Mr Taxman's top twenty tax tips for 2009

May 25, 2009

I always get asked for a tip or two, particularly around tax time each year. So over the next 2 weeks I will provide my top twenty tax tips for 2009. Please note that not all of the tips will be applicable to you or your business and you should consult your own adviser/s to assess your own particular needs before implementing any of them. Remember that effective tax planning should be over 365 days per year, not merely the few weeks before 30 June.

20. Private health care - if you are single & earn over $70,000 (or a couple earning over $140,000) then you should know by now that for 99.7% of us it is probably cheaper to get basic hospital cover to avoid the 1% Medicare levy surcharge. Note that you do not need to get ancillary cover (ie dental, physio, acupuncture, chiro, etc) although I reckon that this is where all the value is with private cover these days.

19. Travel diaries - if you travel more than 5 days interstate or do any overseas travel for business then you need maintain a travel diary to substantiate your claim. The diary must be quite detailed and record dates, places, times and duration of activities and travel. Keep business cards of who you see & if possible, make a presentation/report to your work.

18. Get a great accountant - Great accountants are like quantity surveyors ... they know where the boundaries are. By not using an accountant, you could be paying too much in tax or you could be leaving yourself open to a visit from the ATO auditors. And their fees are tax deductible! If you are looking for one then drop me a line.

17. Medical expenses - there is a rebate for out of pocket medical expenses (ie the gap) over $1,500 - they must be provided by a registered medical practitioner (ie a doctor & not physio or chiro unless referred by them) & also includes prescriptions. In tough times, people generally get sick so if you are close to the $1,500 threshold you may want to bring forward some costs (such as new glasses, visit to the dentist) before 30 June & get an effective 20% discount from the taxman. It may even be worthwhile to register for the Medicare Safety Net.

16. Depreciation schedule - if you have bought a rental property this tax year, and it was built after 1985, then it is definitely worthwhile organizing a depreciation schedule from a quantity surveyor now. It takes about 3-4 weeks to organize & costs around $500-600 but you get the benefits back tenfold with tax savings via increased depreciation claims.

15. Scrap obsolete stock & plant - got some old plant or stock that your business simply can't sell? Then physically write it off before 30 June & get a tax deduction for it this year.

14. Income splitting - it amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see rich businessman with high income taxed at 46.5% also paying 46.5% tax on interest or dividend income which could be in put in their lower taxed spouse (0% or 16.5%) or company (30%).

13. Write-off bad debts - like obsolete stock, for a business to get a tax deduction on its bad debts it must physically write off the debt prior to 30 June. Note that the debt must have been originally shown as income in order for the write off to be allowed.

12. Defer income & bring forward expenses - it is always a good idea to try & defer your taxable income to next financial year. If you have expenses such as professional membership subscriptions due on 1 July, pay them before 30 June to reduce this year's tax. For those in business you may want to defer your invoicing til next tax year.

11. Don't spend purely for a tax deduction - there are so people that get caught out at this time of the year in spending money purely to get a tax deduction. Remember that it is a play on marginal tax rates. If you are running a business via a company then you are only getting 30% back. If you want a $100,000 tax deduction before 30 June my accounting practice will gladly invoice you & accept payment. But you will only get $30,000 tax benefit & the transaction has cost the business $70,000. So don't get caught out by the fancy marketing of retailers in coming weeks. Always think of my A-B-C motto ... Absolute Bloomin' Cash.

10. Tax effective investments - These investments have copped a lot of bad press in recent weeks thanks to Timbercorp & Great Southern debacles, but you shouldn't assume all are guilty by association. They generally have 100% tax deductibility (look for ATO Product Ruling). Unlike investments in shares or properties, if you invest say $50,000 in these types of investments you will get a tax deduction for $50,000. Will help with levelling out the tax on any capital gains made. Returns in this sector over the past decade have been better than other asset classes and would sit nicely in any diversified portfolio.

9. Education Tax Refund -Don't miss out on this new tax rebate which gives a 50% refund on certain education expenses up to $750 expenditure for each primary school child and $1,500 for each secondary school student.

8. Realise capital losses - With the slump in the stock market this year, it is an opportunity to reduce the tax on gains made earlier in the year by selling a few non-performing shares. ATO was warned against "wash sales" where you sell shares & buy them back straight away. For those with self managed super funds (SMSFs) it is a great chance to transfer these shares into a lower taxed environment & potentially only pay 10% tax on future gains.

7. Keep your receipts - With the ATO increasing their audit activity this year yet again it is important that you keep your receipts. The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!

6. Prepay interest - Prepaying interest 12 months in advance before year end on your rental property or margin loan is an excellent strategy for those that will have a lower income next year due to factors such as maternity leave or redundancy.

5. Salary sacrifice/contribute into super - For those under 50 years of age you can contribute up to $50,000 per year into super & only pay 15% tax. This figure increases to $100,000 if you are over 50. Ultimately it is your money and you can build up your net wealth quicker instead of paying up to 46.5%. A great tax deduction for those in business.

4. Car log book - If you use your car for work purposes, then the best method to claim for it is the log book method. Purchase a log book from the newsagent, fill it out for 12 weeks & keep all costs associated with the running of your car including petrol, rego, insurances, servicing, repairs, lease payments, batteries, tyres, etc. You can start your log book now and roll it over into the next tax year. The hard work is worth it as deductions can be in the thousands and you only need to do a new log book every five years unless you change your job or car.

3. 30%/50% investment allowance - If your business needs to get some new equipment then take advantage of this great tax break of an extra 50% deduction for small business (or 30% for large businesses). Be careful that this is not a 50% cash rebate. You need to multiply the deduction by your marginal tax rate to get the cash flow benefit. Beware of potential FBT for cars purchased via companies and don't just spend or get into further debt for the sake of a tax deduction. Also note that even if you order & pay for it this year, you only get the tax deduction in the financial year that you first get use of the new asset. Eg if delivery is on 1 July then tax deduction is in 2009/10 year not 2008/09.

2. Super co-contribution - If your (or your spouse's) income is under $30,342 and you contribute $1,000 post tax into your super fund the government will match it with a further $1,500. It amazes me how few people actually take advantage of this great benefit. Free money!

1. Action - Ok you have got some great tax strategies, now it is time to take action. I get frustrated when people say "oh yeah, I remember you telling me that but I just didn't get around to it" or "I forgot". Wrong answer. Use the Nike Principle and just do it! You will be surprised how many slackos there are that simply miss out on easy money despite how simple these strategies are.

Tags: ChildrenEducationEmployeesFamilySmall BusinessSuper

Author: Mr Taxman


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