The end of financial year (EOFY) means more than just sales down at the shopping centre. It’s also the last chance for Australians to make any decisions regarding changes to their finances that could affect their next tax return.
Before the EOFY sneaks up on you, consider the following tax tips:
Keep good records and get your information together early
If your financial information is all over the place in June, try to get it all organised in one place before July. Even if you plan to wait a little longer before doing your taxes (you usually have until the end of October), having details of your income, assets, expenses and deductions already at hand when the time comes can save you a lot of time and stress.
You may also want to consider taking steps to keep your money matters organised for the following financial year, so you’ll have an easier time preparing for your next tax time. Conducting a complete financial health check could not only help making managing your taxes simpler in the future, but may allow you to save money and enjoy more value from your financial products and services.
Check your deductions
Depending on your situation, there may be more tax deductions you can claim than you first realise, such as:
- Charitable donations: Giving generously not only helps others in need, but can count as a deduction.
- Income protection insurance: If you pay premiums to an insurer in case you lose your income, the cost of these premiums can be included on your tax return. This only counts for a dedicated income protection policy, and not for income protection that’s included in your life insurance or similar policy.
- Home insurance: If you use part of your home as a place of work, you may be able to claim part of your home insurance premiums as a business expense.
- Working from home: If you’ve spent a significant part of your working hours at home this financial year, you may be able to claim your home office expenses on your tax, such as electricity, internet, office equipment and more. You could manually add up the actual costs of your working from home expenses, or claim a fixed number of cents per hour worked as a shortcut.
There are a lot of shady ways to try and put one over on the taxman before the financial year’s end. Don’t risk it. The potential savings aren’t worth the fines or imprisonment for fraud or tax evasion.
Don’t buy deductibles you don’t need
A common EOFY strategy is to make some last-minute work expenses in June, so you can claim them as tax deductions in July. This may make some sense on paper, but it also means spending money when you really don’t need to, which is rarely a sensible plan.
However, if you were already intending to make a tax-deductible purchase some time in July or August, you may be able to pre-pay the cost in June and claim it on this year’s taxes, rather than waiting until next year.
Check the interest earned on your savings account or term deposit
If you have money squirrelled away in a savings account, and you’ve been making regular deposits without making withdrawals to qualify for the higher bonus rate, you may have earned interest on your savings during the financial year. Even when interest rates on many savings accounts and term deposits are on the low side, if you have a significant sum in your account, you may still have earned enough interest during the financial year for the tax office to take notice.
Income earned from interest on your savings accounts or term deposits will often be pre-filled when you go to complete your tax return online. If not, you should be able to contact your bank to get a summary of your interest totals for the financial year.
Consider voluntary superannuation contributions
Money in your superannuation is generally taxed at a lower rate than the rest of your income. If you haven’t done so already, you could look into making a salary sacrifice into your super fund. By having part of your pre-tax salary paid straight into your super fund, you can reduce your overall taxable income, which can affect how much tax you pay.
Also, additional personal super contributions from your post-tax income (e.g. your take-home wage) can count as deductions when completing your taxes.
Work out your investment property’s income and expenses
Investing in property may allow you to claim several specialised tax deductions you can choose to claim, including:
- Repairs and management fees
- Interest charges on your home loan
- Home insurance
If taking out your investment home loan involved paying some upfront costs, such as establishment fees, stamp duty, or Lender’s Mortgage Insurance (LMI), you may be able to claim these as tax deductions. Expenses of less than $100 can be claimed in the year they occurred, while higher expenses can be spread out over 5 years or longer.
If you’ve made more money on the property in the financial year than you paid in expenses, then your property is positively geared, and you may need to pay tax on the income. But if you paid more in expenses than you received in income, then your property is negatively geared, which can effectively reduce your taxable income.
Some property investors choose a negative gearing strategy to help them enjoy tax benefits in the short term, counting on the property’s capital growth to make up for losses in the long term. Seek independent financial advice before pursuing a negative gearing strategy, as it can be risky if property values don’t rise in the area.
Don’t forget depreciation on your investment property
When you buy an investment property, this may also include a range of extras, including the carpets, curtains, and home appliances. As these items are used by tenants and experience wear and tear, they can lose some of their value over time. You may be able to claim this depreciation as a deduction on your taxes.
As working out deprecation is complex, consider getting in touch with a quantity surveyor to work this out for you. Plus, you can claim their fee on your expenses for next year.
Work out what vehicle expense you can claim
Most people know that you can claim vehicle expenses if you use your own car for work purposes, though these may be limited to just the travel you do for work (not including your commute to/from work).
If you’re self-employed or run your own small business, you may be able to claim some additional expenses on vehicles used for work purposes, including interest on car loans and your car insurance premiums, plus registration fees and depreciation of the vehicle. If your vehicle is only partly used for work purposes, you may only be able to claim a percentage of these expenses.
Using a chattel mortgage or a novated lease to purchase a work vehicle can also have tax benefits.
Check if you can get reward points on your credit card payments to the ATO
If, once you’ve done your tax, you end up with a tax bill to pay, you may want to stick the lot on a credit card. It’s a quick and simple way to pay, and if you have a rewards credit card, you might be able to earn yourself some points to redeem for future travel bonuses, right?
Well, maybe not. Some banks and other credit card providers specifically exclude government payments from earning credit card reward points, including everything from council rates and parking fines to tax bills. You could end up putting yourself into debt and potentially paying interest at a high rate with no points to show for it.
Before you use a credit card to pay your taxes, check your card’s terms and conditions first to see if there are any limitations or other restrictions.
Check the ATO
The Australian Tax Office (ATO) regularly updates the nation’s tax rules and regulations. What was an acceptable deduction last year may no longer be welcome this year, or new options may become available for you to choose from. This can be especially true for small business owners, as these rules are updated regularly.
Before you try any special techniques to help minimise your tax, consider checking the ATO website or contacting the tax office to confirm the current tax policies.
Contact a tax accountant
Do you have a lot of expenses to manage? Does your income come from multiple sources? Are there other reasons why your tax returns may be more complicated than average?
Engaging a qualified and registered tax accountant to take care of your tax returns may help you avoid a lot of headaches. Tax accountants stay up to date with all the latest tax news and may be able to provide tax advice that’s specific to your financial situation. Plus, you can claim their fee on your expenses for next year.