The superannuation regime which has been operative since 1 July 2007 is designed to cap the level of annual contribution to a fund in respect of a member at –
– concessional $50,000 (subject to the five year $100,000 transitional rule for persons at least 50 years of age);
– non-concessional $150,000 (subject to the three year “averaging” rule).
Contributions in excess of these levels are made potentially unattractive by the imposition of significant levels of tax on such excess (which can be as high as 93 per cent).
It is possible, however, to utilise an interaction between the small business CGT concessions and the superannuation rules in order to exceed the annual contribution caps by up to $1.045m per taxpayer without incurring excess contributions tax.
Two of the concessions contained in the small business CGT laws are the “15 year exemption” and the “retirement exemption”. Each taxpayer has a lifetime CGT cap amount ($1.045m for 2008-09) available in respect of these concessions which may be contributed to a complying superannuation fund without being required to be included in the non-concessional contribution cap calculation.
The contributions which fall within the CGT cap would be :
1. The 15 year exemption
(i) capital proceeds arising from the disposal of an asset which qualifies for this concession; and
(ii)capital proceeds arising from the disposal of an asset which would have qualified for the 15 year exemption concession but for the fact that –
- it was disposed of at a loss; or
- it was a pre-CGT asset.
2. The retirement exemption
The exempt capital gain arising from the disposal of an asset which qualifies for this concession (subject to the $500,000 lifetime limit which is available to each taxpayer under this concession.)
It is important to note that the CGT cap contribution approach may be available where a capital gain arises in a company or trust. What is necessary is that one or more individuals satisfy the requirements to be a “CGT concession stakeholder” of the entity which makes the capital gain. The CGT concession stakeholder requirements are contained in Division 152 of ITAA 1997.
The conditions applicable to the 15 year exemption and the retirement exemption require the entity to pay the concessional amount to the CGT concessional stakeholders (who must be natural persons) and those individuals then make the contributions which would be considered part of the CGT cap.
A further opportunity of avoiding the non-concessional contribution caps arises where contributions are made from the proceeds of certain personal injury claims.
If payments arising from such a claim are considered to be structured settlements, are a result of a court order or a lump sum workers compensation claim, and –
- two legally qualified medical practitioners certify that because of the injury the person is unlikely to ever be gainfully employed in a capacity for which they are qualified;
- a contribution from the proceeds is made to a complying fund within 90 days of the later of receipt of the moneys or the relevant court order; and
- the contributor notifies the fund as to the source of the contribution, the contribution will be excluded from the non-concessional contribution cap.