Q&As

SMSF Contributions: Keep the Small Business CGT Concession in Mind with Tracey Scotchbrook

Tuesday May 22, 2018

Tracey Scotchbrook is a SMSF Specialist Advisor, specialising in this field for 15 years. Tracey Scotchbrook

We had the pleasure of sitting down with Tracey recently to discuss key challenges and opportunities facing the industry today.

You can find the full Q&A below.

We know you are enjoying your career break now, would you mind telling us a bit more about your future career plan? For those people don’t know you, please also give a short brief about what you did before in SMSF area.

I am very much enjoying what has been a welcome break! It has been wonderful to have some quality personal time and the opportunity to refresh and recharge. However I am not the sort of person who can sit still for very long and I am very excited about what is coming next!

Early in my career I was fortunate to have the exposure to superannuation generally and SMSFs. I quickly found this was an area I found both interesting and rewarding. These early opportunities set me on my pathway to specialisation.

I particularly enjoy the technical aspects of SMSFs whether that is tax, compliance or strategy and the challenges they present. It is also a privilege to have the personal connections and relationships that naturally evolve in working with clients and other practitioners.

I am an active member of the SMSF Association, holding various committee roles since 2011. This has been and continues to be a very interesting and rewarding adjunct to my client work.

You were previously a SMSF auditor. How do you see the impact to SMSF clients from the proposed audit requirement changes?

Whilst I was previously an ASIC approved SMSF auditor, late last year I decided to focus solely on SMSF advisory. As such I have no commercial or financial interest in SMSF audits. I do however believe this issue will have a wider, negative impact on the SMSF sector as a whole if implemented.

On the face of it is a change that seems to be quite simple and straight forward. However when you start to delve into the details it is anything but simple and raises some serious concerns. These concerns are not just for auditors but also SMSF trustees.

For trustees there is the increased risk of exposure to trustee penalties and higher rectification costs should an issue arise during the period between audits. A reduction in engagement between trustees and auditors increases the risk of non compliance even where this is inadvertent. Additional costs or compliance issues may arise when attempting to rectify a transaction or event up to four years down the track!

If the concept of reducing 'red tape' (as cited in the budget papers) alludes to reduced costs, trustees need to be aware that it is a 'red herring'.  For example, additional work would be required by auditors in meeting their obligations under the audit standards, from which SMSFs are not excluded.

Please tell us one of the contribution opportunities under the Small Business CGT concession remain untouched.

For many small business owners superannuation is a secondary thought as resources are reinvested into the business. Indeed the business is often viewed by them as their superannuation. With that in mind, it is pleasing to see that the superannuation contributions under the small business capital gains tax concessions have continued unchanged.

The small business CGT concessions provide valuable contribution opportunities for qualifying taxpayers. In addition to tax concessions they also have the ability to make contributions into superannuation on the sale of qualifying business assets. These contributions are:

  • Not subject to the concessional or non-concessional contribution caps; and
  • Tax free contributions; and
  • Not subject to restrictions based on the total superannuation balance test

In the new environment of reduced contribution caps and the total superannuation balances test restricting non-concessional contributions, these concessions are a valuable planning tool and opportunity.

What is one of the issues with property contribution strategies?

It has been a common strategy to see business premises contributed into a SMSF. This can be achieved in either:

  • in full utilising available contributions caps (albeit more difficult in a reduced cap environment) or
  • in part utilisation contribution caps combined with existing cash resources from with the SMSF to satisfy the market value requirements

Can a similar strategy be adopted for business premises that would qualify for the small business CGT concessions? That is simultaneously disposing and contributing the property into the SMSF?

This is an area that has evolved, with the ATO initially confirming this was possible via several private binding rulings ("PBR"). However it is important to remember that PBRs can only be relied upon by the applicant. Although they provide an insight into the ATO's interpretation or opinion, they do not have wider application and no reliance can be placed on the published decision by other taxpayers.

The ATO have since stated that the CGT event must occur prior to the contribution being made. Therefore the simultaneous disposal and contribution of the property will not qualify for the small business CGT concessions.

My session will address these issues and examine strategies that can be utilised enabling the transfer the business real property into the superannuation fund without compromising access to the small business CGT concessions.

What is one of the most common contribution mistakes SMSF practitioners usually make when they advise their clients?

It might seem obvious, but first and foremost, ensure that the taxpayer qualifies for the small business CGT concessions. Have the clients have received appropriate tax and valuation advice? Failure to qualify for the concessions will see any contributions made subject to non-concessional contributions caps. This can lead to excess contributions!

Ensure you are using the right cap! Retirement concession or 15-year exemption?

The retirement concession cap of $500,000 is a lifetime cap. More than one qualifying transaction can be applied against this cap so long as when combined they do not exceed the cap!

The 15-year exemption cap is indexed each year. The cap for the 2017/18 financial year is $1.445m.

Like the retirement concession cap the 15-year exemption is a lifetime cap. Any unused cap amounts may be indexed by the annual indexation amount.

The member must provide their superannuation fund with a Capital Gains Tax Cap Election form no later than the time the applicable CGT concession contribution is made. Otherwise the contribution will be classed as a non-concessional contribution.

Timing of contributions is also critical. The prescribed timing depends on who qualifies to disregard the capital gain. Individual taxpayers versus company or trusts.

Taxpayer Individual Company or Trust

Contribution Timing

On or before the later of the following:

  • income tax return lodgement date; or

  • 30 days after receipt of the capital proceeds

Within 30 days the entity makes the payment to the CGT concession stakeholder

Retirement Concession

ITAA97 292-100(7)

ITAA97 292-100(8)

15 Year Exemption

ITAA97 292-100(2)

ITAA97 292-100(4)

Your topic will be focusing on ‘SMSF Contributions: Keep the Small Business CGT Concession in Mind’, what do you see are some of the key takeaways and benefits for practitioners for their practice from attending your session?

My session will focus on the superannuation contribution component of the small business CGT concessions and associated strategies, including:

  • What are the key planning opportunities for maximising contributions into superannuation utilising the small business CGT concessions.
  • How to take advantage of the non-concessional contribution caps and the small business CGT concessions - getting the timing right!
  • Strategies to access the small business CGT concessions and transfer the business real property into a SMSF
  • Preserving tax free components in the superannuation fund
  • Other tips and traps to watch out for

Learn more from Tracey at the SMSF Symposium seminar, being held on Thursday 21 June at the Crown Perth, Great Eastern Highway, Burswood, Perth.

Subscribe

"Thank you, was helpful & informative and is an important and developing area of law."

Delegate - Use of Indigenous Land: The Legal Issues, Sydney, November 2017

 

 

 

 

 

, Use of Indigenous Land: The Legal Issues

Read more testimonials