When selling a business or business asset, small business owners can take advantage of tax concessions and contribute some of or all of the sale proceeds to their superannuation fund without breaching superannuation contribution caps. It can be a great way of boosting superannuation balances.

However, there are a few things to keep in mind to make this work. To ensure the capital realised from a business sale doesn’t attract capital gains tax (CGT), there are four CGT concessions for small businesses to consider:

The 15-year exemption

The 15-year exemption allows for contributions to superannuation funds that sit outside the usual caps. This is the most valuable concession, as it allows a full exemption from CGT on the sale of a business. This exemption allows a contribution of the total sale proceeds of a business up to the CGT cap which is $1.705 million for the 2024 financial year. For example, if an asset is sold for $1.5 million, the full $1.5 million can be contributed to superannuation under this exemption.

To qualify for this concession, a business owner:

  • must have owned the business asset for more than 15 years consecutively
  • must be over 55 and have the sale happen in connection with retirement, or be permanently incapacitated
  • no other small business CGT concessions can be applied

The 50 per cent reduction

Small businesses can reduce the capital gain on the sale of a business or business asset by 50 per cent, in addition to the CGT discount if conditions are met. After applying any current or prior year capital losses and the CGT discount (if applicable), any remaining capital gain is reduced by 50 per cent.

The retirement exemption

This concession allows for a $500,000 reduction in the assessable capital gain of a business. Much like the 15-year exemption, the retirement exemption also allows for contributions to superannuation of up to $500,000 that sit outside the usual caps. However, this is different to the 15-year exemption as it is based on the exempt capital gain, not the total sale proceeds.

Conditions for the concession include:

  • the $500,000 exempt capital is a lifetime limit for each individual
  • if under 55, the amount must be paid into superannuation
  • if over 55, it is optional to pay the amount into superannuation

The small business roll-over

The small business roll-over allows the capital gain to be rolled over into another active business asset. If you choose the roll-over, the capital gain will not be included in your assessable income. If no asset is acquired after two years, then the capital gain arises again at this point. Alternatively, if a replacement asset is acquired and subsequently sold the retirement exemption may be applied without retesting of the CGT concession criteria. This allows a contribution into superannuation on a sale that may not otherwise be available.

Other considerations

CGT and the CGT exemptions only apply to capital gains. CGT concessions do not apply to gains such as those on the sale of plant and equipment or trading stock as they are taxed under a different section of the Income Tax Assessment Act. As a result, there may be a substantial tax bill where plant and equipment has previously been fully deducted under the temporary full expensing concessions and the assets are sold.

It is important to consider the timing of the sale, that is, what is the date that that the funds must be contributed to superannuation under the relevant concession.

Even outside the small business CGT regime, there are ways individuals can boost their superannuation, subject to being eligible to contribute concessional or non-concessional amounts, including:

  • Bringing forward non-concessional contributions – each member can bring forward their non-concessional contributions for three years to contribute $330,000 each.
  • Carrying back concessional contributions – members that have balance of less than $500,000 can carry back unused concessional contributions for the previous five years to obtain a larger tax deduction in the contribution year.

The rules can be complex to navigate, so it is prudent to seek professional assistance.