If your tax planning usually consists of joining a queue to buy stationery shortly before midnight on June 30, it might be time to think ahead.
Some deductions require more forward planning, particularly as the financial year-end falls on a Saturday in 2018.
Bates Cosgrave director Matt Zhou says: “Tax planning should start as early as possible not just in the last hours [of June 30].”
Accountants and tax agents warn that tax-deductible donations made to charities must be received by June 30. Likewise, contributions to super funds are recorded on the day they are received by the fund.
Last-minute do’s and don’ts when it comes to maximising your 2018 tax refund.
- Bring forward tax-deductible spending on tools, stationery, equipment. But only if you planned to buy the items anyway
- Bring forward capital losses if you have underperforming shares or other investments
- Make a tax-deductible personal contribution to super. You can now do this directly – up to $25,000, including your employer’s contributions
- Pre-pay the next 13 months of income protection insurance. Premiums are tax-deductible
- Check for any extra deductions specific to your job or industry
- Give to charity. If you want to claim any donations over $2 look for those with deductible gift recipient status
- Pre-pay interest expenses on borrowings for property, share, or managed fund investments – organise this with your lender, or they’ll apply it to principal
- Leave it until the last minute to contribute to super or take out income protection insurance, as it takes time for the paperwork to go through
- Forget to ask for advice from an accountant or tax agent
- Blur the line between deductible expenses and personal cost
Before you go ahead with an end-of-financial-year spending spree think about whether it makes sense for you in light of the tax cuts announced in the budget. From July 1, 2018 the 32.5 per cent personal income tax bracket will be raised from $87,000 to $90,000. There will also be a non-refundable low and middle income tax offset of $530 for those with taxable incomes up to $90,000.
If your taxable income is between $87,000 and $90,000 you could consider bringing forward any tax deductions to this financial year. Because your tax rate is higher this year any deduction will be more valuable to you. If you earn just above $90,000 it may be better to hold off on spending to get tax deductions. If you can bring your income under $90,000 next year you will be eligible for the tax offset.
Assuming you do want to make the most of the final countdown to financial year-end, here are six things to consider.
1. Bring forward any tax-deductible spending
If you are hunting for deductions look beyond office supplies, uniforms and tools. Talk to an accountant or tax agent or check the Australian Tax Office website to see if there are any deductions that might be specific to your job or industry. Work in the fitness or sporting industry, for instance? Sunglasses, sunhats and sunscreen may be deductible if you are required to work outside.
Simone Gielis, senior tax agent at Etax.com.au, has a few suggestions for property investors. “Prepaying your property expenses such as insurance, advertising fees and maintenance up to 12 months in advance can help boost your refund.”
Got your eye on claiming work-related expenses? The Tax Office does too. It has announced it will be scrutinising such claims, particularly work-related car expenses and “other”work-related expenses. In 2016-17 3.75 million people made a work-related car expense claim, totalling about $8.8 billion and 6.7 million people claimed $7.9 billion in deductions for other work-related expenses.
The Tax Office is particularly concerned about claims for private trips; trips that were not made; and car expenses that the taxpayer’s employer had paid for or reimbursed.
If you work exclusively from a home office, or check work emails from home or make work-related calls on your personal mobile, Gielis says there may be some additional deductions available. But if your expenses, such as a phone and internet bundle, are for both work and private use you can only claim a portion of it. “It’s likely you can claim at least some of your home internet and personal phone expenses as a deduction,” she says. “Just remember, if you share the costs with a spouse, partner or roommate, you can only calculate the part of the bill that you actually pay for.”
Some deductible expenses can be easily overlooked including membership fees for professional associations and unions; subscriptions for work-related newspapers, magazines and periodicals; and the cost of an accountant or tax agent.
If you are self-employed, you can access the instant write-off of up to $20,000 for capital expenses available to small business. This means you can claim the full amount for items such as office furniture or a new computer that would normally be subject to depreciation over several tax years.
Another possibility is prepaying the premium for income protection insurance. It is tax deductible. Again, it will require getting organised sooner rather than later.
The end of the financial year is not an invitation to go on a spending spree. As Zhou points out you’ve got to be aware of how any spending may impact your cashflow. “If you need to spend money to get a tax benefit you want to make sure whatever you’re doing is productive.”
2. Prepay interest expenses
Another way to bag an extra deduction is to prepay 12 months of interest expenses on tax-deductible loans. This may include loans for investment properties or margin loans. Contact your financial institution to make sure it directs it to the interest, not the principal.
3. Contribute to super
One positive change this financial year is employees can now make personal tax-deductible contributions to their super fund without having to go through their employer’s payroll, says Zhou.
That means you can top up the super paid by your employer as long as you don’t exceed the concessional cap which is $25,000.
Another tactic could include making a spouse contribution for a low-income or non-earning spouse.
4. Give to charity
Any donation of more than $2 made to a charity with tax-deductible gift recipient status is deductible. If you are chasing a tax deduction putting money into a busker’s bucket or a crowd-funding campaign won’t help your cause.
5. Bring forward capital losses
If you have underperforming shares or other investments bringing forward capital losses can be another way to reduce your tax, particularly if you have made capital gains from the sale of other investments.
6. Delay income
If you’re teetering on the edge of another tax bracket it might be worth delaying a payment until the new financial year.
Article Source: SMH | C. Long