Tax returns are a little bit like Christmas, they come around once a year, they involve a lot of preparation but can also prove rewarding. To business, time is running out on achieving tax savings with another financial year quickly drawing to a close. Writer Anthony Fensom, has been picking the brains of some of the RaboDirect team for their tax return insights.
Maximise tax deductions
“Reducing taxable income requires maximising deductions, which can include everything from work-related expenses to self-education and the cost of managing your tax affairs,” RaboDirect’s Renee Amor says.
“To cut taxable income, there are a variety of measures covered on the ATO website. You could, for example, make a donation of over $2 to a registered charity. However you will need the receipts, so consider putting all receipts in an email folder as these are often forgotten at tax time.”
You may also think about making prepayments, such as on investment loans for shares, or for annual professional fees, or income protection insurance.
A common method of reducing your tax bill is salary sacrificing into super. However, be aware that the reduction in the concessional contributions cap to $25,000 has reduced the benefit of this strategy and you will need an agreement with your employer.
ASIC calculates that an employee with an annual income of $90,000 before tax could save $2,350 in tax a year by redirecting $10,000 of their pay into super contributions.
If your spouse earns less than $13,800, you might be eligible for a rebate of up to $540 by making a contribution into their super fund.
“With most pre-tax contributions and investment earnings taxed at 15 per cent, super is also one of the most tax-effective ways to invest” Amor says.
For owners of investment properties, ensure your calendar records your inspections of the property and that you have documentation of any travel expenses. A quantity surveyor’s report is essential to justify depreciation on plant, fixtures and buildings, and for properties built after 1985 – even the building itself is a depreciating asset.
If you understand negative gearing (where the income generated is less than the cost, including interest payments) you might be able to take advantage of potential tax savings.
Assets such as property or shares should normally be owned for more than 12 months before selling for any potential discount on capital gains tax to apply.
Defer and split income
You could also consider deferring income, such as the maturity date on term deposits beyond June 30, or transferring income-earning investments, such as managed funds, to the low-income-earning spouse.
Finally, before filing your return ask your accountant for a copy of the ATO’s pre-printed report, which lists income identified from its data matching. This will help prevent you from being penalised for not reporting long-lost bank accounts.
Where to spend the tax refund?
The size of the refund will influence how you use it. According to the ATO, the average tax refund issued between July 1 and August 20, 2012 was $2,217. This might not sound like a lot but it could be used to do a lot of good; for example repaying the credit card, contributing towards the mortgage, or start a nest egg by opening a high interest savings account. Alternatively it could come in handy towards a renovation project or just treat yourself to a holiday and some winter sun.
The last tip is around looking to the future. “Get ready for next year by writing a checklist of what you did this year, so you don’t have to think about it next time” suggests RaboDirect’s Emilie Chell.
By being organised and acting early, it is possible to minimise the tax collector’s claim on your hard-earned money.
The tax related information contained in this article is derived from publicly available information. This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice nor tax advice. You should seek independent professional tax advice before making any decision based on this information.