This document summarizes information about small business capital gains tax exemptions and how they can interact with superannuation contributions. It outlines the basic conditions for CGT exemptions, such as owning an active asset for over 15 years. It discusses different exemption types, like the 50% active asset reduction and retirement exemption. It provides an example comparing selling business shares versus the business. The document concludes that planning in advance can help business owners maximize tax exemptions and contribute proceeds to super to benefit in retirement.

1. Presented by Keat Chew
Head of Technical Services
netwealth Educational
Series
Small business CGT &
Super
What you cannot afford to ignore
about this complex area

2. Outline
• Selling a small business
• Small business CGT exemption conditions
• Types of exemptions and conditions
• Interaction with super and CGT cap
• Business planning ahead

3. Your business, your super
• Cashflows tied up in their business
• Requires planning to maximise sale & cashflows
• Tax considerations
• Planning exit (& retirement & estate planning)
• Small business CGT changes have improved
access to exemptions
• Business to super- want to make sure not too late
• Make sure use up NCC, CC - importantly CGT
cap

4. Business structures
• Individual business easiest to deal with
• Structures can cause repatriation problems:
• Extra level to deal with
• More conditions - whether satisfy requirements
• Accessing cashflows without tax implications
• Selling shares in company (provided meet 80% test)
generally better than company selling business

5. Selling shares vs. business
• Jim aged 59 owns all shares in ABC Pty Ltd, established
8 years ago
• Business to be sold for $2m (all gain), conditions for
exemption met
• Company sells business
• $1m exempt under small business 50% active asset discount**
• Another $500k CGT retirement exemption to super
• Balance $500k taxable gain to company
** problem with repatriating proceeds effectively
• Jim sells company shares
• $1m exempt under general individual 50% discount
• Another $500k exempt under small business 50% discount
• Last $500k exempt under CGT retirement exemption

6. Small business CGT concessions
• 15 year exemption**
• 50% active asset reduction
• Retirement exemption**
• Small business roll-over
* 50% discount still available for individuals
** concessions that can extend super contribution
*** to access exemption, must meet basic conditions and specific
concession conditions

7. Small business CGT concessions - basic
conditions
• CGT event resulted in a gain
• Asset must be active asset
• Small business entity or satisfy maximum net
asset value test
• If CGT asset is a share in a company or interest
in a trust:
• and if individual claiming, must be CGT concession stakeholder
or
• if CGT share/interest held by a company/trust, CGT concession
stakeholders in the holding trust together have a small business
participation >= 90% (only interposed entity) in the
shares/interests in the company/trust making the capital gain

8. Active asset
• Owned by entity and used in the course of carrying on a
business
• By entity, connected entity, spouse, child or affiliate
• Intangibles connected with business e.g. goodwill
• No longer need to be active just before CGT event
• Needs to be active for lesser of 7.5yrs or half period of
ownership
• Shares in company/interest in trust - active asset?
• Look through, mv of active assets represent > 80% all assets
(for at least half of ownership period for shares/interest)
• Cash & financial instruments active if inherently connected with
business
• If passed 80% before, unless significant change,
can still treat as active

9. Maximum net asset value
• Maximum net asset value (market value) < $6m
• CGT assets of yours, connected (controlled)
entities and business affiliates (spouse and child)
• Net asset value: MV-liabilities/provisions
• Main asset exclusions:
• Home (unless income producing)
• Superannuation assets
• Personal used assets

10. Small business entity (SBE)
• If >$6m net assets, look at turnover
• Aggregated turnover (connected entities)<$2m
• Will need to work with accountant to confirm SBE
status
• Previous year T/O <$2m, then SBE for current year
• Estimate current year <$2m, only possible if one of two
previous years <$2m
• Actual current year <$2m

11. CGT concession stakeholder
• Only relevant if disposed asset is a share in company or
interest in trust
• To be a CGT concession stakeholder:
• Must be significant individual (SI) or
• Spouse of SI with small business participation %
• To be SI must have participation percentage of >= 20%
• 20% can be direct and indirect
• Company - % voting/dividend/capital entitlement
• Trust
• Where entitled, % of entitlement
• Where discretionary, % distribution of income and capital during
the year - if no dist, no SI

12. Example 1 – significant individual
Trading Company
Family Trust
90% owned by trust
Mr Jones
Direct: 10%
Indirect:9%
Total: 19%
Not Significant Individual
(but is CGT CS)
Mrs Jones
Direct: 0%
Indirect: 72%
Total: 72%
Significant individual
(CGT CS)
10% distribution
10% distribution
80% distribution
(spouse)
10% owned
Mr Smith
Direct: 0%
Indirect: 9.0%
Total: 9.0%
Not significant
individual

13. 15 year exemption
• Must satisfy basic conditions
• Individual, continuously own asset for 15 years and retiring
after age 55 or permanently incapacitated at time CGT event
• Individual, own shares/interest in trust for 15 years, there
must be a SI during the period (not necessary same SI) and
retiring as above
• Company, own asset for 15 years, must have SI for that
period of time
• Entities must pay individual within 2 years of CGT event,
payment (participation %) will be tax free
• Gain fully exempt
• Capital losses (current year or prior) not affected

14. 50% active asset reduction
• Must satisfy basic conditions
• Can elect not to have the 50% active asset reduction
• More gain absorbed by retirement exemption
• E.g. individual sells business $1m (all gain)
Scenario 1 - no election, $500k tax free individual 50% discount
• $250k tax free under 50% active asset reduction
• $250k remaining tax free and ‘rollover’ to super: retirement
exemption
Scenario 2 - election for active asset reduction not to apply
• $500k tax free individual 50% discount
• $500k remaining tax free and ‘rollover’ to super: retirement
exemption

15. Retirement exemption
• Must satisfy basic conditions
• Lifetime limit of $500,000 (2 stakeholders e.g. husband &
wife- $1m!)
• < age 55 need to pay into super, relevant time is when
choice (in writing) is made i.e. tax return time
• If = or > age 55, choice of cash or contribution
• No need to receive actual proceeds, can be gifted (e.g.
farmer) and MV substitution rule applies
• If company or trust:
• No need for actual termination of employment- deemed payment
• Company/trust must make a payment of the amount to at least one
of its concession stakeholder

16. Small business roll-over
• Must satisfy basic conditions
• Can now choose to roll over all or part of gain
• Reduces cost base of new asset by the gain
• Replacement asset can be newly acquired asset
or improvements to assets owned
• Can choose to roll-over gain before acquiring
new asset

17. Estate planning & CGT exemption
• LPR or beneficiary can access exemption:
• Deceased able to meet conditions before death
• Disposal of asset within 2 years of death
• ATO can possibly extend
• Retirement exemption, no need to pay to super
• Even if beneficiaries < 55
• 15 year exemption, no need to satisfy
• Retirement after age 55

18. What can be contributed - CGT cap
• Not all small business CGT exemption proceeds
can be contributed, look out for:
• $500,000 small business CGT retirement
• Capital proceeds from 15 year exemption
• Qualify for 15 year exemption but:
• No gain no loss situation
• Pre CGT asset
• Disposed <15 years because of permanent incapacity

19. Small business CGT cap
• CGT exempt amount
• Forms tax free component, for lump sums and income
streams
• No contribution tax
• CGT cap
• Your CGT cap (or reduced) is indexed annually
• Lifetime limit of $1,315m (2013/14), $1.355m (2014/15)
• Must notify provider before or when contribution is
made, approved ATO form (CGT caps election form)
• CGT cap is reduced by amount of previously elected
contribution

20. Contribution conditions
• CGT exempt amounts are considered
contributions not rollovers
• Work test requirements-APRA Circular 1.A.1
• Business owners will have to satisfy work test if
over age 65….so don’t leave it too late

21. Conclusions
• Baby boomers selling out businesses
• Proceeds need to be reinvested
• Maximise after tax amount on selling through
exemptions
• CGT exemption rules will also help to get
proceeds into Super
• Planning in advance will help the process
• Knowing these complex rules will help minimise
tax and maximise amount to super
• Their business, their super

22. About netwealth
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that entered the market in 2002 to provide a wide range of financial products to Australian
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netwealth is a member of the Heine Brothers Group, a privately owned organisation that
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finance. In 1945 Australian operations commenced and the Heine Brothers Group
became a major trading house dealing in commodities and bulk raw materials throughout
the world. The group expanded its activities from international trade into finance, property
development and investment.
In 1982 Heine entered the Funds Management industry managing a broad range of
investment products including listed and unlisted property, superannuation and unit
trusts. Heine Management Limited, an ASX listed company, was acquired by ING in
October 1999 for more than $110 million. Funds under management at that time
exceeded $2.75b.
netwealth continues the Heine tradition as a strong, innovative, and profitable financial
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23. Disclaimer – For Financial Adviser use
only
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Limited (netwealth), ABN 85 090 569 109, AFS Licence No. 230975 and Financial
Planning Services Australia Pty Ltd (FPSA), ABN 55 010 521 810, AFS Licence No.
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