Get tax ready early
With so many new digital tools available to help taxpayers manage their tax affairs, there’s really no excuse for leaving your tax return to the last minute next year.
The federal government’s MoneySmart website provides a free app that’s ideal for this purpose. Millions of dollars are missed in deductions each year due to poor record keeping, so a simple app such as this can help those who are disorganised.
But it’s important to only claim deductions to which you are entitled.
For instance, the government announced new restrictions on claiming depreciation on plant and equipment assets on an existing investment property bought after 1 July 2017. Travel expenses to inspect, maintain or collect rent for residential investment properties are also no longer tax deductible.
Know your entitlements, research your options and look for the most tax-effective way of incurring expenses. Consider that sometimes the expense is far more accurately incurred and claimed in your own name than through a business entity.
If you are unsure about expenses that are allowable tax deductions, visit the ‘Deductions you can claim’ page on the ATO’s website for clarification.
Don’t forget the ATO’s data matching program is extremely good at picking up errors in tax returns.
“When it comes to expenses, the ATO will compare claims against the standard for employees or businesses in a similar position. If you have high expenses you are at an increased risk of being audited,” says Paul Jenkin from accounting business Andresen McCarthy Partners.
“So it’s crucial to be able to justify expenses you have actually incurred and that those expenses have a direct correlation to your job or business. The ATO has the ability to impose penalties for claims that are deliberately incorrect, but they will usually be more lenient on innocent mistakes,” he adds.
A good tip is to keep all your tax records and receipts in one spot, and properly store anything tax-related as it comes in. Save copies of all receipts for expenses such as donations, work-related expenses, education and income protection insurance.
The ATO’s smartphone app is a useful tool for recording expenses straight away, so you don't forget to do it later. The app will put the recorded expenses straight into your tax return for you.
Paying interest on investment loans or premiums on income protection insurance a year in advance brings the full amount of the deduction into the current financial year, which is another way to reduce your tax bill.
Concessional and non-concessional contributions to your super fund should also be thought through early in the financial year.
This is especially important as HSBC’s report, The Future of Retirement:
Generations and journeys, shows almost half (45 per cent) of all retirees rely on the pension to support their lifestyle. Worryingly, the research shows two out of five pre-retirees in Australia haven’t started saving for retirement.
Putting funds away for retirement has become tougher since the annual concessional or tax-deductible super contribution amount reduced to $25,000 this year. This figure includes the super guarantee employers contribute on behalf of their staff. The non-concessional contribution limit has also come down to $100,000 a year or $300,000 over three years.
This means that maximising contributions or salary sacrificing deductible contributions earlier now needs to be a serious consideration.
Previously, an employed individual would need to ask their employer to make salary sacrificed contributions on their behalf to get the tax benefit. But now people have the option to contribute funds themselves to their super fund and claim a deduction.
This is becoming a popular option for those on higher incomes who have struggled to calculate whether they have overstepped the $25,000 limit.
Personal contributions are also becoming more common for those who may have realised a capital gain in selling an investment and wish to offset the gain by making a concessional contribution to reduce their taxable income.
For people who don’t want to make a lump sum contribution, making a regular payment into their super fund via a direct debit is a great way to make small regular contributions, without having to fund a large lump sum to contribute at the end of the financial year.
Whether you’re making extra super contributions or simply claiming allowable tax deductions, now’s the time of year to get started so you’re not caught out when 30 June comes around.