A small business owner can contribute either the sale proceeds or capital gains from the sale of business assets into their SMSF, and disregard some or all capital gains by using the two main concessions:

1. The 15-year exemption; and
2. The retirement exemption.

These concessions allow small business owners, who may not have been contributing to their SMSF, to increase their superannuation as they approach or move into retirement.

The 15-year exemption takes priority over the other concessions, including the 50% active asset reduction and rollover concession. The ATO has published a helpful guide for choosing and applying these concessions.

The 15-year exemption (S152-B Income Tax Assessment Act 1997)

Under this exemption, a business owner can ignore the capital gains from the disposal of business assets up to a lifetime cap of $1,515,000.

To be eligible for this exemption, they must satisfy the basic conditions and have also owned the asset for 15 years prior to the CGT event. At the time of the CGT event, they must have been 55 or over and will retire or, the member was permanently incapacitated (at any age).

If they qualify, they can contribute some or all of the total proceeds from the sale to their SMSF. They can then nominate for the contribution to be considered under this exemption, up to their lifetime CGT cap. 

For example, Sally is 65 and has been running her Pizza business for over 15 years. She bought the business for $650,000 and the current market value is $1,200,000. She is planning to retire and decides to sell her business for $1,200,000 making a gain of $550,000. Assuming she meets the basic conditions as well, the gain won’t be assessable and she could make a contribution to her SMSF.

The basic conditions

The following two basic conditions must be met before considering if a business owner is able to use any of the small business CGT concessions:

1. The member must be conducting business that has a turnover of less than $2 million or the net asset value of the entity and associated entities must not exceed $6 million; and
2. The business asset must satisfy the active asset test.

The retirement exemption
This exemption also allows a business owner who is under age 55, to ignore some or all of the capital gain generated from the sale of business assets and contribute the gain to super, up to a cap of $500,000.

The CGT contribution must be made to the SMSF on or before the later of:

• The day the member’s income tax return is required to be lodged for the income year in which the CGT event happened; or
• 30 days after the day the member receives the capital proceeds.

We strongly recommend seeking professional advice when assessing if a member is able to make small business CGT contributions, as there are other requirements to meet including the work test.