Understanding Small Business CGT Concessions and SMSFs

Capital Gains Tax (CGT) concessions provide relief to Australian small business owners by reducing or deferring CGT payable on the sale of business assets. While these concessions apply to eligible individuals, companies, or trusts running small businesses, SMSFs cannot directly claim these concessions on business asset disposals they own.

Small Business CGT Concessions

Why SMSFs Cannot Directly Claim Small Business CGT Concessions

Small business CGT concessions are structured to benefit active small business entities and their owners, not super funds themselves. An SMSF holding business assets such as shares or property will normally be ineligible to apply these concessions at the fund level.

This is because SMSFs are not considered active business operators and must comply with strict investment rules, including: the in-house asset limit (assets with related parties limited to 5% of fund assets), the sole purpose test (assets must only provide for members’ retirement), and other related-party restrictions.

How Small Business Owners Can Access CGT Concessions Through SMSFs

Despite SMSFs not being able to claim concessions directly, there are practical legal pathways enabling small business owners to transfer concession benefits into superannuation.

The main mechanisms include the small business retirement exemption and the 15-year exemption. Eligible individuals can elect to contribute proceeds from eligible asset sales to their SMSF, up to lifetime caps (e.g., around $1.78 million for the 15-year exemption) as non-concessional contributions exempt from the usual contribution caps, by completing a CGT cap election.

This effectively brings CGT concession benefits into the super fund, boosting retirement balances while adhering to regulatory requirements. Such contributions must follow strict timing, eligibility, and documentation rules to ensure compliance and maintain tax advantages.

Other Legal and Compliance Considerations

Trustees must carefully consider compliance limits before deploying small business assets within an SMSF. These include the nature of assets (active assets vs passive), in-house asset restrictions, and rules on related-party dealings. SMSFs must also ensure all superannuation fund laws are met, especially the sole purpose test, to avoid compromising the fund’s favourable tax status.

Summary

Small business CGT concessions remain a powerful tool for tax planning but require understanding the complex superannuation rules and restrictions. While SMSFs cannot directly claim these concessions, strategic use of retirement exemption pathways allows eligible small business owners to channel CGT benefits into their SMSF, enhancing retirement savings in a compliant and tax-effective way.

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(GENERAL INFORMATION ONLY)

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