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.
If you’re self-employed¹, 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 with a gross turnover5 of less than $2m may be eligible for a range of tax benefits, including simplified depreciation and CGT concessions or exemptions. It’s worthwhile regularly checking your eligibility in relation to these concessions or exemptions.
Strategy 5: Establish a Buy/Sell agreement
If you’re in business with other 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 contribution6 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 contribution6. This could be up to $540,000 per person this financial year7. 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 more than compensate for your 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 an employee aged 55 or over, there may be a way to save more for your retirement without reducing your current income. This involves:
- Arranging with your employer to put part of your pre-tax salary into a super fund.2
- Investing some of your existing super in a transition to retirement pension (TRP8).
- Using the regular payments from the TRP to replace the income you sacrifice into super.
If you're self-employed¹, this strategy still works if you make personal deductible contributions2, instead of salary sacrifice contributions.
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, if you're:
- Self-employed¹, 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
- An employee and are eligible to make salary sacrifice contributions2, you may be able to 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.
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.
- To be eligible to claim a tax deduction for the contribution, you must earn less than 10% of the total of your assessable income, reportable fringe benefits and reportable employer super contributions from eligible employment. Other conditions also apply.
- Personal deductible super contributions, employer contributions (including salary sacrifice) and certain other amounts will count towards a concessional contribution cap. Concessional super contributions currently are capped at $30,000 pa, for people aged 48 or under on 30/6/16 and $35,000 for people aged 49 or over on 30/6/16. To be able to salary sacrifice your super, you need to have an effective salary sacrifice agreement in place with your employer prior to the income being earned by you (or in other words, the agreement must be in place before you perform the work to earn the income).
- Tax may be payable on death and TPD benefits paid from within super. To make a provision for tax, you could increase the sum insured. While this will generally increase the premiums, the after-tax cost may still be lower than insuring outside super, when you take into account the upfront tax concessions available. You must also meet a condition of release under superannuation laws to be able to draw upon your insurance benefit.
- Approval criteria apply.
- Turnover is gross of any expenses and is net of GST that is charged on sales. It includes the sum of the entity’s turnover for an income year and the annual turnover of any entity that it is connected or affiliated with during that income year.
- Personal after-tax super contributions and certain other amounts will count towards a non-concessional contribution (NCC) cap. In 2015/2016, this cap is $180,000. However, if you are under age 65, it is possible to contribute up to $540,000 in 2015/16, provided your total non-concessional contributions in that financial year and the following two financial years do not exceed $540,000. In addition to this cap, it’s also possible to make personal after-tax super contributions of up to $1,395,000 over your lifetime using certain proceeds from the sale of small business assets. If you have a spouse, you could potentially take advantage of two NCC caps and two $1,395,000 lifetime limits. (The lifetime CGT cap is indexed annually and increases to $1,415,000 on 1 July 2016).
- Under the 3 year bring forward option for the non-concessional cap. Other conditions apply.
- A TRP is a type of income stream investment that allows you to access your preserved and restricted non-preserved super benefits when you’ve reached your preservation age (currently 55 for those born before 1 July 1960). Limits apply to the amount of income you can receive each year and lump sum withdrawals can only be made in certain circumstances.
- For people born on or after 1 July 1960, the preservation age is at least 56 and will gradually increase to 60 depending on your date of birth.
This document is published by National Australia Bank Limited, an Australian Financial Services Licensee, Registered office at Level 4 (UB 4440), 800 Bourke Street, Docklands VIC 3008. This document contains general information only. NAB Financial Planning is not a registered tax (financial) adviser or registered tax agent. If you intend to rely on any advice to satisfy liabilities, obligations or claim entitlements that arise, or could arise under taxation law, you should seek advice from a registered tax agent or registered tax (financial) adviser. In preparing this information, NAB did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, a person needs to consider (with or without the advice or assistance of an adviser) whether this information is appropriate to their needs, objectives and circumstances. This information is based on our interpretation of relevant superannuation, social security and taxation laws as at 10 March 2016.
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