Earn-outs legislation fails to address timing issues, says SMSFA

Miranda Brownlee / Friday, 26 February 2016 / 0 Comments

Measures announced this week by Assistant Treasurer Kelly O’Dwyer to amend the capital gains tax (CGT) treatment of earn-outs don’t address the timing issues with rolling earn-outs into super past the age of 65, according to the SMSF Association.

Ms O’Dwyer announced this week that Parliament had passed two measures in the Tax and Superannuation Laws Amendment (Measures No. 6) Bill 2015 to amend the CGT treatment or earn-outs and to create a withholding obligation to improve compliance with Australia’s foreign resident CGT regime.

The first amendment, Ms O’Dwyer said, will allow payments under the earn-out arrangement to be treated as part of the original value of the business assets for CGT purposes instead of CGT applying to the earn-out itself.

“It will provide certainty and clarity for businesses entering into earn-out arrangements,” she said.

Speaking to SMSF Adviser, SMSF Association director of technical and professional standards Graeme Colley said the SMSF Association supports the government’s amendments to the CGT small business concessions, which allow for an extended time to make relevant or required contributions to superannuation where an earn-out right is involved.

Mr Colley said it also supports amendment to section 292-100 of the Income Tax Assessment Act 1997 (the CGT cap provisions) to allow for extended time to make contributions to superannuation that are excluded from the non-concessional contribution cap.

However, Mr Colley said the legislation doesn’t take into account the fact that these later payments may not be able to be made to superannuation simply because the trustee cannot meet the contribution conditions.

If the trustee is over the age of 65, Mr Colley explained, they would have to meet the work test in order to be able to make a contribution; and if they’re over 75, they’re unable to make contributions at all.

“That means that if I wanted all the money from [a] business to go into the super there’s a bit of an impediment to that,” said Mr Colley.

“The main issue that we see is that timing issue and the fact that you’re not able to roll the amount into a superannuation fund. You can still claim the concession, but you just can’t roll it into superannuation.”

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