If you’re selling your business to retire, taking advantage of the CGT small business concessions could enable you to manage tax and get more money into super.
How does the strategy work?
Other key considerations
To use this strategy, you need to sell
Active assets are assets that are held or used in the course of carrying on your business or a business of someone else connected with you. Generally, this might include land and buildings and in limited circumstances, shares in the company.
If you have held the active business assets for 15 years or more, you may be eligible to claim the 15 year CGT exemption. It could enable you to disregard 100% of capital gains made when selling business assets and contribute up to $1.565 million to super by using the CGT cap. This cap may also be available when disposing of pre-CGT assets or assets where there is no capital gain.
In other circumstances, including where the active business assets have been held for less than 15 years, you may be eligible to use the CGT retirement exemption instead. This exemption enables you to disregard up to $500,000 in capital gains and invest up to $500,000 of exempt gains in super under the CGT cap.
Jane, aged 64, recently sold a business she has owned for the
last 10 years for $500,000 and made a capital gain of $400,000.
She wants to limit the amount of CGT she has to pay on the sale
proceeds and, if possible, get all the money into the
concessionally taxed super system to fund her retirement.
Her registered tax agent determines that she is eligible to claim
the 50% general CGT discount¹ and a CGT retirement
exemption of $200,000. This will enable her to offset her
taxable capital gain and receive the full sale proceeds of
$500,000 without paying any tax.
Her financial adviser recommends she invest the CGT exemption
amount of $200,000 in super and notify her fund that she wants
this amount to be counted towards her available CGT cap.
Because the amount claimed under the CGT cap is excluded from
the non‑concessional contribution cap (and she is under age 65),
she is then able to invest a further $300,000 in super this
financial year (by bringing forward an additional two years
worth of non-concessional contributions) as a personal after-tax
By using this strategy, Jane is able to get the full sale proceeds of
$500,000 into super without exceeding the contribution caps. Also,
because Jane has retired, she can use the $500,000 to commence a
‘retirement phase’ pension where she can receive tax-free payments³
to meet her living expenses.
¹ If an asset has been held for more than 12 months, individual small business owners (eg sole traders and partners) must utilise the 50% general CGT discount before electing to apply any of the other small business CGT concessions except for the 15 year exemption.
² The rules that apply to personal after-tax and other non-concessional contributions (NCCs) are complex. It is important to seek personal advice before making NCCs to understand your eligibility.
³ Assumes Jane commences a pension from a taxed fund.
Your should consult with your Accountant or registered tax agent to determine the CGT implications, whether the small business concessions will be available to you and which ones should be claimed.
Your financial advisor can help you to:
- maximise your super contributions
- unwind or reassign business insurance policies, such as those used to fund a Buy Sell agreement
- pay-off business loans and release guarantees
- review your personal insurance needs to ensure you are suitably covered, and
- facilitate, with legal advice from your solicitor, any estate planning changes that may need to be made.