness of their SMSF.

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