Start your tax planning now to maximise deductions

Jul 01, 2022

Don’t make the mistake of leaving major tax-deductible purchases to the end of the financial year – the time to act is now, experts say.

Many of us scramble towards the end of the financial year in a bid to make sure our tax minimisation strategies are in order and that any last-minute deductions, donations and the associated paperwork are good to go.

While June 30 provides a non-negotiable deadline to spur us to action, there are tax strategies which need to get a headstart much earlier in the year if you are to reap the best benefit.

Adrian Raftery, the principal of Mr Taxman, says a common mistake is to think you can get a substantial advantage by ploughing big dollars into tax-deductible purchases late in the piece.

“It always surprises me when people think that tax planning only occurs in June,’’ he says.

“If you want to save as much as legitimately possible on your largest expense (tax), it is best to start as early as possible. Tax planning should be a 365-day per year exercise, not one merely carried out in the last few days before 30 June.’’

A case in point is buying tax deductible items worth more than $300, and thinking the full cost can be claimed at once.

This is indeed the case if you are running a small business, with the full cost of capital equipment able to be written off immediately.

But the same rules do not apply to individuals.

“It is pointless buying a tax-deductible asset that cost more than $300 at the end of the financial year,’’ Raftery says.

“This is because depreciation of these assets is pro-rated for the number of days that you own them during the financial year (for example, a $1000 outlay on June 29 produces a measly $1 deduction at tax time). If you are going to get that new computer or car used for work-purposes, it is better buying in July as depreciation has much more impact when spread over a whole year rather than just a few days.’’

For those who do run a business, H&R Block director of tax communications Mark Chapman says they should be mindful that the ability to fully write-off the cost of capital equipment is scheduled to come to an end next year.

While governments have extended the scheme a number of times, there is no guarantee this will continue to be done, and if it is not extended, the threshold for instant write offs will fall to $1000.

Chapman also says people working from home need to be aware that the rules around that are changing, with the shortcut method allowing people to claim a flat 80c per hour finishing at the end of June just past.

“From July 1, 2022 only the 52c per hour rate or the “actual costs” method is available,’’ Chapman said. “The latter generally gives the highest deduction but has the most arduous record-keeping requirements, so if you intend to use it, you need to get into the habit of keeping all receipts, invoices, et cetera … and in addition you need to keep (at some point in the tax year) a diary of typical four-week period which can be used to work out the work use/private use split.’’

The proportional cost of things such as heating, cooling and lighting bills, cleaning, home office furniture depreciation and phone and internet expenses can be claimed, but receipts must be kept.

“For the actual cost method, you should have a specific room set aside as a home office so it may be wise to spend some time setting up a room as your home office right at the start of July,’’ Chapman said.

Super contributions are also a simple method of minimising your tax, with the general concessional contributions cap – the level at which you can contribute at the concessional tax rate of 15 per cent – set at $27,500.

“This is the maximum amount that can be contributed to super tax-effectively (including your employer’s contributions, salary-sacrificed amounts and personal deductible contributions),’’ Mr Chapman says. “However, carry-forward arrangements can be used to make concessional contributions in excess of this amount in the 2023 financial year. This involves making use of ‘unused’ concessional contributions from earlier tax years, starting from the 2019 financial year. If you have some spare cash, this is well worth considering.’’

If a taxpayer makes contributions above the cap, they will be sent a determination by the Australian Taxation Office, and the excess contributions will be charged at your marginal tax rate, the ATO says.

Work-related vehicle expenses are also something to think about.

Raftery says it is generally the largest tax deduction available for individuals, but many fail to maximise it. “If you use your car for work-related purposes, the logbook method is best, but again this is something that you can’t just wave a magic wand with and do on June 30 – it takes 12 weeks of diligence in keeping accurate logbook records,’’ he says.

“I know from personal experience that logbooks are annoying creatures to complete but it’s just a minute in the morning, a minute in the evening, maybe 120 minutes over the year for potentially an extra $5000 in tax savings.’’

Chapman says deductions can be calculated in two ways: using the per-kilometre method which gives you 78c per kilometre travelled for work or business purposes but only up to 5000km. Or there is the actual-costs method.

“Particularly in an environment where car expenses are taking up so much of the household expenses (especially fuel), this method generally produces a much bigger deduction and is essential if you intend to travel more than 5000km on work or business journeys,’’ he says.

“Unfortunately, the record-keeping requirements – once again – are arduous. You need to keep all receipts from July 1, 2022 to justify your claim, such as insurance, servicing and repairs.’’

And finally, it pays to go digital with your deductions.

Raftery says the ATO’s myDeductions app is a convenient way to ensure you’re not scrabbling around looking for receipts in late June next year.

“Tax agents cannot wave a magic wand if you don’t do the basics and keep your receipts throughout the year for your work or business-related expenses.

“Get into a habit early in the year.’’

Original published here on 1 July 2022 in The Advertiser.



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