Super opportunity for small business owners

Good news for small business owners

Small business owners may find themselves with attractive opportunities to both minimise tax and build up their retirement savings.

These opportunities regarding making contributions into your super fund are listed below, however it is important that you seek advice first before acting on this information. The decisions you make about your retirement will depend on your individual circumstances.

  1. Place up to $1.255 million of proceeds from a business sale into super
  2. Claim a tax deduction for a super contribution


1. Placing proceeds from a business sale into super

The proceeds from the sale of a business can be contributed into super which can help to build up retirement funding – tax effectively. From 1 July 2012, the lifetime contribution limit is $1.255 Million (called the Small Business CGT Cap) and applies to eligible small business owners. Only certain sale proceeds can be counted against this new limit.

Benefits?
If you are planning to sell your business or parts of your business, the total proceeds from the sale could be contributed into superannuation without counting against normal contribution limits. Also, if your spouse owns the business, or a part of the business, they can also contribute up to $1.255 million of sale proceeds – so that’s a total of $2.51 million between you. If you’re looking to increase your retirement savings or accumulate earnings in a low-tax environment, then placing business sale proceeds into super could be a good option to consider.

2. Claiming a tax deduction for a super contribution

Certain eligible business owners can claim a full tax deduction for a contribution made to superannuation up to a maximum effective limit of $25,000 in 2012-13.

Benefits?
Personal deductible contributions help business owners build up their retirement savings pool and offers a substantial tax deduction.

Case Study

How much can small business owners contribute to super?
Jack and Diane (both aged 63) jointly own a small business worth $3 million that they wish to sell before they retire. The capital gain on this business is $2.5 million. They have owned the business for 20 years.

  • Their small business qualifies for the small business “15 year” exemption, meaning that no CGT will apply on the sale of these business assets.
  • After selling their business, they now have $3 million in their bank account.

Diane has heard about some new small business superannuation concessions and wants to know what she and Jack can do to maximise their super balance to fund their retirement.

Let’s now look at the amount Jack and Diane are able to contribute into superannuation, firstly without the new small business concessions:

Contribution

Amount

Contribution under the small business CGT cap

$1.255 million each

After-tax contribution (averaged)

$245,000 each

Total contributions (combined)

$3,000,000