Small business owners looking to make a large contribution to their SMSF upon the sale of their organisation will benefit greatly from the superannuation contribution rule changes that took effect on 1 July, a technical manager has said.
“This is one area where the removal of the work test for non-concessional contributions has become quite beneficial. Before if you sold your business after age 67 and wanted to put the money into your SMSF using the Small Business Act, you would still have to meet the work test,” SuperConcepts SMSF and strategic solutions executive manager Phillip La Greca told practitioners at the recent selfmanagedsuper SMSF Professionals Day 2022 in Sydney.
“This was fine if you made the contribution in the same year that you sold the business, but what if the payments were staggered over multiple years? You may not have met the work test in subsequent periods and that became an issue.
“So this work test removal from age 67 to 75 is quite good for small business owners.”
When looking to make a large superannuation contribution from the sale of a small business, La Greca recommended advisers and trustees carefully assess the capital gains tax (CGT) rules that might apply to that course of action.
“Sometimes it will be the 15-year exemption and sometimes it will be the retirement exemption,” he said.
“The 15-year rule is great because it’s based on proceeds. There is no tax on the capital gain. You just put in basically what you sell the business for.”
He noted if there is a CGT component to be taxed, then one of two other strategies needs to be considered.
“For anything that does have a CGT amount you can use the small business 50 per cent active asset reduction provision. But sometimes you may decide not to use that because you can put more money into the SMSF by using the small business retirement exemption rules,” he noted.
“So look at the different types of CGT relief available if you’ve got a client in this situation.”
