With an end-of-financial-year checklist, you may be able to invest in your business, better manage your cash flow, minimise your tax liability and bump up your super! Here are ten inclusions.

When is EOFY?

The end of financial year (30 June) is the time for business owners to get things in order. Here are ten strategies that could help you build and protect your personal and business wealth in a tax-effective manner.

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 when you sell assets in your year-end accounting to manage cash flow more efficiently; you pay less CGT on a lower income financial year.

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.

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 before the end of the financial year; these expenses could offset your tax liability.

3. Consider your asset funding

It's worth reviewing income-producing assets to make sure they still meet your needs. The way these assets are funded, and the amount of cash locked into them, should be reviewed periodically. NAB Asset Finance Specialists, for example, can work with you to structure financing and repayments to suit your tax and cash flow needs. This can help you reduce operating costs and increase productivity while freeing up cash.

4. Check your eligibility for small business tax deductions

Small business entities with a gross turnover5 of less than $2 million may be eligible for a range of tax benefits, including simplified depreciation and CGT concessions or exemptions. It’s worth regularly checking allowable tax deductions for small business and your eligibility in relation to concessions or exemptions.

5. Establish a Buy/Sell agreement

The end of the financial year can be a good time to consider succession planning. 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.

6. Capitalise on existing concessional caps

The opportunity is limited to make larger tax-effective contributions from your pre-tax money just before retiring, so it’s really important to 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 large. While super is still a very tax-effective place to save for retirement, the benefits can be unwound if you put in too much.

7. Invest the sale of your business

If you’re selling your business to retire, you will want to minimise the capital gains tax on the sale. You could 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.

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 before the end of the financial year and use the money to make a personal after-tax super contribution.5 This could be up to $300,000 per person this financial year.6 This strategy can be particularly powerful if your money is currently invested in a term deposit or other asset whereby you don’t have to pay 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.

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 fund2
  • 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 contributions,2 instead of salary sacrifice contributions.

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's a range of upfront tax concessions generally not available outside super. For example, if you’re:

  • self-employed,1 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 contributions,2 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/businessadvice

Important Information

The information contained in this article is correct as of July 2018 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.

1. 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.

2. 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 $25,000 pa, for people aged 48 or under on 30/6/17 and $25,000 for people aged 49 or over on 30/6/17. 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).

3. 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.

4. 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.

5. Personal after-tax super contributions and certain other amounts will count towards a non-concessional contribution (NCC) cap. In 2017/2018, this cap is $100,000. However, if you are under age 65, it is possible to contribute up to $300,000 in 2017/18, provided your total non-concessional contributions in that financial year and the following two financial years do not exceed $300,000. In addition to this cap, it’s also possible to make personal after-tax super contributions of up to $1,445,000 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 $1,445,000 lifetime limits. (The lifetime CGT cap is indexed annually and increases to $1,480,000 on 1 July 2018).

6. Under the 3 year bring forward option for the non-concessional cap. Other conditions apply.

7. 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.

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