As the clock ticks down to the end of the financial year, NAB Private Client Executive Natalie Irvine notes that the schedules of her high net wealth clients become even crazier than usual. “They have so many different people competing for their time,” she explains. 

But this year, more than ever, carving out the time to review your finances before June 30 should be a top priority – from both a tax and an investment perspective.  

When it comes to tax, PwC Senior Tax Partner Ellen Thomas says it’s important to consider any new government policies that might affect you. “With all the chaos and mayhem that’s happened in the last year, it’s a good time to pause and take stock and make sure that all of the COVID measures available are taken into account.” 

As for investments, Irvine points out that “the restrictions we had in place for much of last year mean that a lot of people are sitting on significant cash reserves at a time when interest rates are at an all-time low. Weighing up higher–yielding alternatives should be a key part of your general financial health check.” 

Tax tips for individuals and families 

For high net worth individuals there are multiple tax implications to consider in 2021. And getting the timing right is essential. 

Discretionary trusts, for example, can be a great way to protect assets and distribute income more flexibly. But, as Thomas points out, you have to be particularly careful to meet your deadlines. “The ATO is strictly enforcing the requirement that all trustee resolutions to distribute income or capital gains are made prior to 30 June each year – and they want to see evidence of this happening,” Thomas says. “Otherwise, the Trustee is taxed on undistributed income at 47 per cent. That’s an easy one, but it’s incredibly important for this time of year.” 

Annual donations, too, require your attention – and given the challenging past 12 months, they may well be higher than usual from those who are in a position to give. While it’s well known that contributions to deductible gift recipients (DGRs) – that’s most, but not all, charities – may be tax deductible, it’s important to consider the timing of these, Thomas says. “A donation just prior to 30 June can reduce tax payable by 12 months when compared to a July donation.”  

And don’t miss out on lesser-known deductions. Take Superannuation. “It’s reasonably well known that individuals can claim a personal tax deduction for superannuation contributions of up to $25,000 – counting both employer and personal contributions,” Thomas says. “However, it’s also possible to claim higher amounts by contributing more than $25,000.”   

This comes down to whether you have under $500,000 in super – a real possibility if you or your spouse have been out of the workforce. In that case, you can contribute any shortfall from previous years, significantly reducing the tax payable.*

Company considerations 

What if you own a business?  

There are several government measures to keep in mind this year, their overriding aim being to help those negatively impacted by COVID-19.  

Particularly noteworthy is the instant asset write–off for companies earning under $5 billion – this allows your business to deduct the full cost of any eligible depreciable assets in the year you bought them. “The instant asset write–off is an absolute standout measure,” Thomas says. “A lot of [people] would have been looking to take advantage of [this] and [it] would have been a pretty massive boost for many businesses.” 

It’s also a good year to trawl through any doubtful debts and decide whether they need to be written off – before June 30. “There might be businesses that have receivables, which are treated as bad debts. But in order to get the tax deduction for them, it’s not enough that you put a provision in your books,” Thomas warns. “Rather, you have to go through a series of steps in order to [formally write them off] by the end of the year.” 

This financial year there’s an extra incentive to bring forward deductions, and to defer income, where possible, Thomas says. The company tax rate for small businesses (base rate entities with annual turnover under $50 million) is dropping further, from 26 to 25 per cent, in the 2021-22 financial year. 

Managing your gains and losses 

You should also consider whether to crystallise any capital gains before June 30. It’s a significant issue this year, given the bounce in equity markets since their March 2020 lows. 

“If clients have been gradually adding to their equity exposure post the crash it’s likely equity holdings within portfolios may be sitting on significant capital gains,” Irvine says. “Depending on your tax situation and the underlying entity holding the portfolio, some consideration should be given to your long–term tax strategy pre-30 June.” 

If you do find yourself with significant tax liabilities, you may require additional funding to ensure you have the necessary liquidity. NAB Private can help with this. “If a client is waiting on future liquidity to be realised, or to sell investments, we can provide a buffer during the holding period,” Irvine says. Indeed, margin lending has been particularly popular of late among her clients, given interest rates are so competitive. As Irvine explains: “That provides them with a cashflow line they can use to invest at anytime in the comfort of their homes up to an approved limit.”

Growing your capital 

The pandemic has seen many clients build up considerable cash holdings over the past 12 months. The problem here is that yields are currently lower than inflation and may be for some time. “That amounts to a negative real return for those holding cash,” Irvine points out.  

She suggests considering a diversified fixed income portfolio to guard against inflation. “For conservative investors who typically hold large amounts of cash and term deposits, opportunities are still available in the fixed income market – [think] corporate bonds and hybrid securities. A diversified fixed income portfolio can still generate running yields of around 2-3 per cent per annum, significantly ahead of the average for a 12-month term deposit of around 0.3 per cent per annum.” Even government bonds are starting to offer a small degree of value for conservative investors, she says. 

Then again, you may be happy to have some exposure to growth assets, in which case there are opportunities out there. Again, it will depend on your tolerance for risk – and the state of the markets.  

“[In late 2020], we were very positive on risk assets and hence recommended an overweight to growth assets such as international and Australian equities,” Irvine says. Since then markets have rallied and the value of some equities are starting to look expensive for what they offer. “We are now more neutral on our outlook for equities and believe assets classes such as infrastructure and alternative assets currently offer value for investors,” Irvine says. 

Where NAB and JBWere can help 

Making any of these decisions can be challenging, particularly when you’re time poor. It’s why NAB offers a tailored service that can bring together a team of three specialists from NAB and JBWere to work with you.  

The relevant specialist from the team of three can work with your accountant as well. “Our clients really appreciate this approach as it allows all the specialists around the table at one time,” Irvine says. 

[Footnote] 
*For example, if you only contributed $5,000 to super in 2020, and your balance is under $500,000, you may be able to contribute $45,000 before 30 June 2021. This could reduce tax payable by up to $21,150 (47 per cent) while the fund may only pay $6,750 (15 per cent). This amounts to a saving of almost $15,000. (Note: those with income in excess of $250,000 are subject to a surcharge of 15 per cent [$6,750 in this example].)