Ask Max: Pension benefits and business sales

Preserving a Commonwealth Seniors Health Card.

Summary: The sale of a business has added complications for those in pension mode, including potentially to senior’s benefits.

Key take-out: If your business qualified as a small business entity, you could make contributions to a super fund under the small business capital gains tax concessions.

Key beneficiaries: Retirees. Category: Tax. 

Question: I am 66 years old and thinking of opening a new and separate allocated pension account in parallel to my existing pension account to prevent the loss of my Commonwealth Seniors Health Card, which would otherwise be caused by stopping my 2014 pension to add extra savings and re-starting it.

Could I perhaps commence a new SMSF to receive proceeds from the sale of a business without affecting my CSHC or my existing commercial pension provider account?

Also, under the most recent policy announcements, can accumulated payments from the sale of a 34-year-old business, to be received on a progressive work-out basis, be contributed as non-concessional contributions into the separate pension account up to $1.395m, so long as the $1.6m cap is observed and applied to both pension accounts combined?

Answer: You are correct about what the effect will be on your CSHC if you stopped your existing account-based pension to make extra contributions. Up until December 31, 2014 the income test for the CSHC was based on a person’s adjusted taxable income that included:

  • taxable income;
  • foreign income;
  • net investment losses;
  • reportable fringe benefits;
  • reportable superannuation contributions;

From January 1, 2015 the income test was changed to include deemed income earned on account-based pensions started after December 31, 2014. If you ceased your current account-based pension this would result in the new account-based pension having deemed income added to your other income.

The deeming rates that currently apply are as follows:


1.75% up to $49,200

3.25% on over $49,200


1.75% up to $81,600

3.25% on over $81,600

The income test that applies to the CSHC is as follows:


Adjusted taxable income





Couples combined, couple separated by illness or respite care


Assess the best option

Your plan of not ceasing your current account-based pension but making contributions to a new account-based pension will help you preserve your entitlement to the CSHC. By maintaining your existing account-based pension this will result in it not being counted under the deeming rules.

The new accumulation account could either be with an industry fund or a commercial fund, or it could also be with an SMSF that you set up. To work out what is your best option you need to assess what the costs of each of the three different funds would be.

This involves not only taking into account the administration costs for each of the three different types of funds but also the investment costs. You need to do this because some commercial funds advertise a low administration fee but then load their investment fees, which results in a much higher cost.

As to whether you will keep your CSHC will depend on what your taxable income is, the other additions, plus the deemed earnings on the new superannuation accounts. If your only income was from your account-based pensions you could have approximately $1.64 million in super that is counted, or $2.64 million if you have a partner, and still retain the CSHC.

Contributing business proceeds

The proceeds you will be receiving from the sale of your business may not be able to be contributed to a super fund. If your business qualified as a small business entity, in other words it had an annual turnover of less than $2 million, you could make contributions to a super fund under the small business capital gains tax concessions.

These contributions can only be the capital gain component of the proceeds you are receiving, and any non-assessable receipts would have to be made as a non-concessional contribution. This would mean, as you are over 65, you would need to pass the work test, and the amount that you could contribute would be limited by the non-concessional contribution limits.

If the changes to superannuation are passed by federal Parliament this would mean you could make a contribution of non-capital gains proceeds of $180,000 for the 2017 year, and then $100,000 for each year after. But, again, to make these contributions you would need to pass the work test.

If your business does not qualify as a small business entity you may still be able to make small business CGT concession contributions. This would depend on you passing the $6 million net asset value test.

The assets included in this test are the net value of all of your capital gains tax assets with the following assets excluded:

  • assets used solely for personal use and enjoyment,
  • your own home,
  • superannuation or an approved deposit fund,
  • rights to an asset of a superannuation fund or an approved deposit fund,
  • life insurance policies.

Possible CGT exemptions

There are two capital gains tax exemptions that could apply to the capital gain on the sale of your business. They are the retirement exemption and the 15-year exemption. Under the retirement exemption there is a $500,000 lifetime maximum, while the 15-year exemption has a current lifetime limit of $1.395 million.

Both of the small business CGT exemptions only apply to active assets. Active assets include those used in your business and the value of any goodwill that you receive. To qualify for the 15-year exemption:

  • the business assets must have been owned continuously for a period of at least 15 years,
  • if the assets were owned for less than 15 years they must have been used in the business for at least half of the period of ownership,
  • if the business was owned through a company or trust you must have been a significant individual for at least 15 years that the entity owned the business, and
  • you must be retiring or permanently incapacitated.

To qualify as a significant individual in a company you must have owned at least 20 per cent of the company. If your business was owned through a trust you must receive at least 20 per cent of the income and capital distributions by the trust in the year that the capital gain is made.

Once you have established that you are eligible for the CGT small business exemptions you should use the 15-year exemption due to its higher limit. To calculate how much that exemption will be you must first establish what capital gain will be made on the active assets being sold, reduce that gain by any current or carried forward capital losses, then reduce this net capital gain by the 50 per cent general CGT discount.

The total of the 15-year CGT exemption can be contributed to your superannuation fund up to the lifetime limit. As you will be receiving the proceeds from the sale of your business in instalments the super contributions for the CGT 15-year exemption component of each instalment can be made without having to pass the work test.

If the new $1.6 million limit on pension accounts becomes legislation you will still be able to contribute the 15-year CGT exemption contributions, but they will need to be retained in an accumulation account in your name.

The good news is that the change to the non-concessional contribution limits do not apply to the small business CGT 15-year or retirement exemptions. Before taking any action you should seek professional advice.

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General Advice warning: Eureka Report Pty Ltd: ABN: 84 111 063 686 AFSL No: 433424. This article may contain general advice and has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider if it is appropriate for your circumstances. Where the information relates to the acquisition of a product, you should obtain the PDS and consider this before making your decision.

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