Advisers reminded on work test with CGT concessions
SMSF professionals have been reminded not to forget the work test before implementing strategies involving the lifetime CGT cap, with the work test still applying this financial year.
In a recent podcast, CFS technical specialist Linda Bruce said advisers should be checking to see whether clients who are small-business owners are eligible for either the small business 15-year exemption or the retirement exemption, as it can be a good opportunity for maximising their contributions to super.
Under the 15-year exemption, the business owner will not pay CGT when they dispose of an active asset if they meet the requirements. To be eligible, they must be aged 55 years or older and retiring, or be permanently incapacitated, and must have continuously owned the asset for at least 15 years.
“The client can contribute the entire sale proceeds up to the lifetime CGT cap, which is currently $1.615 million at the moment,” Ms Bruce explained.
The small business retirement exemption allows capital gains from the disposal of active assets to be exempt from CGT up to a lifetime limit of $500,000.
The amounts from the small business retirement exemption can be contributed to super without impacting the individual’s non-concessional contributions limit.
While the non-concessional contributions cap doesn’t apply to these exemptions, Ms Bruce reminded SMSF professionals contributions made under the lifetime CGT cap are still personal contributions, so advisers and their clients still need to worry about the acceptance rules, at least for this financial year.
“Under the current rules, the client needs to be under age 75. The absolute cut off for making a contribution is at the end of the month the member turns 75 plus 28 days,” she said.
“Don’t forget the work test either. At least for this financial year, we will still need to worry about it. If a client at the time of making a contribution has reached age 67, they will need to consider the work test.”
If they cannot meet the work test, Ms Bruce said they would then need to meet the work test exemption, which is only available if their total super balance is less than $300,000 at the prior 30 June.
“If they cannot meet the work test exemption, they simply cannot contribute to super even if it’s under the lifetime CGT cap,” she said.
Ms Bruce noted that there is currently a bill before the House of Representatives with a measure to repeal the work test for individuals aged between 67 and 75 years for non-concessional contributions.
“We have a bill before the House of Representatives with an effective date of 1 July 2022,” said Ms Bruce.
Speaking in the same podcast, Colonial First State head of technical services Craig Day pointed out that the bill would move the work test across to the Tax Act.
“We haven’t seen any changes to the regulations yet, so we’re hoping that when they take the work test out of the SIS Regulations and pull it into the Tax Act that they’ll just simply remove that work test from the rules around eligibility for making contributions,” said Mr Day.
“That would mean that we don’t need to worry about a work test, not only to make non-concessional contributions but to make any type of contributions, up to age 75 of course, so that would include personal injury contributions as well as contributions under the lifetime CGT cap. But we do have to wait for that one.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.