Super opportunity for small business owners
Did you know that small business owners generally have smaller super balances per person than employees? On average, they have only $39,800 stashed away compared to their employees’ $49,900*.
This may suggest that business owners are relying on the sale of their business to fund their retirement, or perhaps they are simply focused on running their business day-to-day. Is your retirement plan on track? Do you think you will have enough superannuation to last through your retirement?
Good news for small business owners
Small business owners may find themselves with attractive opportunities to both minimise tax and build up their retirement savings.
These opportunities regarding making contributions into your super fund are listed below, however it is important that you seek advice first before acting on this information. The decisions you make about your retirement will depend on your individual circumstances.
| 1. | Place up to $1million of proceeds from a business sale into super |
| 2. | 100% tax deductible super contributions from 1 July 2007 |
If you are unsure about any of these issues, discuss them with your Count Adviser.
1. Placing proceeds from a business sale into super
The proceeds from the sale of a business can be contributed into super which can help to build up retirement funding – tax effectively. From 10 May 2006, a new lifetime contribution limit of $1 million (called the Small Business CGT Cap) applies to eligible small business owners. Only certain sale proceeds can be counted against this new limit.
Benefits?
If you are planning to sell your business or parts of your business, the total proceeds from the sale could be contributed into superannuation without counting against normal contribution limits. Also, if your spouse owns the business, or a part of the business, they can also contribute up to $1 million of sale proceeds – so that’s a total of $2 million between you. If you’re looking to increase your retirement savings or accumulate earnings in a low-tax environment, then placing business sale proceeds into super could be a good option to consider.
2. 100% tax deductible super contributions from 1 July 2007
A full tax deduction for all pre-tax contributions to a super fund is available to business-owners from 1 July 2007. This is up to a maximum limit of $25,000 per financial year if you are under 50, and $50,000 if you are over 50.
Benefits?
Having 100% tax deductible super contributions is set to benefit all business owners – by building up their retirement savings AND giving them a significant tax deduction.
Case Study
How much can small business owners contribute to super?
Jack and Diane (both aged 63) jointly own a small business worth $3 million that they wish to sell before they retire. The capital gain on this business is $2.5 million. They have owned the business for 20 years.
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Their small business qualifies for the small business “15 year” exemption, meaning that no CGT will apply on the sale of these business assets. |
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After selling their business, they now have $3million in their bank account. |
Diane has heard about some new small business superannuation concessions and wants to know what she and Jack can do to maximise their super balance to fund their retirement.
Let’s now look at the amount Jack and Diane are able to contribute into superannuation, firstly without the new small business concessions:
| Contribution | Amount |
| Contribution under the small business CGT cap |
$1million each
|
| After-tax contribution limit post-1 July 07 (averaged) |
$450,000 each
|
| Total contributions (combined) |
$2,900,000
|
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They will then have $100,000 left for emergencies |
* AMP.NATSEM small business report July 2005.
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