The end of financial year is the time for business owners to get things in order. Here are 10 strategies that could help you build and protect your personal and business wealth in a tax-effective manner.
Strategy 1: Manage your Capital Gains Tax (CGT)
If you make a capital gain on the sale of an asset this financial year, you can use any capital losses you may have realised in the past to offset your capital gain. You may also wish to consider the timing of selling your assets in order to manage your cash flow more efficiently.
From 1 July 2018, an opportunity exists for those who intend to sell a CGT asset in the future where they can accumulate the amount of unused concessional contributions. They can make a lump sum unused CC to offset the CGT liability on the sale of an asset by making a personal deductible contribution.
If you’re under 75 (aged 65-74 they must meet the work test)¹, another option is to make a personal deductible super contribution² with some, or all, of the sale proceeds. The tax deduction you claim could reduce, or possibly even eliminate, your capital gains tax liability. Note: To be eligible to claim a personal super contribution as a tax deduction, other conditions apply. Talk to a NAB Financial Planner to find out more.
Strategy 2: Bring forward your expenses
To manage your cash flow more efficiently, you could bring forward expenses. For example, consider pre-paying 12 months’ income protection insurance premiums outside super before 30 June. Also, look at carrying out last minute maintenance to business or investment properties.
Strategy 3: Structure asset purchases to maximise cash flow
Keeping your income producing assets up-to-date helps keep your business operationally efficient. The way these assets are funded and the amount of cash locked into them should be reviewed periodically. NAB Asset Finance Specialists work with you to structure financing and repayments to suit your tax and cash flow needs – helping you reduce your operating costs and increase productivity whilst freeing up cash.
Most depreciable assets can be funded, often with no upfront deposit – helping you to secure vehicle and equipment finance before 30 June4. Subject to your circumstances, you may also be entitled to claim an input tax credit for GST included in the price of the asset acquired and, generally, the interest you pay plus the depreciation of the asset should be tax deductible to the extent the asset is used in your business.
Strategy 4: Check your eligibility for small business tax regime
Small business entities may be eligible for a range of tax benefits, including simplified depreciation and CGT concessions or exemptions. It’s worthwhile regularly checking your eligibility with a registered tax agent in relation to these concessions or exemptions.
Strategy 5: Establish a Buy/Sell agreement
If you’re in business with other key people, consider establishing a Buy/Sell agreement as part of your broader succession planning. This can help ensure business ownership is transferred in an orderly manner in the event of death or disability.
Strategy 6: Capitalise on existing concessional caps and avoid excess contributions
The opportunity is limited to make larger tax-effective contributions from your pre-tax money just before retiring. So, it’s really important that you make the most of your contribution cap2 each financial year to boost your super balance (if your cash flow allows it). It’s also important to be aware of the consequences of contributing too much into super, as the tax costs for making excess contributions can be enormous. While super is still a very tax-effective place to save for retirement, the benefits can be unwound if you put in too much.
Strategy 7: Invest the sale of your business
If you're selling your business to retire, you may want to use the money to make a personal after-tax super contribution5 and start a superannuation income stream, such as an account based pension. Compared to investing outside super, this strategy could enable you to receive a more tax-effective income to meet your living expenses; and preserve more of your investment capital. Depending on your circumstances, you may also be eligible for a range of capital gains tax concessions that apply if you are disposing of your small business assets in connection with your retirement.
Strategy 8: Invest personal assets in super
Because of the tax-effectiveness of investing in super, if you currently hold an investment in your own name you may want to cash it out and use the money to make a personal after-tax super contribution5. This could be up to $300,000 per person this financial year6. This strategy can be particularly powerful if your money is currently invested in a term deposit or other asset where you don’t have to pay capital gains tax (CGT) on withdrawal.
But even if you have to pay CGT when selling assets like shares, investment properties and interests in unit trusts, the benefits of putting the money into super could be more than the CGT liability. You may also be able to use other strategies to reduce or eliminate your CGT bill.
Strategy 9: Grow your super without reducing your income
If you’re aged 60 or over, there may be a way to save more for your retirement without reducing your current income. This involves:
Arranging to make concessional (before tax) contributions into a super fund2 either via salary sacrifice or personal deductible contributions.
Investing some of your existing preserved super in a transition to retirement pension (TRP7).
Using the regular payments from the TRP to replace the income you contributed into super.
Strategy 10: Protect yourself and your family
In addition to building up your super, it’s important you have enough insurance to safeguard your financial plans and protect your family. So it's worthwhile considering taking out total and permanent disability (TPD) and life insurance, and you can do this through super or via a personal policy in your own name. When purchasing these insurances through a super fund, there is a range of upfront tax concessions generally not available outside super. For example:
You can generally claim your super contributions as a tax deduction2 – regardless of whether they are used by the super fund to purchase investments or insurance, or
As an employee, you may be eligible to make salary sacrifice contributions2 and buy insurance through a super fund with pre-tax dollars.
These concessions can make it more affordable3 to purchase life and TPD insurance in a super fund, or enable you to purchase a higher level of cover than you could otherwise afford. Another type of insurance you could purchase within a super fund is income protection. If you suffer an illness or injury and are unable to work, income protection can pay you a monthly benefit (typically up to 75% of your pre-tax income) to replace lost earnings. Income protection can also be purchased outside of super as premiums paid for Income protection policy held outside of super can be tax deductible.
Sit down with a financial planner and look at the different strategies. Each has the potential to make a significant difference to your financial situation now and in the future. But you'll have to take action before 30 June to benefit from some of the opportunities available this year. To find out more and book an appointment, go to nab.com.au/financialplanning.