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Capital gains tax concessions for small business

CGT cap contributions

Section: 12.8

CGT cap contributions arise from the application of the:

  • Small business 15-year exemption
  • Small business retirement exemption

CGT cap contributions are not counted against the non-concessional contributions cap (or the concessional cap) and a lifetime limit of $1.565 million (indexed) applies.

Contributions relating to 15-year exemption

Individuals

Where an individual disregards a capital gain by applying the small business 15 year exemption an amount equal to our up to the capital proceeds can be contributed to superannuation as a CGT cap contribution.

In the case of the disposal of a pre CGT asset or a capital loss, treat it as if a capital gain was actually made. If the 15 year exemption could have been applied to this assumed capital gain, then an amount equal to or up to the capital proceeds can be contributed to superannuation as a CGT cap contribution.

The CGT cap contribution must be made before the later of the following:

  • the day that the taxpayer is required to lodge their tax return* for the income year that the capital gain was realised
  • within 30 days after the receipt of the capital proceeds.

*Generally an individual taxpayer is required to lodge their tax return by 31 October of the following financial year, or for those that used a tax agent in the previous year and will utilise that tax agent again, by 31 March.

Company or trust

Where a company or trust disregards a capital gain by applying the small business 15-year exemption (or could have assuming that a capital gain was made in the case of a pre-CGT asset or capital loss) and makes a payment to a CGT concession stakeholder equal to or up to their control or participation percentage (within two years after the CGT event), the individual can make a contribution equal to or up to this payment as a CGT cap contribution. This contribution must be made within 30 days after the payment is made by the company or trust.

Contributions relating to retirement exemption

Where a company or trust disregards a capital gain by applying the small business retirement exemption and pays the amount to an individual, the individual can make a contribution equal to or up to the amount disregarded as a CGT cap contribution. This contribution must be made within 30 days after the payment is made by the company or trust.

Note; To satisfy the additional conditions required to apply the retirement exemption, a company or trust must contribute the amount to a superannuation fund, on behalf of an individual who is under age 55 when the payment is made.  The company or trust is required to notify the trustee of the fund that the contribution relates the contribution. However, for the purposes of excluding the contribution from the non-concessional cap, the individual is still required to complete the 'Capital gains tax cap election' form and give this to the fund before or at the time of the contribution is made.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Monday, September 28, 2020