Over recent years successive federal governments have recognised the importance of the small business sector. This has resulted in a number of initiatives that provided tax concessions that not only decreased the tax burden on small business owners but also reduced the accounting administration burden.
The ability for small business entities, originally limited to businesses with a turnover of less than $2 million, to pool assets and claim depreciation at the rate of 15 per cent in the first year and then 30 per cent of the written down value from then on was a major benefit.
This benefit increased recently so that assets costing under $20,000 can be written off the in the first year, and the definition of the small business entity has changed from July 1, 2016 to include businesses with a turnover of less than $10 million.
One of the biggest tax benefits for small business owners was the Capital Gains Tax concessions introduced by the Howard government in September 1999. These concessions have also been improved and simplified since their introduction.
Originally to qualify for the small business CGT concessions eligible taxpayers had to have less than $5 million in net assets. As a result of those changes, and the introduction of the small business entity concept, the $2 million income turnover test was introduced and the net asset test was increased to $6 million.
Although many of the tax concessions relating to small business entities will now apply to businesses with a turnover up to $10 million, the small business CGT concessions will still only be available to businesses with a turnover of less than $2 million.
Q. I have been running a small business for 20 years and intend to retire just prior to turning 65 in January 2018. The land and factory I operate from has dramatically increased in value and I am looking at dealing with a capital gain of just over $1 million. I qualify for the 15-year CGT exemption but, as I have $700,000 in super, will I be able to contribute $1 million to super because of the new $1.6 million superannuation limit?
A. The superannuation limit you are referring to is the pension transfer limit that places a maximum value on the amount that a person can have in a superannuation pension account from July 1, 2017.
In addition to reducing the maximum yearly non-concessional super limit to $100,000, no further non-concessional contributions can be made that will increase a person's total superannuation to be worth more than $1.6 million.
Because the small business 15-year and the retirement CGT exemptions are classed effectively as after tax non-concessional contributions I can understand your concern.
To clarify this issue I contacted the ATO and can confirm that the amount contributed to a super fund under the small business CGT exemptions will not be affected by the new $1.6 million limit. This means you can claim the 15-year retirement exemption and contribute the capital gain to a super fund.
Questions on small business income tax and other issues can be emailed to max@taxbiz.com.au. Max Newnham is a partner in the accounting firm TaxBiz Australia and founder of www.smsfsurvivalcentre.com.au.