The retirement plans of small business owners have emerged from the recent Federal Budget relatively unscathed, despite much of the negativity surrounding the proposed changes to superannuation contributions limits.
Much has been written about the proposed reduction in the caps on contributions to super (both before and after tax contributions). What has not been mentioned though has been the absence of any changes to the provisions for small business owners to boost their retirement accounts following the sale of their business. If the sale of your business is structured appropriately and you take advantage of these rules the revisions to the contribution limits could be largely a non-issue for you.
The first rule to be aware of is the 15 year CGT Exemption Rule. If you qualify under this provision, you can contribute up to $1.395 Million into super, and this amount is not counted toward either the before or after tax contribution caps. Even better, the proceeds of the sale of the business are generally not taxable under this provision.
If you don’t qualify under the 15 Year Rule, you may still qualify under the Small Business Retirement Exemption. This allows you to contribute up to $500,000 into super (lifetime limit), and in doing so these funds are not counted as assessable capital gains following the sale of the business. Note that monies contributed under this provision count towards the $1.395 Million limit mentioned above.
Lastly, if you have other funds remaining you will still have your $500,000 Non-Concessional Contribution Cap available, so potentially you could still contribute $1.895 Million into super, and a couple (if eligible) could contribute double this amount.
Please note that if the proposals from the recent budget proceed to law you will be limited to transferring $1.6 Million into a tax free pension account, however the balance of your funds could remain in an accumulation account or you could choose to withdraw them and invest them in your own name. If you made a withdrawal prior to age 60 there may be some tax liability associated with this, but after that they would be tax free.
So while we would always recommend diversifying your asset base away from your business to provide a safety net for you and your family, the value accrued in your small business could become even more important in structuring a tax effective income in retirement.
In the coming weeks we will share the views of a noted practice management consultant about the issues that impact on the value of medical practices, and how they believe you can maximise this.
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Disclaimer: Western Pacific Financial Group Pty Ltd ABN 35 050 159 156 AFSL 224662 is a company within the IOOF group. This is general advice and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should determine whether it meets you needs or seek advice from a financial adviser. Examples are illustrative only and are subject to the assumptions and qualifications disclosed.
