Beware the Small Business CGT Concessions

Beware the Small Business CGT Concessions

The Holy Grail of the small business CGT exemptions is the 15 year exemption which provides, not only CGT exemptness, but also a $1.515M super contribution irrespective of a member’s total super balance.

Be careful though. Apart from the obvious qualification requirements, over 55 and either small business and relevant assets of less than $6m or turnover of less than $2m, there is also the need to prove that the ownership requirements have been satisfied for at least the last 15 years. This may be easier said than done. If you take the exemption you have an extremely high probability of incurring an ATO audit so make sure that you have your files in perfect order.  If you fail the audit the fund will have received a significantly excessive non-concessional contribution, further, you will probably have lost the ability to consider alternatives that may have been available at the outset.

There have been 12 cases on the $6m net asset value test alone, and the ATO have won 10 of them.

Often these situations would also be eligible for the retirement exemption which requires far easier justification. If we assume the realised active asset is $2m in goodwill to be distributed between a husband and wife, the capital gain is $1m each. The retirement exemption allows a 50% discount on the gain so each party’s share will be reduced to $500k, which may be contributed to super. There will be no CGT.

Clearly the amount of the sale proceeds that could be contributed to super is far less for the retirement exemption than it is for the 15 year exemption but the risk of failing an ATO audit is significantly reduced. You must do the numbers, weigh up the risk and ensure you can defend your position in either case.