30 June is rapidly approaching and it is time to do some urgent tax planning. Dr Adrian Raftery, principal of Mr Taxman and author of 101 Ways to Save Money on Your Tax - Legally! 2020-2021 edition (Wiley, May 2020, AU$25.95), gives some excellent tips for you to action and maximise your tax refund this year.
1. Claim a deduction for the costs you incur in running your home-office
More and more people these days are doing work at home especially during the COVID-19 pandemic but not many are aware that they can claim a deduction for costs you incur in running your home office, even if a room is not set aside solely for work-related purposes. At an absolute minimum keep a diary of your time that you work from home. Whilst you can use the ATO’s shortcut method of 80 cents per hour (from 1 March 2020) it will probably be significantly less than actual deductions for the work-related portion of home telephone, internet, stationery, printers, computer equipment and consumables together with the 52 cents per hour claim for electricity, gas and depreciation of home-based furniture under the fixed costs method. This is one claim that will skyrocket in 2019/20.
2. Keeping a car log book could increase your refund by thousands
Although it probably hasn’t been used as much during COVID-19, if you use your car for work purposes and keep a log book for 12 weeks then the deductions can be in the thousands. Make sure that you keep all costs associated with the running of your car (such as petrol, insurance, registration, servicing and lease payments) for the whole year, not just the period that you kept the log book. Remember that the ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!
3. Take advantage of the Government’s free money service known as the “Super co-contribution”
It is surprising how few people actually take advantage of some free money from the Government. If your income is under $38,564 and you contribute $1,000 post tax into super the government will match it 50 cents in the dollar. Whilst this incentive gradually phases out above this figure at $53,564, it’s free money! Also, if you earn less than $37,000 then your spouse can put up to $3,000 into your super fund and they will receive an 18% rebate ($540) on tax via the spouse super contribution rebate.
4. Minimise capital gains tax (CGT) by deferring sale or offsetting losses against gains already made
The share market had a pretty good run for the first seven months of 2019/20 before it got smashed at the peak of the global COVID-19 pandemic and then bouncing up in the last few months. If you made a nice capital gain or two earlier in the year then you can reduce CGT by selling any non-performing shares that you may be currently holding. Any unrealised gains should be sold after 1 July to defer tax for another year. And remember that if you hold shares for more than 12 months you reduce CGT by half. Any capital losses incurred can be carried forward to future years so keep a record of them.
5. Build your nest egg quicker by paying 15% rather than 47% by salary sacrificing into super
Salary sacrificing into superannuation is one of the best, and legitimate, ways to minimise your income tax bill. You can contribute up to $25,000 per year into super (which includes the compulsory 9.5% employer contributions) which is only taxed at 15 per cent instead of your marginal tax rate (potentially 49 per cent). PAYG employees can make a lump sum contribution at the end of the financial year to take them up to the $25,000 cap and claim as a tax deduction. For those that don’t have excess cash lying about there are not many pay packets left to do it this tax year, so keep in mind to start putting extra away when 1 July arrives.
6. Income expected to be lower next year? Bring forward some 2020/21 expenses into this year
If you are expecting that you will have a lower income next year - due to factors such as maternity leave, redundancy, a smaller or no bonus or perhaps cutbacks to overtime - then why not try to bring forward your deductions into this tax year. Stocking up your home office with stationery, laptops and printers or prepaying subscriptions and interest for up to 12 months in advance are just some of the simple ways to reduce your income before 30 June.
7. Recontribution to split superannuation balances between spouses
With substantial changes to superannuation over the last few years, financial planners across the country have been working like crazy to maximise the benefits for individuals. $1.6 million is the magical figure to have superannuation tax-free in retirement so it is crucial that couples maximise their $3.2M combined tax-free balance and not have one spouse over the $1.6M threshold with one well under. A simple strategy would be to have the higher-balance spouse withdraw up to $300,000 in super and recontribute into the lower-balance spouse’s super under the three-year rolled forward rule for non-concessional contributions. Important to see a financial planning expert here.
8. Buy a new business asset for under $165,000 and claim it as a tax deduction this year
There have been some great tax concessions over the past few years for small businesses with none greater than the immediate write-off available for the purchase of new business assets that cost less than $150,000. Apart from motor vehicles (where it is limited to the business portion of the car limit of $57, 581), there is no limit to the amount of assets that you can purchase under this concession but beware that you are only getting a percentage back and your cashflow will suffer. If your business is registered for GST, the threshold is effectively $165,000 as you can claim the 10% GST credit (up to $15,000) and get an immediate write-off for the balance in this year’s tax.
9. Keep your receipts
With the need to get back as much as you can whilst things are financially tough during COVID-19 , not to mention the ATO continuing ramping up audit activity yet again it is important to keep your receipts. The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets! The ATO have a great app called MyDeductions which is an easy way to keep your receipts for year end.
10. Get a great accountant
Avoid paying too much in tax or leaving yourself to a visit from the taxman. Great accountants are like surveyors ... they know where the boundaries are. You can generally delay the lodgment of your return to May next year and their fees are tax deductible!
You now have got some great tax tips, it’s time to take action. Times are tough during this global COVID-19 pandemic so every dollar saved counts.
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.
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These tips were provided by Mr Taxman, Adrian Raftery, author of 101 Ways to Save Money on Your Tax - Legally! 2020-2021 edition (Wiley, May 2020, AU$25.95). @mistertaxman www.mrtaxman.com.au
101 Ways to Save Money on Your Tax – Legally! 2020-2021 edition
By Adrian Raftery
Published by Wiley May 2020
ISBN 9780730384625
AU$25.95 / NZ$28.99
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For further information or to request an interview, please contact: Adrian Raftery on 1800 TAXMAN (1800 829 626) or 0418 210 599 adrian@mrtaxman.com.au