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CGT small business concessions and contributions to super

Small business retirement exemption

Section: 8.8

The small business retirement exemption allows a taxpayer to disregard a capital gain from the sale of a CGT asset. The maximum amount of exempt gain is limited to $500,000 (lifetime limit) for individual taxpayers and $500,000 (lifetime limit) per eligible stakeholder for company or trust taxpayers.

The basic conditions must be met before any specific small business CGT concession can be claimed. Refer to section 6.5 for the basic conditions that must be satisfied.

Retirement exemption for individuals - additional conditions

The following additional conditions must be met by individuals to qualify for the retirement exemption:

  • a choice to disregard the capital gain (i.e. the CGT exempt amount) must be specified in writing by the day the taxpayer lodges their tax return for the year of the CGT event (or longer as permitted by the Commissioner), and
  • if the taxpayer is under age 55 just before making the choice, they must contribute an amount equal to the CGT exempt amount to a super fund at the later of when they made the choice, or receipt of the capital proceeds.

Retirement exemption for individuals - contribution rules in order to utilise lifetime CGT cap

If the sale of an asset qualifies for the small business retirement exemption, the owner can contribute all or some of the exempt capital gain to super and elect for it to count towards the lifetime CGT cap. The capital gain that is exempted from capital gains tax is limited to a lifetime limit of $500,000.

Note: where an owner is under age 55 just prior to choosing for the retirement exemption to apply or receiving a payment, the exempt amount must be contributed to superannuation in order for the retirement exemption to be claimed.

To have the eligible amount count towards the CGT lifetime cap the CGT concession stakeholder must submit a CGT cap election form (ATO form NAT 71161) to the super provider at or before the time of the contribution.

It's also important to note that normal contribution eligibility rules apply to the contribution of eligible small business sale proceeds. That is, the member must be under the age of 65 at the time of the contribution, or under the age of 75 and meet the work test at the time of the contribution.

Timing of contributions

In order to claim the CGT exemption and to have the amount count toward the lifetime CGT cap, an individual under the age of 55 must contribute the retirement exemption amount to superannuation by the later of:

  • the day the choice is made to apply the retirement exemption to the capital gain (this must generally be by the day the tax return is required to be lodged for the year in which the CGT event happened), or
  • the day the capital proceeds are received.

A client age 55 or over may qualify for the retirement exemption without contributing the amount to superannuation. However, if the amount is contributed to superannuation, to have the amount counted under the lifetime CGT cap, the individual must make the contribution by the later of:

  • the day the tax return is required to be lodged for the year in which the CGT event happened, or
  • 30 days after receiving capital proceeds.

Retirement exemption for companies or trusts - additional conditions

The basic conditions must be met before any specific small business CGT concession can be claimed. Refer to section 8.5 for the basic conditions that must be satisfied.

The following additional conditions must be met by companies or trusts claiming the retirement exemption:

  • a choice to disregard the capital gain (i.e. the CGT exempt amount) must be specified in writing by the day the taxpayer lodges their tax return for the year of the CGT event (or longer as permitted by the Commissioner), and
  • the company or trust has made payment to at least one of its CGT concession stakeholders by the later of:
    • seven days after it makes the choice, or
    • seven days after receipt of capital proceeds, and
  • if a CGT concession stakeholder receiving a payment is under 55 (just prior to the payment), the company or trust must make the payment by contributing it to a complying super fund on the stakeholder's behalf within the timeframes above.

Retirement exemption for companies or trusts - contribution rules in order to utilise lifetime CGT cap

If the sale of an asset is to qualify for the small business retirement exemption, the company or trust must distribute the exempt capital gain to one or more CGT concession stakeholders. Where a CGT concession stakeholder receives a payment representing an exempt capital gain under the retirement exemption, and the payment is contributed to the stakeholder's superannuation, an election may be made for it to count towards the lifetime CGT cap.

To have the eligible amount count towards the CGT lifetime cap, a CGT cap election form (ATO form NAT 71161) must be submitted to the super provider at or before the time of the contribution.

The amount of exempt capital gains that a company or trust can pay to a particular CGT concession stakeholder under the retirement exemption, and therefore the amount of contribution that can be made under this concession, is limited to a lifetime limit of $500,000.

Note: where a CGT stakeholder is under age 55 just prior to receiving a payment from the company or trust, the payment must be contributed to superannuation on their behalf in order for the retirement exemption to be claimed.

Timing of contributions

Where a client is under the age of 55 just before the payment of an amount under the retirement exemption, the company or trust must make the contribution to the CGT concession stakeholder's superannuation by the later of:

  • seven days after it makes the choice, or
  • seven days after receipt of capital proceeds.

Where a client is aged 55 or over just before the payment of an amount under the retirement exemption, they must contribute the amount to super:

  • within 30 days of receiving the payment to be eligible to have it counted toward their lifetime CGT cap.

Last modified: Thursday, November 15, 2018