Overview
Contributions: Capital Gains Tax (CGT) Cap
August 2010
Technical
Bulletin
Contributions made from certain amounts arising from the disposal of
qualifying small business assets can be excluded from the nonconcessional contributions cap. The following contributions will be
allowed under this exemption up to a lifetime limit of $1,155,000 (for the
2010/11 financial year):
 Up to $500,000 of capital gains where the small business retirement
exemption has been claimed (this is a lifetime limit and is not
indexed).
 Capital proceeds from the disposal of small business assets that are
exempt from CGT under the small business 15 year exemption. This
includes capital proceeds from the disposal of small business assets
that would have been CGT exempt except:
 they were pre-CGT assets, or
 there was no capital gain, or
 the 15 year holding period was not met because of the
permanent incapacity of the person (or a significant
individual of a company or trust).
Specific requirements must be satisfied before any of the small business
CGT concessions can be applied.
The process - prior
to making the
contribution
Determining eligibility
It is the individual’s responsibility to ensure that the small business CGT
concessions are available to them. To qualify for the small business CGT
concessions, you must satisfy:
 the ‘basic conditions’ that are common to all the concessions; and
 a number of conditions that are specific to the individual small
business CGT concession (eg 15 year exemption, 50% reduction etc)
that you wish to use.
Each individual should seek professional advice to determine which
concessions to apply and the amount to claim under each concession so
that total tax benefits and/or superannuation contributions can be
maximised.
The interaction
between the small
business CGT
concessions and
the superannuation
contributions
It is important to understand that the small business CGT concessions
are tax concessions and that claiming the concessions does not always
result in a contribution being made to superannuation. For example, to
claim the small business retirement exemption, individuals are only
required to contribute the capital gain into superannuation if they are
under the age of 55 at the time of making the election.
Example 1
Helen is 80 years old and has contacted her superannuation fund stating
that she wants to contribute and claim $50,000 of her small business
retirement exemption. Unfortunately as she is over the age in which to
contribute, she is unable to make the contribution to superannuation. Not
making the contribution does not mean that she is unable to claim the
$50,000 small business retirement exemption when she lodges her tax
return for the end of that financial year.
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Timing of the contribution
If and when contributing to superannuation, the contribution must be made no
later than:
 the day the individual is required to lodge their tax return for the relevant
income year, or
 30 days after the day the capital proceeds are received.
Where the capital proceeds are received and contributed in instalments, each
instalment is a separate contribution and must be made within the above
timeframes.
The process making the
contribution
Contribution rules
Normal contribution rules apply. That is, individuals 65 or over and less than 75
must satisfy the work test1 in order to contribute to superannuation. Previously,
when contributing to superannuation under the small business capital gains
exemption, the capital gain was treated as a rollover.
Notifying the superannuation fund
A contribution will only be excluded from the non-concessional contributions cap
and count towards an individual’s CGT cap if the individual provides their super
fund with a completed ‘Capital gains tax cap election’ form at the time the
contribution is made. Superannuation funds must report contributions claimed
under the CGT cap amount (ie the small business retirement exempt amount and
the small business 15 year exemption amount) to the ATO. Where a contribution
is made to superannuation without being claimed under the CGT cap amount, the
superannuation fund records it (and reports it to the ATO) as a personally
contributed amount.
A copy of the ATO ‘Capital gains tax cap election’ form (nat 71161) is available on
the ATO website (http://www.ato.gov.au/).
Example 2
Tom, aged 61, is self-employed and owner/manager of the local newsagency. On
3 March 2010, Tom sold his newsagency business that he purchased in 1996 for
$650,000, realising a capital gain of $400,000 from the sale.
He has sought advice on maximising his superannuation contributions, as he is
about to retire. We will assume that Tom meets all the basic eligibility criteria for
the small business concessions and has not claimed any of the small business
CGT concessions in the past.
Scenarios A and B illustrate the interaction between claiming certain small
business CGT concessions and contributing within the non-concessional
contributions caps.
Scenario A
Capital gain
400,000
After 50% individual CGT discount
200,000
After small business 50% reduction
100,000
Small business retirement
$100,000
exemption claimed and
contributed to super under the
CGT cap election
Non-concessional contribution made
450,000
Total super contribution
$550,000
Funds unable to contribute to super*
$100,000
*without breaching the non-concessional contributions cap.
Scenario B
400,000
200,000
(forgone discount)
$200,000
450,000
$650,000
Nil
_______________________________
1
Must have been gainfully employed for at least 40 hours in a period of not more than 30
consecutive days in the financial year in which the contribution is made.
2
By choosing to forgo the small business 50% reduction, Scenario B has resulted
in Tom being able to contribute more money into super:
 Tom makes a contribution of $200,000 and at the same time provides a
completed ‘CGT cap election’ form to his super fund to ensure that this
amount is excluded from his non-concessional contributions cap and counted
against his CGT cap. Tom’s remaining lifetime CGT cap amount is $955,000.
 Tom contributes an additional $450,000 to super as a personal after-tax
contribution by bringing forward two years’ worth of entitlements to nonconcessional contributions.
Tips
 The CGT cap allows qualifying small business owners to contribute up to
$1,155,000 (for 2010/11) to super provided that certain small business CGT
conditions are met. Individuals who have used some, but not all of this
lifetime limit, originally set in 2007/08 at $1 million, can now take advantage of
the extra amount due to indexation.
 Individuals should seek advice on using the appropriate small business CGT
concessions to maximise their super contributions across all contributions
caps.
 Amounts contributed in excess of the CGT cap will count towards the
individual’s non-concessional contributions cap. Care should be exercised so
that the non-concessional contributions cap is not inadvertently breached.
 In some situations, an individual may choose not to utilise their CGT cap for a
contribution. For example, where they are unlikely to exceed their
non-concessional contributions cap and wish to preserve their CGT cap for
contributions made from the future disposal of qualifying small business
assets.
Legislative
references
Income Tax Assessment Act 1997
Section 152-10 (Basic conditions for relief)
Section 292-100 (Contributions made from certain amounts arising from the
disposal of qualifying small business assets).
Section 292-105 (The CGT Cap Amount)
Section 292-90(2)c) (Contributions not included in the amount of an individual’s
non-concessional contributions for a financial year)
FOR GENERAL INFORMATION ONLY
This information has been prepared by BT Funds Management Ltd ABN 63 002916 458.
It is provided solely for the general information of external financial advisers and must not be
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