A lot of business owners when asked what they think of superannuation will remark ‘my business is my super fund’. However what happens when their business is sold?
When a business is sold, generally there will be a substantial lump sum that the vendor may need advice on. If the intent is to retire, you are over 55 and certain criteria are met, you may be able to reduce or eliminate any Capital Gains Tax arising from the business sale.
There are certain tests and criteria a small business owner must meet to enable a gain from the sale of a business asset to be CGT free. These need to be worked through with your accountant and once this has been determined, a financial planner can assist with your investment decisions and what ownership structure may provide the best benefit.
Superannuation is a clear choice with potentially no tax payable once a pension has been established. However careful planning is required to maximise the amount of money that can be contributed tax free into the superannuation environment. Most individuals can contribute up to $180,000 in any one financial year to a complying super fund or if under age 65, they might take advantage of the ‘bring forward rule’ and contribute up to $540,000 in a given financial year.
However clients may ask – can I contribute more to superannuation from the sale of my business?
In some cases small business owners may be able to contribute up to $1,395,000 to super, for example, where the sale of an asset qualifies for the 15 year exemption rule. What is often little known is that when using this cap the funds do not have to be eligible capital gains from the sale of a business. Monies contributed simply can be sale proceeds from a business whether there is CGT associated with the sale or not (including pre CGT assets). Usually any asset sold that is inherently connected with the running of the business will qualify and you should rely on your accountant to provide specific advice in this area.
A further benefit for small business owners who are over age of 65 is that they can still make use of their lifetime CGT cap and elect to contribute to superannuation (where they have met the work test) and this does not count towards their non concessional $180,000 limit. Hence they might be able to contribute up to $1,395,000 from their sale proceeds to superannuation tax free and once they commence a pension also receive a regular tax free income stream.
With appropriate advice from your accountant and financial planner, this strategy can potentially deliver a more successful move into retirement with full access to your funds via a tax free pension or lump sum. If this is the case, you may be able to truly say that your ‘business still is your super fund’.
This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282. This article does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.