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Super returns for small business

When you work long hours running your own small business, there’s often little time to plan for retirement. Perhaps that’s why so many self-employed people say their business is their retirement plan. But a business isn’t a financial plan, even if it’s extremely successful.

Even if most of your wealth is tied up in the business, it can be a mistake to ignore the benefits of having a portion of your savings in super. Earnings on your superannuation investments are taxed at just 15 per cent, which is generally much less than your marginal tax rate, and for many people all earnings and pension payments are tax free when you convert your super to an income stream in retirement.

Yet research by the Association of Superannuation Funds of Australia (ASFA) has found that almost 25 per cent of self-employed people have no super. And only 27 per cent of those aged 60 to 64 who did have super had a balance of more than $100,000. Of course, this is not the full picture.

The report also found that the self-employed tend to accumulate more of their non-housing wealth outside super in cash, shares, investment properties and business assets. Part of the reason for this is that money in super can’t be accessed until you retire after reaching your preservation age (between age 55 and 60 depending on your date of birth).


If you leave it too late you may not get as much into super as you want.

Financial adviser Patricia Garcia of WB Financial (Bowen Hills) advises business clients not to leave retirement planning until they are ready to sell their business.

“If you leave it too late you may not get as much into super as you want because of the contribution limits. From 1 July 2017, there will be even stricter limits on the amount you can contribute to super over your working life and a $1.6 million balance transfer cap on the amount you can transfer to a tax-free pension phase account,” she says.

Maximise personal super contributions

If you’re incorporated and employed by your own business, you’re required to pay yourself the Superannuation Guarantee, which is set at 9.5 per cent of your employment income. You can top this up by salary sacrificing pre-tax income up to your annual concessional contributions cap.

If you are self-employed but not incorporated, you can make personal concessional contributions up to your annual cap and get a full tax deduction.

As of 1 July 2017 anyone, whether self-employed or not, can make personal tax-deductible contributions. Patricia says this may be a more flexible solution than salary sacrifice as you will be able to assess your contributions closer to the end of the financial year and top up to the cap.

All self-employed people can also make non-concessional (after tax) contributions. These don’t receive a personal tax deduction but they are not taxed on the way into super and earnings inside super are taxed at a maximum of 15 per cent.

If you prefer to accumulate wealth in direct property, a self-managed super fund (SMSF) could be worth considering. SMSFs can be used to hold investment property, including your business premises. You can also borrow to invest via your SMSF says Patricia, but she warns the complying rules are complex and advice should be sought.

Small business CGT concessions

When it comes time to sell your practice or business, Patricia says you may also be eligible to take advantage of the government’s extremely generous small business capital gains tax (CGT) concessions.

The four main concessions are:

  • The 50 per cent CGT discount on active assets. This is on top of the normal 50 per cent CGT discount available to all individual investors on the sale of assets held for longer than 12 months. In other words, you may be eligible for an effective CGT concession of 75 per cent on the sale of certain assets.

  • The 15-year exemption. If you have owned your business asset for more than 15 years and are at least 55 years old and retiring, any capital gain on the sale of the asset is disregarded.

  • Retirement exemption. Capital gains from the sale of active assets are exempt up to a lifetime limit of $500,000. If you are under 55 then the exempt amount must be put into your super fund or a retirement savings account (RSA).

  • Small business rollover rule. If you sell an active asset and purchase a replacement asset, you can defer any capital gain until the replacement asset is sold.

To be eligible for these small business concessions, you must have net assets (with some exceptions) of less than $6 million (excluding your home, lifestyle assets and your super), or your business must have a turnover of less than $2 million. The asset being sold must also satisfy an ‘active asset’ test.

Regardless of your age, you should consider putting some or all the eligible proceeds from the sale of business assets into your super, up to a lifetime cap, which is currently $1.445 million. What’s more, this contribution won’t count towards your normal concessional and non-concessional super contributions caps.

It’s worth noting that, while the maximum you can rollover into retirement phase income streams is $1.6 million, any excess above the $1.6 million can remain in the taxable accumulation phase. While you will pay a maximum of 15 per cent tax on earnings in the accumulation phase, this may still be less than you would pay outside the super environment.

The rules covering small business CGT concessions and super are complex but the potential to improve your retirement outcome is significant. If you would like to find out more on how you and your business can benefit from super, speak to a financial adviser.


Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Colonial First State also issues interests in products made available under FirstChoice Investments and FirstChoice Wholesale Investments. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. The PDS and FSG can be obtained from or by calling us on 13 13 36.