CGT exemptions and market crashes

Question: I am 66-years-old and have sold a business, and the building it resided in, that I had owned for 17 years to work part-time in an unrelated industry. I will receive the 15-year small business Capital Gains Tax (CGT) exemption.

I am working over 40 hours per month, and have more than $1.6 million in my super. Can I still put this gain from the sale of my business and the building into my accumulation account. Is there a deadline that I must meet to put it into superannuation?

Answer: In answering your question I need to first clarify why you qualify for the 15-year small business CGT concession. To qualify for the small business concessions, you first must meet the basic conditions of either having a business with a turnover of less than $2 million, or the net value of your CGT assets does not exceed $6 million.

Once this hurdle has been jumped, you must have held the asset for at least 15 years, with it having been used in relation to the running of the business for at least 7.5 years. One of the final tests you must meet is that the sale of the business asset must have happened in connection with your retirement.

From a Tax Office point of view there is no strict definition of what retirement is. However, to meet their criteria you would need to have significantly reduced the number of hours that you previously worked in the business, or there must have been a significant change in the nature of the activities you performed in the business.

From what you have said, by working only 40 hours a month, and that you are working in a position that is different from what you did in your business, you should more than likely pass the tests that would make you eligible for the 15-year small business CGT exemption.

Once a person qualifies for this exemption they can contribute the capital gain, up to a maximum of $1,445,000 for the 2018 financial year, as a non-concessional contribution to superannuation. Both the retirement, and the 15-year CGT concessions, can result in superannuation contributions that are not affected by the $1.6 million limit.

The final requirement to be eligible for the CGT exemption, the deadline by which the super contribution must be made, differs depending on whether the assets had been owned by you personally or by a company or a trust that you controlled.

An individual super contribution must be made the day that their tax return needed to be lodged, or within 30 days after receiving the capital proceeds. Where the assets have been owned by a company or trust, the payment must be made to the individual within two years of the CGT event, and the individual must make the super contribution within 30 days of payment being received by the concessional stakeholder.

Question: I currently have $1.3 million in superannuation and am 20 years away from preservation age. Would it be worthwhile for me to trigger the non-concessional bring forward rule for contributions for the 2018 year? If I did, this will this prevent me from making any further non-concessional contributions due to the $1.6 million cap, or is it better to wait for a market crash and then make a contribution.

My thoughts are that if my superannuation dropped to below $1 million, as a result of the major market crash, would I get a better result in maximising my superannuation balance not over the next five years but instead over 20 or 40 years depending on how the market goes.

Answer: If your aim is to maximise your retirement assets, not just your superannuation assets, it does not make sense to base a strategy on there being a major share market crash occurring between now and when you retire.

I also do not see any great benefit in you triggering the bring forward rule in the 2018 year. This is because you would be limited to a maximum non-concessional contribution of $300,000 over the next three years.

You should seek professional advice from someone who specialises in tax and retirement planning strategy. They can look at your complete financial and taxation situation and consider other strategies such as splitting concessional contributions with a spouse, timing the final non-concessional contribution of $100,000 when your total superannuation balance is just under $1.6 million, or consider other tax planning strategies that may benefit you.

Question: I am confused about what I can and cannot do with regard to super contributions in the year that I turn 65. My super is with an industry fund and I turn 65 in the 2019 financial year. I work part-time, and I have investment income that is outside of superannuation. I would like to get to my $1.6 million transfer balance cap.

I understand that I can contribute up to $300,000 this year under the bring forward rule because my balance was less than $1.4 million as at June 30, 2017.

I would prefer to wait until the 2019 financial year to make the extra contributions but am unsure whether I will meet the work test. If I meet the work test can I make the $300,000 non-concessional super contribution in the 2019 year, as long as my total superannuation balance is still below $1.4 million at June 30, 2018?

Answer: Under the current rules you can make the $300,000 non-concessional contribution if your superannuation balance is less than the $1.4 million under two circumstances. Firstly, if the contribution is made just prior to you turning 65, or secondly if at some time during the 2019 financial year you worked at least 40 hours over 30 consecutive days you can make the contribution any time up to June 30, 2019.

Depending on when you turn 65, you may get a benefit if the work test relaxation policy in this year's Federal Budget becomes legislation. Under this policy you could make a concessional and a non-concessional contribution up to the relevant limits as long as they are made by the end of the 2020 financial year.

Question: We are both self-funded retirees, in our 70s, and on an allocated pension through our SMSF. We also have investments outside of our SMSF and have a Commonwealth Seniors Health Card. I read seniors and pensioners could be illegible for a seniors and pensioners tax offset (SAPTO), which effectively gives one access to a higher tax-free threshold. Can you please explain what the criteria are to qualify for the SAPTO?

Answer: There are two tests that determine whether you are eligible for the seniors tax offset. As the first test requires a person to have reached age pension age both of you pass this test.

The next test is an income test. Each member of a couple receives the full $1602 seniors tax offset if they have a combined rebate income of less than $57,948. Where the combined income of a couple exceeds this threshold the offset decreases at 12.5 cents for every dollar until the combined rebate income of a couple reaches $83,580.

Rebate income is calculated by adding the following to your taxable income:

• adjusted fringe benefits,
• reportable employer super contributions,
• deductible personal superannuation contributions,
• net financial investment losses, and
• net rental property losses.

If you have a question for Max Newnham please email it directly to max@taxbiz.com.au