The end of the financial year in Australia is 30 June and is fast approaching.
The due date to lodge a tax return is 31 October 2008 unless it is prepared by a registered tax agent. So what can you do between now and the 30 June to ensure you pay just the right amount of tax?
1. Increase deductions
Deductions reduce the amount of taxable income and consequently the tax payable.
1. Keep all receipts for any expenses for five years.
2. Accelerate deductions by paying for them before year end.
3. Employment related expenses include:
- Motor vehicle expenses (remember to keep a log book for 12 weeks in order to maximise any possible deductions)
- Travelling expenses (such as airfares, accommodation, parking and tolls)
- Laundry and uniform expenditure
- Self-education expenses
- Subscriptions to professional bodies
- Tools of trade
- Home office expenses (such as electricity)
- Depreciation on computers and other home office fixtures and fittings
- Mobile and other telephone costs
5. Investment including rental properties and negative gearing:
- Obtain a depreciation schedule (generally 2.5% of construction cost and higher rates for fixtures and fittings). The cost of the report is an allowable tax deduction in the year paid.
- Borrowing expenses are deductible over 5 years or the term of the loan, whichever is the lessor. Borrowing costs include loan establishment fees, mortgage protection insurance, legal fees, mortgage stamp duty, valuation and survey fees.
- Interest on borrowing depends on the “purpose” of the loan rather than the security.
- Other costs include agents' commission, advertising, body corporate expenses, cleaning, council rates gardening/lawn mowing, insurance, land tax, sundry legal costs, pest control, stationery/phone/postage, repairs and maintenance and travel to inspect the property.
5. Maximizing allowable superannuation contributions
prior to year end.
6. Deductions for business:
- Borrowing expenses for working capital or purchase of business assets.
- Interest on working capital.
- Contributions to complying funds for employee superannuation.
- Utilise administration companies/service entities for self-employed professional persons.
- Write off bad debts before year end.
- Maximise deprecation of capital items.
- Value trading stock correctly at year end so as to minimise tax (write off any obsolete stock or value the stock at lower than cost).
7. Take advantage of any incentive deductions which include:
- Gifts or donations.
- Research and development expenditure.
- Environment-related incentives and landcare operations.
2. Reducing your income
- Enter into a salary-sacrifice arrangement with your employer for exempt or beneficial fringe benefits such as cars, superannuation contributions, laptop computers, child care on employer's business premises, low interest loans for investment purposes and certain components of living away from home allowances.
- Select the best option to calculate any capital gain.
- Maximise the cost base of any asset that you sell to minimise your capital gain.
- Utilise current or prior year capital losses when making a capital gain. Remember that the loss must be subtracted from any capital gain before applying the 50% discount.
- Exclude any items that are tax exempt (such as certain foreign employment income, and interest or dividends that have been subject to withholding tax).
3. Reducing the rate of tax
Tax offsets directly reduce the amountof tax payable and include:
- Franking credits on “franked shares”.
- Foreign tax credits.
- Rebates for certain personal superannuation contributions.
- Medical expenses – 20% of net family medical expenses in excess of $1,500 can be claimed by one taxpayer.
- Maximise the spouse rebate by using “seperate net income” which is taxable income less any expenses that are not normally tax deductible such as travel tom work, food and child care.
- Private health insurance offset if not already claimed through reduced premiums.
Reducing the rate of tax can also be done by delaying income:
- Certain business taxpayers can choose cash vs accruals which may delay income not yet received to the following year.
- Account for income received in advance correctly so as to delay receipt to the next year.
- Retire from employment in July rather than in June.
- Exchange contracts when selling a property in July rather than in June.
4. Methods or diverting Income
- Investments in shares may be sold or given to a low rate taxpayer (such as a husband or wife).
- Hold investments in the low rate taxpayers name rather than in joint names.
Consider structure and possible recipients of income such as members of the taxpayer's family, a family company, a discretionary family trust, a loss company or a unit trust.
Top 10 Tax Tips
Keep all receipts
Keep a log book
Pay for expenses prior to year end
Salary sacrificing for “exempt benefits”
Salary sacrificing into superannuation
Write off bad debts
Use the STS system for business taxpayers
Value trading stock correctly
Claim all allowable rental property expenses
Claim all tax offsets