Barbara Drury explains 10 simple ways to reduce your tax bill.
Doing your Christmas shopping in a panic on Christmas Eve is liable to cost you more than if you had planned ahead. Similarly, looking for ways to minimise your tax bill in the few days left before the June 30 deadline could end up costing you dearly.
Like most experts, Paul Brassil, a senior tax partner at PricewaterhouseCoopers, prefers to talk about year-round tax planning, rather than end-of-year tax planning, but he concedes it's better to start late than never.
Garry Addison, a senior tax counsel for CPA Australia, warns taxpayers they must be able to substantiate all claims for tax deductions, even where receipts need not be supplied.
Tax deductions are the main focus for most people, but tax rebates - or tax offsets, as they're sometimes called - are actually worth more in your hand.That's because deductions are taken off your gross income to work out your taxable income, which is then taxed at your marginal tax rate, whereas offsets directly reduce the amount of tax you pay.
Work-related deductions
Work-related deductions are top of the list for most employees - the Australian Taxation Office (ATO) estimates they account for almost 50 per cent of all claims - but there are a few people may not be aware of.
Addison says this year for the first time people who work outdoors can claim for the cost of sunglasses, sunscreen lotions and hats. Few people will have kept receipts for these items so the ATO will accept reasonable estimates (up to $85) this year, but warns next year you will have to substantiate your claim as usual.
Addison says laundry expenses can be claimed if you have to wear a uniform or clothing that wouldn't normally be worn away from your job. You can claim up to $150 without receipts. Addison points out you can claim a total of $300 in work-related deductions without receipts.
Superannuation
As of this year the amount self-employed people can contribute to superannuation
and receive a full tax deduction for has
been increased substantially, from $3000
to $5000. Any contributions above $5000 receive a 75 per cent deduction, up to your age-based limit.
The age-based contribution limits this financial year are $12,651 for under 35s, $35,138 for people aged 35-49 and $87,141 for those aged 50 or more.
Employees can "salary sacrifice" into super by asking their employer to pay some of their pre-tax salary into their super fund. This is especially effective if you are on the top marginal tax rate because contributions are taxed by the super fund at 15 per cent, not your marginal rate (see story on page 10).
Higher-income earners can also get a tax rebate for super contributions they make on behalf of a non-working or low-income-earning spouse, provided the spouse is under 65. The maximum rebate is $540 on a contribution of $3000 where a spouse earns $10,800 or less, and the rebate cuts out once the spouse earns $13,800.
Rental property
Addison says it is important to distinguish between expenditure on a rental property that is deductible in the year it is incurred, and expenditure that is capital in nature and is eligible to be depreciated or written-off over a number of years, or simply not tax deductible.
Normal repairs and maintenance are tax deductible in the year they are incurred, so Brassil says it makes sense to bring these forward where practical.
Interest on a loan used to buy an investment property or finance improvements is also deductible, along with other expenses such as council rates, agent commissions and body corporate fees.
Pre-pay interest, defer income
It sometimes makes sense to pre-pay interest on investment loans to accelerate deductions, but be mindful that the ATO only allows you to pre-pay 12 months ahead.
Brassil says people should consider pre-paying interest where their cash flow allows it, but suggests it probably doesn't make sense to pre-pay $100 before June 30 for the tax deduction when it would only cost the same amount a year down the track.
When possible, defer the receipt of interest income until after June 30 by timing the maturity of term deposits and other interest-bearing investments.
Make the most of your losses
If you are sitting on substantial paper losses from AMP, Telstra, Southcorp or a host of other disappointing stocks, consider selling some of your loss-makers to offset against capital gains made from the sale of other investments this financial year. If you think AMP, for example, still has a future, you can always buy it back again later - its recovery will take more than a few months.
Addison adds the proviso that it is better to sell shares held for more than 12 months so you qualify for the 50 per cent capital gains tax (CGT) discount. He also points out that you must offset your losses against your gains before you apply the 50 per cent discount.
Maximise dividend imputation credits
Long-suffering shareholders should remember to take full advantage of imputation credits on franked dividends to offset against income earned elsewhere. Low-income earners who don't pay enough tax to offset their imputation credits can claim a refund for the excess amount on their tax return.
Couples should consider purchasing shares in the name of the partner on the lower marginal tax rate. If that person pays little or no tax, they can claim the imputation refund.
Health insurance rebate
Most people elect to have their 30 per cent health insurance rebate deducted in advance from their insurance premiums. However, if you claim the rebate in your tax return and haven't paid enough tax to offset the rebate, you can claim a refund for the excess.
Infrastructure bonds
Only the fleet of foot and fabulously well-connected need apply for these handy tax savers, but if that's you then they're worth a try.
Essentially a funding mechanism for motorways and other public infrastructure, investors borrow from the bank to fund a loan to the developer. The interest you pay on the loan is tax deductible and all income from the investment is tax exempt.
Brassil says investors need to have a good relationship with their bank manager to get their hands on these relatively scarce infrastructure bonds, and a high taxable income to gain the maximum advantage.
Special rebates
According to an ATO spokesperson, the most underclaimed item last financial year was the Senior Australian Tax Offset, granted to retirees of pension age who receive no government payments: 66,000 people who were eligible for amounts of up to $2230 failed to lodge a claim.
For a single person on an income of
$20,500 or less, or couples on a combined income of $33,612 or less, this offset plus the low income tax offset - increased in the latest Budget from $150 to $235 - effectively reduces their tax to nil.
If you care for ill or disabled family members, have a dependent spouse and/or children, are a low-income earner on less than $27,475, a pensioner or sole parent with at least one dependent child, you should check with your accountant or the ATO to see what's on offer.
Give a little, get a little
Perpetual Trustees estimates that, on average, only one in three dollars donated by taxpayers is actually claimed as a charitable deduction. Perhaps that's because Australians give so little - an average of $210 a year.
Give a little more and keep track of your generosity. Don't forget cash donations must be for two dollars or more to be deductible. Remember, too, that whatever your donation consists of - cash, property or shares - it can only be made to a registered charity. If you have any doubts, call the ATO on 1300 130 248 to check.
