There's no reason to give away more tax than you're legally required to. This is what tax planning is all about – arranging your financial affairs to keep your tax to a minimum. Let’s look at the ways that you as an individual or business owner may be able to use tax planning strategies to minimise your tax bill in the lead up to 30 June 2019.
Make a tax-deductible superannuation contribution
It used to be only the self-employed who could claim a tax deduction for making a personal superannuation contribution, but now this has opened up to all eligible Australians. Your contributions are taxed at 15% when received by the fund, which for most people is lower than their marginal tax rate. There are limits on how much you can contribute each year, and you must notify your super fund of your intention to claim.
Eligibility criteria information can be found on the Australian Taxation Office (ATO) personal super contributions web page. Visit ATO super change to find out if you’re eligible for tax-saving schemes like Super Co-contribution, Spouse Tax Offset and Carry-Forward Concessional Contributions.
Consider First Home Super Saver Scheme
Under this scheme, first home buyers can reap tax benefits from dipping into their super to pay for a house deposit. If you’re eligible, you can arrange through your employer to make a voluntary super contribution up to $15,000 of your salary towards your home deposit. When you access these funds to buy a home, instead of being taxed at the marginal tax rate that usually applies to your salary, the funds are taxed at a lower rate of 15%. Details available on the ATO First Home Super Saver Scheme web page.
Use instant asset write-off
The Federal Government’s instant asset write-off scheme allows businesses with less than $10 million in turnover to write-off the business portion of a purchased asset. For example, as a small business owner, you buy a new computer which you use 50:50 between work and your business. You may be eligible to write off 50% of the cost on tax.
Whether it’s a new or second-hand asset, like a vehicle, piece of plant or equipment, its entire cost must be less than $20,000.
Wait until after 30 June to raise invoices for work completed in the lead up to the end of the financial year. Apply this delaying tactic to any income you receive, such as rent, dividends or interest on a term deposit (set the maturity date of the term deposit to after 30 June 2019).
The less income recorded within this financial year, the lower your taxable income. Of course, this tactic only works if you have available cash flow.
Bring forward future expenses to qualify for tax deductions within this financial year. For example, investment property owners may be able to prepay costs like repairs, maintenance, strata fees and insurance. Other possible expenses to pay in advance include rent, insurance and subscriptions to professional associations.
Write off unrecoverable debts
Review unpaid debt in the lead up to 30 June. If you have documented evidence that it is unrecoverable, this ‘bad debt’ is eligible for a tax deduction. Before a debt can be claimed, it must be bad and not merely doubtful. You must also use the accrual accounting method, which means you show income when you have billed it, not when you collect the money.
Deduct start-up expenses
A start-up company, trust or partnership can immediately claim a tax deduction on a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice. For example, you’re in the process of setting up a business, and you seek crowdsourced equity funding. The costs associated with raising this capital may be fully tax deductible in the income year incurred.
Read the work-related expenses fine print
It’s not as easy as it seems to claim a work-related expense. The ATO has categories of costs you can claim under, but it’s important to look carefully at the details.
Here’s an example: although you can claim occupation-specific clothing, a bartender’s black trousers and a swimming instructor’s swimwear, is not considered specific enough.
Another example: if you work from home but don’t have a dedicated work area, you are unlikely to be allowed to claim for running expenses like electricity, lighting, phone and internet.
If the total amount you are claiming is $300 or less, you don’t need to keep the receipts, but you do need to show written evidence of how you worked out your claims. An easy way to record work-related expenses, including photos of invoices and receipts, is the ATO myDeductions app. At tax time, the data can be used to help fill your tax return.
Talk to a Yellow Brick Road Wealth Manager (financial adviser) for tax planning advice specific to your situation. We can help you map out your financial goals and avoid any unpleasant surprises at tax time.
**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.