We can’t believe that it’s almost that time again – EOFY! As accountants and financial advisors, we love the EOFY because it has all the excitement of New Year’s Eve without the crowds and traffic! So, with the EOFY fast approaching, we’ve put together some tax-time tips to help you and your family reduce your tax exposure and maximise the opportunities available to you.
Imagine what you could do with tax saved?
- Reduce your home loan
- Top up your super
- Have a holiday
- Deposit for an investment property
- Upgrade your car
10 Tax-Time Tips
While you might not be flush with cash right now and be able to put large amounts of money into superannuation, it’s important that you are aware of how you can potentially maximise your super balance and reduce your tax at the same time. These first three tips below focus specifically on super.
There is a new concessional contribution cap of $25,000 available to all eligible individuals for 2017-2018 year. The tax deductible super contribution limit (or “cap”) is $25,000 for all individuals under the age of 75 (you’ll need to pass a work test if you’re over the age of 65).
Consider making the maximum tax deductible super contribution this year before 30 June 2018 because this is now available to all eligible individuals.
The advantage of this strategy is that superannuation contributions are taxed at between 15% to 30% compared to typical personal income tax rates of between 32.5% and 47% – and you’ll be building wealth for your future.
Ordinarily, self-employed people and those who earn their income primarily from passive sources were the only ones who could make super contributions close to the end of the financial year and claim a tax deduction. However, this is the first financial year that individuals who are employees may also use this strategy – which is awesome!
If you are on a lower income (or if your kids are – this is important for them too), earn at least 10% of your income from employment or carrying on a business and make a “non-concessional contribution” to super, you may be eligible for a Government co-contribution of up to $500.
In 2017/18, the maximum co-contribution is available if you contribute $1,000 and earn $36,813 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $36,814 and $51,812.
To minimise your tax debt this year, is there anything that can be bought or pre-paid prior to the EOFY (June 30)? For example, if you are thinking of purchasing home office equipment under $300, such as a printer or monitor, consider buying it before June 30 to claim the deduction this year. Another example might be to prepay a 12-month subscription for your favourite work journal or magazine.
For those with rental properties, look at paying your council rates, strata or water before June 30 to ensure it is deductible in the 2017/2018 tax return. Perhaps contact your bank to see if you are able to prepay 12-months of interest. Make sure you also check out our article on what you can and cannot claim for your rental property.
A longer-term tax planning strategy can be to review the ownership of your investments. Any change of ownership needs to be carefully planned due to capital gains tax and stamp duty implications. Please seek advice from us prior to making any changes.
Investments may be owned by a Family Trust, which has the key advantage of providing flexibility in distributing income on an annual basis and the ability for up to $416 per year to be distributed to children or grandchildren tax-free.
If you have a rental property, a Property Depreciation Report (prepared by a Quantity Surveyor, such as BMT) will allow you to claim depreciation and capital works deductions on capital items within the property and on the property itself.
The cost of this report (which is deductible in itself) is generally recouped several times over by the tax savings in the first year of property ownership.
Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2018.
You should make a record of your odometer reading as at 30 June 2018 and keep all receipts/invoices for any motor vehicle expenses.
We have an amazing app that we can set up for you called MyProsperity where you can record your trip and save it into your own personal wealth portal (we seriously love this app so contact Kate today to find out more or read below).
At Orbit, we love our tech and we have found the BEST app to get your financial world sorted – all from the ease of your phone!
In regards to your tax, MyProsperity, your Personal Wealth Portal, makes it easy to track your spending on tax deductible items with the help of live feeds from your bank accounts and other tools to ensure that you never miss a tax deduction again. Plus, at tax time, it’s as simple as clicking one button to provide us with everything that we need to complete your tax return.
But it does so much more than just tracking tax deductible items, so read more about it here, or contact Kate for more information.
Neutralise the tax effect of any capital gains on your investments you have made during the year by realising any capital losses – that is, sell the asset and lock in the capital loss. These need to be genuine transactions to be effective for tax purposes.
If practical, arrange for the receipt of investment income (e.g. interest on term deposits) or the sale of capital gains assets, to happen AFTER 30 June 2018.
Note that the Contract Date (not the Settlement Date) is generally the key date for working out when a sale or purchase occurred.
What’s Changing In 2018/2019?
From 1 July 2018 the threshold for the 37% tax bracket has changed from $87k to $90k. That means if you earn up to $90k, you’ll you won’t pay any more than the 32.5% tax, and you’ll save $135 in tax.
There’s a new tax offset being introduced from 1 July 2018. If you, or your kids, earn under $37k you’ll be entitled to $200 when you submit your tax return next year (July 2019). If you earn between $47 – $90k you’ll have an offset of up to $530. The offset is stepped. Sadly, this doesn’t mean you’ll have extra money dropping into your bank account. It sits with the ATO and offsets any tax that you might have to pay. Remember, this isn’t for this years return, it’s for next years.
What Are The ATO Focusing On?
The ATO is unhappy about the level of work related deductions claimed in Australia. It’s also an area that is difficult for the ATO to reign in as the amounts are often small and spread across a very large number of taxpayers.
However, we are seeing clear evidence that the ATO is testing work related deductions, even when amounts are relatively small. Last financial year alone they raised a further $893.8 million from audits and other compliance-checking activities.
Check out our full blog on work-related deductions and how you can ensure you’re prepared if the ATO come a’knocking.
Shares and Capital Gains.
The ATO is datamatching share transaction data against gains declared by individuals in their tax return. The datamatching program has been around since 2006 and tracks share transaction details from 1985 onwards (when the capital gains tax regime commenced). The current program is collecting information on over 61 million transactions.
If you have sold shares, it’s important that the income from the sale is declared in your income tax return.
You can claim donations you make to charities and causes that are deductible gift recipients such as Ronald McDonald House or our next door neighbours Ted Noffs. Raffles (.i.e., RSL or Art Union), the purchase of fundraising items such as chocolates, and fundraising dinners, etc., are generally (and sadly) not deductible.