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Don’t confuse contribution with roll-over when using proceeds from small business sale Proceeds from the sale of small business using the 15-year CGT small business exemption is not a rollover to a superannuation fund, but rather a contribution.
. Mark Ellem, head of education at Accurium, said as a contribution it then has to have trustee acceptance before it is allowed into the fund. Ellem said this is often a mistake small business owners make and can be exacerbated if the member of the fund is over 75. He gave an example of Cynthia, who has run her own business as a sole trader for 20 years. She’s recently sold her business and received a net amount of $1.5 million sale proceeds. She also qualifies for the 15-year CGT small business exemption. The sale contract was signed on 18 December, and settlements were due to occur on 18 March of the following year. “Cynthia knows she is going to get the sale proceeds CGT exempt because she qualifies for the 15-year rule, and she wants to contribute that to super and use her separate CGT lifetime cap amount to contribute that to the fund again,” Ellem said. “Here’s a little spanner in the works. Cynthia turned 75 on 18 January, so how does that affect her wanting to make the contribution to the fund? I find that there’s a misunderstanding that where an individual is entitled to the CGT exemption under the 15-year rule, that they think that it is CGT-exempt amount and they can roll it over into a superannuation fund, but that’s the incorrect bit. “It’s not a rollover. It’s a contribution and being a contribution, they have to apply the trustee acceptance rule.” In Cynthia’s case, Ellem said, as she turned 75 in January but the settlement proceeds are not due to be received until March, the trustee can’t accept the contribution outside of 28 days after the end of the month in which Cynthia turned 75 – which would be 28 February. “That cut-off date is before proceeds are going to come into Cynthia’s hands, so whilst she’ll get the CGT 15-year exemption, she will be unable to make the contribution, or, more correctly, the trustee will be unable to accept the contribution,” Ellem said. “Although there is a carve-out for earn-out arrangement, this is not the case for Cynthia. It’s just a straight-out sale of the business, getting proceeds on settlement, so the timing is not favourable in Cynthia’s case.” To avoid this scenario, Ellem said the advice would be to get the settlement terms around the other way, such that Cynthia would receive the proceeds 28 days after the end of the month in which she turns 75 in order for the trustee to be able to accept that contribution. “That might require some negotiations with the prospective purchaser, but at least Cynthia would be aware that she would need to do this, and therefore take that in consideration when she is negotiating with the prospective buyer,” he said.
Keeli Cambourne |
