Tax Planning for Small Business owners over 55

EOFY Tax Tips for Small Business

Business Owner Tax Tip

Welcome to my first attempt at a blog with an idea for end of year tax planning aimed specifically at Small/Medium Business Owners.

Ok, so you run your own business and are finally making a profit even if it is just on paper. Now you are looking at your tax position for the current year before June 30th just like you have been encouraged to do. You have spoken to your accountant and know you have a forecast profit for the year after deductions of say $25,000 in your small company after already taking a decent salary for living expenses. Well at the 30% corporate rate the tax will be $7500. But hey, your business does not have that sort of cash in the bank? you have used the profits to plough back in to more stock or equipment for your business.

Here is a strategy for over 55’s to consider if they have a cashflow shortfall for June 30th tax planning.  Look at your Superannuation and if you have not moved into Transition to Retirement Phase you could arrange to do so and access up to 10% of your balance before June 30th as a pension. Lets assume you had $200,000 in Super so you could access $20,000 this year.

You could then lend the money to your company via a shareholders loan and the company could use the funds to make a tax deductible employer contribution back into your superannuation. why you ask?

Well the company gets a tax deduction of $20K reducing its tax bill from $7500 to $1500…..Nice! Now you pay 15% contributions tax on these concessional contributions so of the $20,000 you pay tax of $3000. so overall you save $3000 in tax and you have moved $20,000 from your company into your retirement savings.

Now as you have taken the pension, if you are over 55 but under 60 you need to add this to your taxable income…but the nice government give you a 15% Pension tax offset to reduce the tax payable. Once over 60 you do not need to report it in your income so an even better outcome (has to be at least one benefit of getting older!)

Any other benefit of this strategy?

By moving the $200,000 to Pension Phase any further earnings or capital gains are now exempt income and you pay Nil (0%) tax in your superannuation pension on those earnings. So if your fund earned 5% for the year or $10,000 you save an extra $1500 per year. Better still , if your super fund is invested in shares and received franked dividends your fund will get a refund from the taxman of those franking credits…bonus!

As you now have a shareholder loan to your company you can have the company repay you that loan during the next year rather than taking a higher taxable salary from the company and thereby reducing your marginal tax rate.

Things to check :

  • your age – you have to have reached your preservation age which is now rising towards 60- check here

Preservation age

Access to super benefits is generally restricted to members who have reached preservation age. A person’s preservation age ranges from 55 to 60, depending on their date of birth.

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
After 30 June 1964 60
  • your tax position personally and via your company or business (see your tax agent/accountant/bookkeeper)
  • your superannuation balance
  • check you have not exceeded your contribution limits.

I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there to do plenty of research first and only trust those that have earned your trust. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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1 Comment

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