In its pre-budget submission, the SMSF Association explained that small business CGT concessions have an important role to play in the retirement planning for many small business owners.
“It is common for them to forgo wages and superannuation benefits for themselves for a variety of reasons including cash flow restraints and to reinvest in the business,” the submission noted.
“The reduced superannuation contribution opportunities experienced by many small business owners was one of the reasons for the introduction of the small business CGT concessions in 1999 and remains relevant today.”
The association said this was particularly highlighted during the COVID-19 pandemic, the effects of which continue to impact businesses around Australia.
The submission noted that a number of the key qualifying thresholds for the small business CGT concessions are not subject to indexation and have not been reviewed for some time.
“For example, the $6m maximum net asset value test threshold, and the $2m threshold for the aggregate turnover test have not changed since 2007,” it noted.
“Whilst the threshold for superannuation contributions under the 15-year exemption are indexed annually, the retirement contributions cap is fixed at $500,000 and has not been reviewed or updated since its introduction in 1999. This contribution cap needs to be modernised and updated.”
The CGT cap amount, on the other hand, which applies to contributions made under the 15-year exemption, was originally $1,000,000 when it was first introduced in the 2007/08 financial year.
“The legislation provides for this cap to be indexed on an annual basis. The applicable cap for the 2022/23 financial year is $1,650,000,” it said.
“Given that the retirement contribution cap was 50% of the lifetime CGT cap amount when the CGT cap amount was first introduced, the retirement contribution should be updated and aligned in the same manner going forward.”
The SMSF Association said this will ensure that in future years the cap continues to align with the indexation of the CGT cap amount. A retirement contribution cap of $825,000 should therefore apply for the 2022/23 financial year.
The SMSF Association also addressed a range of other issues which it would like to see the government address in the upcoming Federal Budget.
Another priority listed in the submission was the removal of the cancellation fee that applies to approved SMSF auditors, to bring them into line with registered company auditors. It would also remove the financial barrier that exists for those wishing to exit the role.
Another item centred on the need to clear up the application of the design and distribution obligations and target market determinations.
The submission stated that those provisions should not apply to establishing an SMSF, adding a new member, or when starting a pension.
Mr Maroney also said the government needed to provide practical regulatory and compliance relief for minor breaches of the non-geared unit trust rules.
“Currently the remediation is strictly limited to the winding up of the unit trust that can be costly and have a severe impact on the fund,” said the submission.
“Temporary measures adopted by the Commissioner of Taxation due to COVID-19 have demonstrated that such a framework, with the right setting, can function appropriately.”
Consistency is important. It would be best to line the caps up.
A suggestion, make the CGT easier to obtain for SBE’s, but cap it at the same amount as the TBAR limit. This concession should be available to family members who’ve spent a large part of their life growing the business and possibly not paying much in super with the expectation of the capital proceeds at the end. Let them have the amount, but limited to the Cap.
All very reasonable requests and quite necessary to address the growing imbalance. Your lobbying illustrates the importance of the SMSF Association. Well done.