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Simplification of CGT system could hurt SMSF trustees

SMSF trustees who are small-business owners may have limited time to maximise their CGT concession contributions into super, with the government poised to overhaul the concession system and potentially introduce a lower, simplified contribution cap.

SMSF Sarah Kendell 27 February 2020
— 1 minute read

Addressing the recent SMSF Association National Conference 2020 on the Gold Coast, Insyt chief executive Darren Wynen said the Board of Taxation report released by the government late last year could have significant implications for those looking to contribute the proceeds of the sale of their business to their SMSF.

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“The report focused on small-business CGT concessions and what it said was that they’re way too complex — for example, when you’re looking at conditions like the $6 million maximum net asset value test, that test is way too complicated,” Mr Wynen said.

“What the report recommends is we ditch the small-business concessions and basically replace them with a simplified $1 million cap. The reasoning behind that is at the end of the day, the tax breaks they are giving from these concessions are increasing very rapidly.”

Mr Wynen said while the government hadn’t taken any specific action following the release of the report, “the clock was ticking” on the CGT concession system as it existed currently.

As a result, it was important for SMSF professionals to use every possible avenue for their small-business clients to maximise their contributions to super using the current concession rules, as it was possible that larger businesses or former business owners could also access the concessions.

“For example, if our client is over the $2 million turnover, they do have the option of the $6 million maximum net asset value test as well,” Mr Wynen said.

“You may have clients as well who have ceased to carry on a business, maybe they are renting their shop out, and in that case they can still potentially access the concessions under the $6 million maximum net asset value test as well.”

The active asset test was another factor for SMSF professionals to be aware of when it came to the sale of their client’s business, following recent rulings over what constituted an active versus a preparatory asset.

“There was a case handed down by the Federal Court just before Christmas last year and the ATO was arguing a builder’s block of land behind their house, which they used to store pavers and other incidentals, was not an active asset because it was preparatory to the actual business activities conducted,” Mr Wynen said. 

“In some circumstances, you need to be careful to ensure that asset was genuinely active and was genuinely used in the business.”

Simplification of CGT system could hurt SMSF trustees
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