In Australia, small businesses are generally recognised as businesses with fewer than 20 employees. The Australian Small Business and Family Enterprise Ombudsman estimates that small businesses employ 42% of the private sector workforce. These are the local cafes, family-owned accounting firms, and small manufacturing workshops. By contrast, the United States defines its small businesses by industry. In some cases, businesses with 100 employees are still considered small.
The country’s entrepreneurial spirit runs deep. From free settlers and gold rush labourers during the 19th century to migrants post-World War II, Australians have a history of turning self-reliance into enterprise. Geographically, with a small population spread over a large area, local self-sufficiency has fostered small business clusters in regional towns. Culturally, Australians value autonomy and the work-life balance associated with it. The business-owning habit remains part of the national DNA.
It is no surprise that Australian law takes small businesses seriously. It acknowledges the reality that business owners build wealth differently. Instead of investing in listed shares or managed funds, they would prefer to invest their money in their businesses. Taking that into consideration, Country has designed a system that enables business owners to use Australia’s small business superannuation strategically at two key points: while building their business and when exiting it.
Owning the Premises While Building the Business
A sense of stability comes from owning the premises one operates from. However, historically, the law had prohibited related-party transactions in Australia’s small business superannuation. It is to safeguard against investment bias, early access to super benefits, and potential tax circumvention.
This changed in 1999. The “Business real property” (BRP) exemption was introduced in the Superannuation Industry (Supervision) Act 1993 (SIS Act s. 66(5)). The legislation is intended to recognise legitimate commercial arrangements between related parties. The rationale was that a property used wholly for business and leased on arm’s length terms would pose little risk to the super system and the super fund.
The exemption balances business growth with retirement protection:
- Commercial property can be invested in a Self-Managed Super Fund (SMSF), a vehicle that allows individuals to manage their own retirement savings.
- Provided the premises were used genuinely in the business, they can be transferred or purchased into the owners’ SMSF.
- The fund could lease it back to the business, but only at the arm’s length rent with a formal lease agreement.
- Independent auditors would ensure SMSF commercial property compliance, verifying that the arrangement is compliant.
The goal was not to transform Australia’s small business superannuation into a tax haven, but to allow productive assets associated with genuine business activity to coexist with retirement savings.
This arrangement has become a key financial strategy for many small businesses, especially medical practices. It allows owners to hold their business premises, often their most valuable asset, in a tax-concessional environment while building their enterprises. Such strategies highlight how Australia’s small business superannuation aligns with retirement planning.
Exiting the Business with Tax Concessions
While the BRP exemption helps business owners build their enterprise and retirement savings at the same time, the Small Business Capital Gains Tax (CGT) Concessions provide tax relief to the proceeds of selling their business when they retire. These concessions are set out in Division 152 of the Income Tax Assessment Act 1997. They were introduced because many small business owners have the bulk of their wealth in their businesses.
When they sell, retire, or restructure, the capital gain triggered in these scenarios is significant. The concessions relieve the burden. They are available in forms that either disregard or reduce the gain, depending on the taxpayer’s circumstances.
One key concession is the full exemption of capital gain when an owner is retired, over 55 years old, and has been in the business for at least 15 years. Businesses generally must pass either a turnover test or a net asset value test, and the asset (such as property, shares, goodwill) must be used in carrying on the business. The concessions are designed primarily for Australia’s small business superannuation rather than large or passive investors.
For retired business owners who already hold their business premises within an SMSF under the BRP rule, the value of the CGT concessions is still significant when they dispose of their shares or goodwill.
In addition to the tax concessions, the sale proceeds can be contributed to the super fund under a very generous cap.
A Model That Understands People
The business real property exemption and the small business CGT concessions form a policy continuum. They protect entrepreneurs at either end of the journey, ensuring that the risk-takers, who drive economic growth, are not left precariously exposed when they retire.
The law enables the ability to incorporate business assets into retirement planning and transfer concessionally taxed business sale proceeds into retirement savings. It aligns with how people live and work. It is a system where economics and realism converge.
Retirement policy and small business policy are a cohesive system. For the millions of Australians who have built their livelihoods brick by brick, this synergy represents more than a triumph of legislation. It underscores the social contract a country can offer its entrepreneurs: build boldly but retire securely.
Byline: Access Super Audit – an independent SMSF audit firm established in 2012, specialising in complex SMSF compliance and technology-driven audit efficiency.
