Ask an expert 24.9

The tax laws have been progressively amended since July 2006 to provide a greater range of concessions to taxpayers. Two prominent examples have been the changes designed to:

make superannuation a more attractive retirement strategy;

and enable small business operators to more easily extract capital gains arising from the sale of a business on a tax-free basis.

The challenge is how to capitalise on these opportunities!

Superannuation funding strategies

Can superannuation fund assets be increased outside the standard contribution caps which have operated since July 1, 2007, in order to maximise the benefits from being able to draw down superannuation benefits on a tax-free basis from age 60 years?

Clearly yes. This might be achieved by way of borrowing using the new “instalment warrant” provisions. The law places no restriction on who the lender might be and therefore the contribution caps could be avoided by a self-managed super fund (SMSF) member (or a relative or family entity) lending the necessary monies for the fund to acquire assets – the amount of the “contribution” is effectively unlimited in these circumstances.

The law considers both real property and listed securities to be acceptable assets which might be acquired with the borrowed funds.

There is also a potentially beneficial interaction which has been created between the superannuation contribution laws and the small business capital gains tax (CGT) concessions. Taxpayers who are able to access the “15-year exemption” or the “retirement exemption” in order to ensure that capital gains are tax-free, have the opportunity to contribute up to $1,000,000 from those gains into superannuation outside the contribution caps.

In one year a taxpayer who was at least 55 years of age might therefore be able to contribute, without any excess superannuation contribution tax, the following:

• • • $ 100,000 concessional contribution
    • $ 450,000 non-concessional contribution (three-year averaging)
    • $1,000,000 capital gain via small business CGT concessions

Small business CGT concessions

The small business CGT regime is not only advantageous in that it can be used to boost superannuation contributions on a tax-effective basis. The concessions have been made more accessible generally to taxpayers who sell a business or business assets.

For example, there is the potential for greater flexibility for taxpayers. One of the requirements to access the concessions is that the particular asset be “active” however under the law as it is now structured a taxpayer selling, say, a manufacturing business may elect to retain the land and buildings as an investment but that asset may nevertheless retain its “active” status and hence access to the concessions when ultimately sold.

There is also scope to use the concessions multiple times and even after death.

The retirement exemption can be accessed without any need for an individual to retire and therefore a taxpayer may sell a business, extract the capital gain on a tax-free basis utilising the retirement exemption, and then reinvest that sum in a new business venture.

The concessions also provide that where an individual dies and, just before their death, they would have been able to access the small business CGT concessions, the trustee of their estate, or a beneficiary, can access the concessions where an asset is disposed of within two years of death. Advisers must be alert to this opportunity.

The tax law is littered with concessions and benefits which may be available to taxpayers. Skilled advisers are typically needed to ensure that these opportunities are capitalised upon.