Integrity SMSF Education Professionalism SUPER GUIDE: The SMSF Club Web: Ph:

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1 Integrity SMSF Education Professionalism SUPER GUIDE: Small Business Superannuation Contribution Concessions The SMSF Club Web: Ph:

2 Integrity SMSF Education Professionalism This guide ( Guide ) has been produced by The SMSF Club Pty Ltd ( the SMSF Club ) who is a corporate authorised representative of RM Capital Pty Ltd (ABN , AFS Licence No ) and has been prepared for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any security or financial product or service. The information contained in this Guide may not be reproduced, used or disclosed, in whole or in part, without the prior written consent of The SMSF Club. This Guide does not takes into account your investment objectives, financial situation and particular needs. You should, before deciding whether to invest in any asset class or financial product or service, consider the appropriateness of investing or continuing to invest, having regard to your own objectives, financial situation or needs. The SMSF Club strongly recommends that you obtain independent financial, legal and taxation advice before deciding whether to invest. The information contained within this document is of a general nature only. Whilst every care have been taken to ensure the accuracy of the material contained herein at the time of publication neither the author or Licensee will bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. The SMSF Club Web: Ph: admin@thesmsfclub.com.au

3 This guide is brought to you by About The SMSF Club The SMSF Club is a membership program designed specifically for anyone who has or wants to establish a SMSF. Business and investing are team sports. The average investor or small business loses financially because they do not have a team. Instead of a team, they act as individuals who are trampled by very smart teams. Richard Branson With an extensive network throughout Australia, The SMSF Club integrates a tailored education program with administrative, compliance, and investment support. We help members throughout every stage of the SMSF process. This includes the establishment of a SMSF, full ongoing bookkeeping, ongoing accounting, legal and compliance support, plus investment education. We ensure our members are informed, responsible, and compliant trustees of their SMSF. Having the right team to support you in meeting your obligations is critical to the success of running your own SMSF. With the guidance of The SMSF Club you can be in control of your retirement savings for yourself not by yourself.

4 Integrity SMSF Education Professionalism Super Guide Small business Superannuation Contribution concessions While the Government has imposed limits on the amount of funds you can contribute into superannuation each year, they are aware that a number of Australian s are small business operators, who have put all their money into running and growing their business, instead of superannuation, in order to fund their eventual retirement. In order to ensure that these small business owners also benefi t from the great investment paradise that is superannuation, there is a special lifetime contribution limit which allows small business owners the ability to contribute capital proceeds from the disposal of certain small business assets into superannuation. This limit is referred to as the capital gains tax cap for small business operators. Contributions counted towards this capital gains tax cap amount include: Retirement exemption Proceeds from the sale of an active small business asset are exempt from capital gains tax up to a lifetime limit of $500,000 per individual. The proceeds must be invested into superannuation under this small business retirement exemption. The 15 year exemption If the small business asset has been held for over 15 years there is no capital gains tax payable. Provided that the business owner is over age 55 and retiring, they can contribute a lifetime limit of up to $1.355 million into superannuation (2015 limit). Both these exemptions give small business owners the ability to move their proceeds from the sale of that business into superannuation being a more tax effective investment vehicle to fund their retirement. Example (1) Peter, 60, owned a mechanic workshop for fi ve years. The business is sold for $1,500,000 providing a capital gain of $1,000,000. Peter s assessable capital gain is: Capital gain $1,000,000 Less 50% 12-month ownership discount ($500,000) Assessable gain $500,000 Peter can apply the small business retirement exemption and roll the $500,000 assessable gain into superannuation negating any tax liability. If Peter does not roll the $500,000 into super he will have to pay $207,350 in tax. Peter is $207,350 better off by using the Small Business CGT concessions. Invested outside of super, the invested funds will need to grow by 40% just to accumulate back to the initial amount, and then of course the earnings in his personal name would be taxed at his marginal tax rate, whereas they will be tax free in his superannuation fund as Peter can start a pension to fund his retirement. The SMSF Club Web: Ph: admin@thesmsfclub.com.au

5 Example (2) Sonia (62 years old) retires after operating a fl orist business for over 20 years. The business is sold for $2,000,000 incurring a capital gain of $1,500,000. As Sonia has owned the business for 20 years the 15-year exemption rule applies, meaning no capital gain is payable on the sale of the business. Sonia may contribute $1.355 million from the sale proceeds into superannuation and also (depending on eligibility) contribute a further $540,000 from the proceeds as non-concessional contributions (after tax) by utilising the 3 year bring forward rule. By taking advantage of this contribution strategy, Sonia can transfer $1.905 million into superannuation. Sonia can now draw a tax free income from her superannuation in retirement. Sonia has decided to draw an income of $155,000 tax free each year from her superannuation. This equates to $12,916 in Sonia s pocket per month. If Sonia had invested those funds outside of super and the proceeds generated the same amount in income ($155,000), Sonia would be required to pay approximately $48,000 in income tax per year. Sonia would therefore only receive $8,916 per month in her pocket. By taking advantage of the $1.355 million small business superannuation contribution entitlement, combined with the ability for an individual to bring forward three years of non-concessional contributions, Sonia can move up to $1.905 million into superannuation and save $48,000 in tax each and every year. This gives Sonia an additional $4,000 each month to spend. Conditions for Capital Gains Tax Relief For businesses to qualify for any of the tax concessions outlined above some basic conditions must be met. The main condition is that the business must meet the small business test. To be classifi ed as a small business the business entity for the income year in which the CGT event occurs must satisfy the $2 million aggregate turnover test, or the net asset value of the business must be below $6 million. In addition to this basic condition there are extra conditions imposed by the ATO. The list is extensive. If you are considering selling your business or jut sold your business or a business asset and meet the above test you should speak to a SMSF Club representative as soon as possible. The tax savings could be huge. Contribution Rules for the CGT Small business Concessions In addition to qualifying for the small business CGT concessions, there are further rules to be met to allow those CGT exempt amounts to be paid into super and to count towards the CGT cap rather than being counted as non concessional limits. The additional considerations will depend on the ownership structure of the business, and the length of time you have owned the business. This is a complicated area, it is recommend that if you are a small business owner thinking of selling or have just sold your business that you contact a licensed investment adviser to receive complete tax and retirement planning advice specifi c for your individual circumstances. The SMSF Club can assist you in this process. The Capital Gains Tax (CGT) small business concession tax rules can be very complex and this super guide only provides a brief overview of the main issues. Readers should seek professional advice in regard to the information outlined within this guide prior to implementing any of the strategies discussed.

6 Integrity SMSF Education Professionalism The SMSF Club Web: Ph:

7 What Can I do now? Opportunity is missed by most because it is dressed in overalls and looks like hard work. Warren Buffett The Next Step The SMSF Club is not designed for everyone, nor is it meant to be. The SMSF Club provides ongoing education or general advice only. Our aim is to empower our clients with the education so they can make informed, compliant, and hopefully successful investment decisions. Whether you are already a share market investor, have a SMSF or are considering a SMSF, it is critical you understand the obligations of being a trustee of a SMSF and the risks of any investment strategy adopted. If you would like to find out more information about The SMSF Club please arrange a complimentary meeting with a SMSF Club coach on or visit our website to register for an upcoming event. An Investment in knowledge pays the highest dividend Benjamin Franklin

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