As you are being reminded incessantly by advertising, it’s tax time and you’ve got a chance to get one step ahead of the tax man.
To be technically correct, you’ve probably got a chance to get 34.5 per cent ahead of the tax man before the 2017-18 financial year ends next Saturday.
Some well-timed purchases, uniform upgrades and dry cleans, bill payments and even stationery purchases will provide the opportunity to get a refund in the 2017-18 tax returns most people have to file in coming weeks.
RSM accountant Kym Carmody warned it was silly to buy things you could not afford or did not need just to get a tax deduction, but it can make sense for necessary purchases sooner rather than a year later. “If you’re going to purchase it anyway and you bring it forward from July to June, that’s great,” Ms Carmody said.
It’s also a last-minute chance for thousands of Australian workers to take advantage of new laws allowing a big contribution to superannuation savings and quickly claim a tax deduction.
The 2017-18 financial year officially ends at midnight next Saturday WA time, but the curtain comes down as early as 3pm Friday for those who need to finalise transactions with businesses and super funds in the Eastern States.
The next few days will see billions of dollars in super, shares and savings spent or transferred as Australians do last-minute financial book keeping to get the best tax return for the 2017-18 financial year.
Tax specialists warn a serious danger zone are small business operators, including tradies, tempted by an instant write-off for equipment and vehicles costing up to $20,000.
Around 40 per cent of taxpayers are expected to be in the middle tax bracket of 34.5¢ in the dollar (including Medicare levy) this financial year.
Tax accountant Bob Poolman said that even if you could claim the full $20,000 of expenses as being related to work, taxpayers get back less than half of that as a tax refund, given the highest marginal tax rate is 45 per cent.
“Most people don’t understand that most of the money comes out of their own pocket,” Mr Poolman said.
1. SUPER TROUPER
So you’ve got a spare $10,000 lying around and your boss has put only $7,000 into your superannuation fund since June 30 last year? You can contribute that $10,000 into super and claim it as a tax deduction under new rules. Get onto your fund sooner rather than later to get the right forms because the money needs to be recorded in your fund’s bank account by next Saturday evening at the very latest.
2. SUPER SPOUSE
New rules took effect on July 1 allowing people with solid incomes to claim a tax offset for contributions to a low-income spouses’ super fund. The full $540 tax offset can be claimed for contributions to the super fund of a spouse earning less than $37,000 or less. The offset is phased out by the time a spouse’s income hits $40,000. A rebate is at least twice as valuable as a deduction because it comes off the tax actually payable.
3. GET SMARTER
Work-related education is one of the best ways to make you more employable. But for expenses totalling more than $250 to be tax deductions, the education must improve your specific skills or knowledge required for your current job, or likely result in higher pay in your current gig. Kosher expenses paid in advance can go into the mix for 2017-18.
So you’re a gardener and you need to read Better Homes and Gardens magazine to keep up with the latest design trends? Paying a year’s subscription in advance before June 30 could well give you an immediate tax deduction as a book, periodical or digital information used to earn assessable income.
5. CHARITY DONATIONS
There is no time better than now to donate to your favourite registered charity. Donations of more than $2 by next Saturday night are tax deductible for the 2017-18 financial year. Make sure the donation is paid out of your bank account by next week. And check the charity is kosher at www.abr.business.gov.au.
6. CLEAR OUT RUBBISH
It’s worth looking around to see if you’ve made some loss-making investments if you’ve sold other investments at a loss this financial year. Those dud shares you bought 10 years ago for triple what they’re worth now could be used to offset the capital gains made by your share fund in 2017-18. But to claim the duds as an offset against your capital gains tax potential bill, you have to sell them by next Friday.
7. INCOME PROTECTION
Unlike other forms of life insurance, premiums paid for income protection insurance are usually tax deductible. Premiums paid in advance over the next six days can generally be an income tax deduction for 2017-18.
8. WORK UNIFORMS
You can claim tax deductions for occupation-specific clothing, protective clothing and for clearly-marked work uniforms. Clothing updates and upgrades bought before next Friday are generally claimable as tax deductions for 2017-18, as are the expenses of cleaning these threads. The tax office is quite strict about its definition of uniforms.
9. HAIL, COMRADE
Union and professional association fees are generally fully tax deductible in the financial year they’re paid. Paying a year’s dues in advance will get you the benefits of the deduction sooner rather than later.
10. HOME WORK HELP
But it can give you some good tax deductions. You need that USB or hard-drive to lug stuff to and from work? Upgrade before June 30 to possibly claim a deduction. Like most bills, expenses for tech gear and for home internet can only be claimed to the extent they’re incurred for work.
11. OFFICE HOURS
We often forget the desk, office and computer gear we keep at home is all too often used for work rather than play. Depending on how much work you do from home, you may be able claim deductions for equipment, phone calls, heating, cool, lighting and cleaning. Equipment costing up to $300 may be immediately deductible.
12. $20,000 DEDUCTION
If you operate a small business and need new gear, buy it before June 30 to take advantage of Federal Government rules allowing instant write-off of gear costing up to $20,000. Make sure the items purchases are legitimate business equipment.
13. VEHICLE EXPENSES
People who use the log-book method to claim and apportion vehicle expenses can get a bit ahead this week by bringing forward repairs and maintenance. A $1000 service carried out on Friday can be claimed as a tax deduction for 2017-18, whereas a service on Monday week will have to wait for the 2018-19 tax return.
14. SMALL BUSINESS
Small business can get a tax deduction this financial year by pre-paying up to 12 month’s worth of deductible expense such as lease payments, insurance, rent, advertising and maintenance contracts.
15. BUYER BEWARE
Buying something a few week early than planned to get a tax deduction only makes sense if you can afford it. Cash flow is king in business. “If you’re going to purchase it anyway and you move it from July to June, that’s great,” said RSM manager Kym Carmody.
16. PREPAY INTEREST
Prepaying interest on investment loans can bring their deduction into the current financial year, assuming you have investment-related income to offset that against. The maximum interest pre-payment is generally 12 months. This is a popular tax planning strategy for people with investment properties.
17. RENTAL FIX
Landlords facing big tax bills can benefit from some end of financial year spending. You can immediately claim deductions for what the tax office calls repairs and maintenances, which includes things like replacing windows damaged in a storm or painting the joint. Don’t get too carried away because expenses not related to wear and tear are tough to claim immediately.
18. PROPERTY TIDY
When it comes to tax deductions, things like gardening, pest control, insurance, council rates, body corporate fees and charges, cleaning and agent costs are less complex. Yet accounting software group MYOB says these are areas that people with rental properties often forget to claim.
19. KNOW THE STEP
Pauline Hanson might not understand it, but working Australians should never forget we has a progressive tax system. No tax is payable on your first $18,200 of income. If you earn $88,000 a year, only $1000 of your income will be taxed at the rate of 37¢ in the dollar plus a 2 per cent Medicare levy. The income between $37,001 and $87,000 will be taxed at 32.5¢ in the dollar plus Medicare levy.
20. BIG WINNERS
The progressive nature of the scheme means that the more you earn, the more a deduction is worth. Deductions of $1000 or someone earning $90,000 will save them $390 in tax and Medicare levy – giving the item a net cost of $610. Whereas the same deductions will save just $345 tax for someone otherwise earning $40,000. Someone earning just under $37,000 will save around $210 in tax and be $790 out of pocket. Someone below the tax free threshold will simply be $1000 out of pocket.