Article published in Issue 9, 2009-10 of The Taxpayer, dated 26 October 2009
In a nutshell...
Business owners: Don’t miss out on extra super top-ups
Some super fund members may be missing out on contributions to their fund by simply not being aware
of an opportunity written into the small business tax concession rules. Extra money could be going into
their super that will not incur excess contribution tax.
An annual cap is applied to non-concessional contributions, and if that cap is exceeded, tax is generally
levied at 46.5%.
But small business owners who have access to the “15 year” or the “retirement” exemption (which
form part of the small business CGT concessions [link t/c] legislation) may be able to make certain
contributions above the cap that escape that excessive tax.
Super contributions that are covered by these special CGT options include those sourced from capital
gains that are disregarded under the retirement exemption, and contributions made from the capital
proceeds realised from disposing of assets that come under the 15-year exemption.
There are conditions to be satisfied in order to utilise these exemptions, such as continually owning
the CGT asset for the 15 years, that an individual needs to be at least 55 years old for the retirement
exemption, or if a company that it had a “significant individual” for at least 15 years of ownership
(although the 15 years does not have to be continuous and the significant individual does not have to be
the same person over the 15 years).
The contributions need to be no greater than CGT exempt amounts under these rules. But you don’t
actually have to retire to access the exemption, and there is a limit of $500,000. And to ensure these capexempt contributions are not counted towards the non-concessional limit, the fund trustee needs to be
notified of the contribution no later than the time it is made, and using the approved form.
Generally, earnings from small business concession contributions will be taxed at 15%, while earnings
from amounts that are part of the pension superannuation interest will be exempt from tax. There is also
the “bring forward” option available, where a person may be able to apply future entitlements in regard
to contributions. Usually there’s a $150,000 cap, but bringing forward a further two years of contributions
will allow a cap of $450,000 for one contribution year.
...the full article follows
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The Taxpayer
26 October 2009 www.taxpayer.com.au
Issue 9 • 2009/2010
How to maximise your superannuation
contributions!
By Graeme Evans and Roger Timms
The opportunity exists for certain taxpayers to substantially increase the level of non-concessional contributions
they are able to make to a complying superannuation fund without incurring excess contribution tax (ECT). This
article will examine how the small business CGT concessions may be utilised to increase contributions without
becoming liable for ECT.
An annual cap is applied to non-concessional
contributions by a fund member and if that cap is
exceeded, tax is usually levied on the excess at 46.5%.
However, for taxpayers who are able to access the 15 year
exemption or the retirement exemption, which form part
of the small business capital gains tax (CGT) concessions
(Division 152 ITAA97), certain contributions may be made
in excess of the cap.
Unless otherwise indicated, all section and division
references in this article are to the Income Tax Assessment
Act 1997 (ITAA97).
Background
In recognition of the historically low superannuation
benefits accumulated by many small business owners,
a need was identified to allow them to make substantial
one-off contributions into superannuation from the sale
of their business assets.
This led to the introduction of the small business
CGT contribution concession contained in s292-100
which excludes from the amount of non-concessional
contributions for a year, a contribution covered by s292100. These excluded contributions arise where, broadly:
• the contribution is equal to all or part of the
capital proceeds from a CGT event where the small
business 15 year exemption has been accessed; or
• the contribution is equal to all or part of the capital
gain from a CGT event where the small business
retirement exemption has been accessed.
The contribution must not exceed the s292-105 CGT
cap, which is presently $1,100,000. This lifetime (indexed)
maximum is available to all individual taxpayers.
From 1 July 2007 the annual non-concessional
contribution cap has been $150,000 subject to the
‘bring forward’ option outlined below. Non-concessional
contributions in excess of the cap will incur an Excess
Non-Concessional Contributions Tax (s292-80) imposed
at the rate of 46.5% by the Superannuation (Excess Nonconcessional Contributions Tax) Act 2006.
Excluded contributions: The detail
Contributions covered by s292-100 and therefore
excluded from the non-concessional contribution cap
are:
• contributions up to $500,000 sourced from capital
gains that can be disregarded under the small
business retirement exemption (subdivision 152-D)
• contributions from the capital proceeds upon the
disposal of assets that satisfy the requirements for
the small business 15 year exemption (subdivision
152-B), and
• contributions from the capital proceeds upon
the disposal of assets that would otherwise have
satisfied the requirements for the small business
15 year exemption, except that the disposal of the
asset resulted in no capital gain, the asset was a
pre-CGT asset, or the asset was disposed of within
15 years because of the permanent incapacity
of a person either individually or as a significant
individual of a company or trust.
Small business concessions: The
requirements
The basic conditions to be satisfied in order to access
any of the small business CGT concessions are detailed
in Subdivision 152-A. There are additional conditions to
be satisfied in order to utilise the 15 year exemption and
the retirement exemption, which may be summarised as
follows:
The 15 year exemption
In addition to the basic conditions referred to above,
the following conditions must be satisfied:
• the entity has continuously owned the CGT asset
for the 15 years ending just before the CGT event
• if the entity is an individual, the individual is
at least 55 years of age at the time of the CGT
event and the event happens in connection with
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•
Accepting contributions
the individual’s retirement or the individual is
permanently incapacitated, and
if the entity is a company or trust, the entity
had a ‘significant individual’ for at least 15 years
throughout the ownership period and the
individual who was a significant individual just
before the CGT event retires or is permanently
incapacitated. The 15 year period does not have
to be continuous and the significant individual
does not have to be the same significant individual
during the 15 year period.
As eligible exempt amounts covered by s292-100
are contributions, the fund trustee must be able to
accept the monies being contributed. The trustee must
apply the following rules in determining whether a
contribution can be accepted:
The retirement exemption
In addition to the basic conditions referred to above,
the following conditions must be satisfied:
• if the entity is an individual who is under 55 years
of age just before making the choice to access the
exemption (usually at the time of lodging their
tax return), an amount no greater than the CGT
exempt amount (the capital gain) is contributed to
a complying superannuation fund or Retirement
Savings Account and that contribution is made in
accordance with the time limits imposed by s152305(1)(c)
• if the entity is a company or trust, it had at least
one ‘significant individual’ just before the CGT
event and made a payment to at least one of its
CGT concession stakeholders in accordance with
the requirements of s152-325, and
• for all entities, the CGT exempt amount is specified
in writing.
An individual has a lifetime CGT retirement exemption
aggregate limit of $500,000. That is, the exemption may
be used more than once, but the total exemption cannot
exceed the limit. It is not necessary for the taxpayer to
actually retire in order to access the exemption.
•
Where the member is under age 65:
All contributions can be accepted without
restriction; however refer r7.04(2) and r7.04(3) of the
Superannuation Industry Superannuation Regulations
1994 (SISR 94).
•
Where the member is age 65 to under age 75:
Contributions can be accepted subject to the
member meeting the ‘gainful employment test’ (see
below); also refer r7.04(2) and r7.04(3) of SISR94.
•
Where the member is age 75 and over:
Non-mandated contributions cannot be accepted.
Gainful employment test
The ‘gainful employment test’ requires the member to
have been gainfully employed on a part-time basis for at
least 40 hours over a continuous 30 day period during the
relevant financial year in which the contribution is to be
made and accepted by the fund.
Quotation of a TFN
Applying SISR94 r7.04(2), a trustee would be
required to return all contributions where the member’s
TFN has not been quoted (for superannuation purposes)
to the trustee of the superannuation fund.
Notification to the trustee
A contribution will only fall within the s292-100
exception if the contributor notifies their fund trustee no
later than the time the contribution is made, using the
The timing of contributions to a complying superannuation fund
Concession
Taxpayer
Contribution paid to a complying fund
15 year
exemption
Individual
By the later of:
• due date for lodgement of the income tax return, and
• 30 days after receiving capital proceeds
Company/Trust
(makes payment to CGT
concession stakeholders)
CGT concession stakeholder to make payment within
30 days of receiving the exempt amount from the
company/ trust.
Individual
By the later of:
• due date for lodgement of the income tax return, and
• 30 days after receiving capital proceeds
Company/Trust
(makes payment to CGT
concession stakeholders)
CGT concession stakeholder to make payment within
30 days of receiving the exempt amount from the
company/ trust.
Retirement
exemption
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Maximise your super contributions
approved form. This is to ensure that the trustee is able
to accept the contribution and that the contributions are
not reported against the non-concessional contribution
cap, but against the CGT cap which applies to s292-100
contributions.
The approved form Capital gains tax cap election (NAT
71161) is available from the Tax Office. Although this
form does not have to be used, individuals must provide
to their fund all the information required by the approved
form.
The timing of contributions to a
complying superannuation fund
Section 292-100 sets out requirements as to when a
contribution covered by that section must be made to a
complying superannuation fund in respect of a financial
year. See below for the payment requirements to a
complying superannuation fund.
It should be noted that subdivisions 152-B (15 year
exemption) and 152-D (retirement exemption) contain
their own rules in relation to the timing of payments and
they are not necessarily consistent with the requirements
of s292-100.
Fund treatment of s292-100
contributions
Once contributed to a complying fund,
contributions covered by s292-100 become part of
the ‘contributions segment’ of the tax-free component
of the contributors superannuation interest (s307-220).
The ‘contributions segment’ generally consists of all
contributions made from 1 July 2007 that have not
been included in the assessable income of the fund.
This includes all non concessional contributions, spouse
contributions, government co-contributions etc.
As part of the tax-free component of a member’s
superannuation interest, any life or death benefit
lump sums or income streams consisting of s292100 based amounts will be tax-free in the hands of
the recipient.
Generally, earnings derived from s292-100
contributions will be concessionally taxed at 15%
within a fund that is in accumulation mode whilst
for amounts that are part of a member’s pension
superannuation interest, any earnings will be
exempt from tax.
Conclusion
The ability to supplement non-concessional
superannuation contributions on a tax-effective
basis by utilising the s292-100 contribution
exclusions provides small business operators
with a significant opportunity to maximise their
retirement savings. Advisors should ensure that
they are alert to the opportunity in order to ensure
that those taxpayers wishing to take advantage of
the strategy are able to do so effectively.
Example
On 31 July 2009, Sharon (who is 58 years old) sells
the assets used in her small business. The capital
proceeds from the asset sales are $2,600,000, and
her capital gain from the sale is $1,200,000.
Sharon qualifies for the small business 15 year
exemption and elects to disregard the capital gain
utilising that exemption. Sharon also chooses to
contribute $1,550,000 to her superannuation fund.
She has not made any other non-concessional
contributions and makes the contribution on 1
August 2009.
Sharon decides to count $450,000 of the contribution
as a personal contribution towards her non-
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Maximise your super contributions
concessional contribution cap (adopting the ‘bring
forward option’) and $1,100,000 as a contribution
to which s292-100 applies (the CGT cap amount in
respect of the 2010 year).
If Sharon provides the fund trustee with the appropriate
notices, each of the components of the contribution
of $1,550,000 will incur no tax as neither the nonconcessional contribution cap nor the s292-100 CGT
contribution cap has been exceeded.
Non-concessional contributions cap and
the ‘bring forward’ option
Whilst the annual non-concessional contribution cap
is $150,000 the ‘bring forward’ option is a concession to
accommodate larger contributions by individuals who
were under age 65 at some time during the financial year
in which the contribution occurs (s292-85(4)). It allows
eligible individuals to ‘bring forward’ future entitlements
to two years of contributions, giving them a cap of
$450,000 in respect of the contribution year.
The ‘bring forward’ will be triggered automatically
when contributions in excess of the $150,000 annual cap
are made in a year by a person who is under 65 at any
time in the year where a ‘bring forward’ has not already
commenced.
EXAMPLE
Spiro turns 65 on 5 July 2010 and, because he was
aged 64 at some time in the 2010-11 financial year,
he can take advantage of the ‘bring-forward’ rule. In
August 2010 he decides to increase his non-concessional
superannuation contributions and for the year ended 30
June 2011, as funds become available, he makes several
contributions totalling $400,000.
As the available cap for the 2011 year is $450,000 under
the ‘bring forward’ rule, no excess contribution tax will
be incurred.
WARNING
The ‘bring forward’ option is only available to individuals
who were under age 65 on 1 July of the relevant financial
year.
TIP
People aged 63 and 64 who take advantage of the
‘bring forward’ option do not have to satisfy the ‘Gainful
Employment Test’ in either of the following two financial
years.
Must be made to a complying
superannuation fund (s292-100(1))
The s292-100 based contribution must be made to a
Complying Superannuation Fund (CSF). The definition of
a CSF is for tax purposes only, and is in accordance with
s45 of the SISA93. n
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