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

Manage your Capital Gains Tax

If you make a capital gain on the sale of an asset this financial year, you could consider selling a poorly performing investment before June 30. This can enable you to use the capital loss to offset your capital gain.

Alternatively, you may wish to delay any sale of profitable assets until after June 30. This way you can defer paying tax on the capital gain for up to 12 months.

And, if you expect to earn a lower taxable income next financial year, the capital gain may be taxed at a lower marginal rate.

If you’re self-employed¹ another option is to make a personal deductible super contribution⁴ with some or all of the sale proceeds. The tax deduction you claim could reduce, or even eliminate, your Capital Gains Tax liability.

Note: To be eligible to claim a personal super contribution as a tax deduction, other conditions apply.

Bring forward your deductible expenses and defer income

To reduce your taxable income this financial year, you could bring forward expenses that are otherwise tax deductible in the following financial year, and defer income where possible.

For example, you could consider pre-paying 12 months’ interest on a fixed rate investment loan. Also look at carrying out last minute maintenance to business or investment properties.

Your NAB Banker can help set up the right investment loan (including interest only repayments and borrowing within your SMSF) and works closely with a NAB Financial Planner in creating an investment plan aligned to your personal wealth goals.

Consider pre-paying 12 months income protection insurance premiums outside super before June 30 to pay less tax this financial year. And small businesses can look at deferring income and tax by delaying the issuing of invoices for example.

It may also be worthwhile checking through your list of debtors and deciding whether you should write off any bad debts, as bad debts are generally tax deductible if written-off in the same income year that they have been included as assessable income.

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 needs to be reviewed.

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 – making it easy for you to secure vehicle and equipment finance before 30 June⁶.

You should 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.

Check your eligibility for small business tax regime

Small business entities with a turnover less than $2m are eligible for a range of tax benefits including simplified depreciation and CGT concessions/exemptions.

It’s worthwhile regularly checking your eligibility, and if your business is at risk of exceeding the $2m turnover threshold in 2011-12, you could consider deferring collection of income until the new financial year.

Invest money in your company into super

If your private company has surplus capital invested, you may want to withdraw the money, pay yourself a dividend and use the proceeds to make a personal after-tax super contribution³. When using this strategy, you should take into account any tax payable when getting the money out of your company.

But over time, you could come out ahead because of the tax concessions available in super.

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.

Also, if you fund the Buy/Sell agreement by purchasing Life and Total and Permanent Disability insurances through a super fund, the after-tax premium costs can be lower⁴ than insuring outside super when you take into account the up front tax concessions available.

Capitalise on existing concessional caps and avoid excess contributions

The opportunity to make larger tax-effective contributions from your pre-tax money just before you retire is limited. So it’s really important you make the most of your contribution cap² each financial year to boost your super balance (if your cashflow allows).

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.

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 contribution³ and start an income stream investment, 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.

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 contribution³. This could be up to $450,000 per person (or $900,000 per couple) this financial year.

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 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.

Note: Speak to your financial planner about the CGT implications.

Grow your super without reducing your income

If you’re an employee aged 55 or over, there is 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 (TRP⁵)
• 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.

Protect yourself and your family

If you have (or are considering establishing) a geared investment portfolio, you may want to pre-pay 12 months interest on your investment loan, so you can:

• bring forward your tax deduction
•  pay less tax this financial year.

Make better use of your tax return

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 cheaper4 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.

Note: To find out more about the tax and other implications of purchasing income protection insurance within or outside of super, speak to your financial planner.

A NAB Business Banker in conjunction with a NAB Financial Planning specialist can sit down with you and look at the different strategies to see which suits you best. Each of these strategies 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.

Speak with your NAB Banker or NAB Financial Planner and find out how these strategies can work for you or call 13 10 12.

Things you should be aware of

1. To qualify as self-employed, you must earn less than 10% of your assessable income, reportable fringe benefits and reportable employer super contributions from eligible employment.
2. Personal deductible super contributions, employer contributions (including salary sacrifice) and certain other amounts will count towards a concessional contribution cap. In the current (2012-13) financial year, this cap is $25,000 regardless of your age. The government has proposed to increase this cap to $35,000 pa from 1 July 2013 for people aged 60 and over, and 1 July 2014 for people aged 50 and over. These proposals have not yet been legislated and will be considered by Parliament after the Federal election in September 2013.
3. Personal after-tax super contributions and certain other amounts will count towards a non-concessional contribution (NCC) cap. In 2012/13, this cap is $150,000. However, if you are under age 65, it is possible to contribute up to $450,000 in 2012/13, provided your total non-concessional contributions in that financial year and the following two financial years do not exceed $450,000. In addition to this cap, it’s also possible to make personal after-tax super contributions of up to $1,205,000 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 $1,205,000 lifetime limits.
4. Lump sum tax may be payable when a death benefit is received by a non-dependant (eg an adult child) or a fund member receives a Total and Permanent Disability benefit. To make a provision for lump sum 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.
5. 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). Limits apply to the amount of income you can receive each year and lump sum withdrawals can only be made in certain circumstances.
6. Approval criteria apply. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. NAB Financial Planners are Representatives of National Australia Bank Limited, an Australian Financial Services Licensee, Registered office at Level 4 (UB4440), 800 Bourke Street, Docklands VIC 3008.

More information

• Federal Budget 2013