When it comes to the end of the financial year, it pays to be prepared so that you can make sure you're getting the biggest possible return for your tax claim.
There are a few tips and tricks that you can employ to maximise your refund from the Australian Taxation Office. These include both ongoing activities that you'll need to complete throughout the year, as well as specific methods for dealing with your actual tax claim.
So, whether you're planning on spending your return on a holiday, bills, or popping it away in your savings account – let's take a look at some simple ways you can boost your tax return at the end of the financial year (EOFY).
When it comes to the EOFY, there's no 'one size fits all' approach to preparing and lodging a tax return. Follow these expert tips to gain the most from your return.
Tax time is nigh!
If you sell your different types of a capital asset, such as real estate or shares, you can make a profit or loss for a particular capital. This cost describes acquiring the asset and disposing of the asset.
You must report capital gains and losses in your income tax return when you lodge in the financial year and pay tax on your capital gains; it doesn't matter if you made gains or losses. It's called Capital Gains Tax (CGT), and this is the part of your income tax, you don't need to lodge separate in your return.
If you sell your capital asset and you make a profit on it, this gain will be added to your assessable income and may increase your tax liability. Tax withheld for capital gains is a different thing so you may need to calculate how much money you own and cover the relevant amount in your return.
If you sell your capital assets in this situation, you make a loss on it; you can reduce your liability against it.
All assets you don't need to pay tax on it, If you purchased your assets before September 20 1985. So, all assets you have acquired since tax on capital gains.
- Personal assets are exempt from CGT, including your home, car, furniture etc.
- If you use solely for taxable purposes like business equipment or some fittings in rental property, so CGT doesn't apply on depreciating assets.
You need to keep in mind that you made a capital gain or losses must you enter into a contract for disposing of assets rather than settle your assets. So if you sign a contract of sale for any investment property in July 2017 and settle in September 2017, you need to report gain or losses to ATO through 2016-17 tax return in the financial year.
If you are an Australian resident, CGT will apply to your worldwide income. However, If you are Foreign resident for tax purposes and you made gain or loss, CGT will apply on assets that are' taxable Australian property'.
Capital Gain Tax (CGT)
The factor that you make a capital gain or loss is generally when you enter into the settlement for disposal, not while you settle. So in case you sign an agreement to sell an investment property in June 2020, and settle in August 2020, you need to file the capital advantage or loss to your 2019–2020 tax go back. If you're an Australian resident, CGT applies for your belongings anywhere in the world. For Norfolk Island citizens, CGT applies to property acquired from October 23 2015. Foreign residents make a capital gain or loss if a CGT event takes place to an asset that is 'taxable Australian belongings'.
- Most personal assets are exempt from CGT, consisting of your home, car and personal use assets inclusive of furniture.
- CGT additionally doesn't observe depreciating belongings used solely for taxable purposes, along with business equipment or fittings in a rental property.
If you promote a capital asset, including real estate or shares, you generally make a capital gain or a capital loss. This is the difference between what it price you to collect the asset and what you receive when you put it off. You want to document capital profits and losses to our profits tax return and pay tax in your capital profits. Although it's called capital profits tax (CGT), this is simply part of your profits tax, not a separate tax. When you are making a capital benefit, it is brought on your assessable profits and can significantly increase the tax you need to pay. As tax is not withheld for capital gains, you may want to work out how tons tax you may owe and set aside sufficient funds to cowl the relevant amount. If you are making a capital loss, you can not declare it in opposition to your other earnings, but you could use it to lessen a capital advantage. All assets you've acquired considering that tax on capital profits started (on September 20 1985) are situation to CGT unless specifically excluded.
- Any asset obtained earlier than September 20 1985, called a pre-CGT asset. But an asset loses its pre-CGT popularity if massive adjustments are made to it (e.g. essential additions to a building), or on the loss of life of the authentic owner.
- The house, unit, etc., that's the taxpayer's important residence, and up to the first 2 hectares of adjoining land used for domestic purposes.
- Personal use belongings acquired for up to $10,000, such as boats, furniture, electrical device, etc., which are for personal use. Items generally bought as a hard and fast must be handled together for the $10,000 limit.
- Capital loss crafted from a private use asset. (S108-20(1) ITAA1997 … any capital loss crafted from a private use asset is disregarded)
- Collectables acquired for up to $500, along with art, jewellery, stamps, etc., held for private enjoyment. Items normally sold as a hard and fast must be dealt with as a hard and fast for the $500 limit. If collectables sometimes rise in cost, then this exemption may be a bonus to a taxpayer gathering small items.
- Cars and other small motor motors which includes motorcycles ("small" being a sporting capacity less than 1 tonne and much less than nine passengers). Since cars normally decline in price, this exemption is genuinely a disadvantage. But the exemption applies even to antique or collectible automobiles, so if they upward push in fee, then the exemption is a bonus.
- Compensation for an occupational injury, or private injury or illness of oneself or a relative. (However, reimbursement for breach of agreement is issue to CGT.)
- Life insurance policies surrendered or offered via the original holder. Such profits are as a substitute taxed as everyday profits (whilst held for much less than ten years). A third birthday celebration who buys the sort of policy will be a challenge to CGT as on a normal investment.
- Winnings or losses from gambling (which might be additionally free of earnings tax).
- Bonds and notes bought at a discount (including zero-coupon bonds) and "traditional securities" (sure hobby bearing notes convertible to shares). Gains and losses from those are regular taxable profits.
- Medals and decorations for bravery and valour, provided they're acquired for no (financial) cost.
- Shares in a pooled development fund that is a unique structure with regulations facilitating challenge financing. Certain different eligible venture capital investments are also exempt from CGT.
Tips to Maximise Your Tax Return
Know what to claim
If you run a home office for work or study purposes, familiarise yourself with the items that may be tax-deductible including office furniture, stationery, technology, software and a portion of utilities, phone bills, insurances and charitable donations. If you're unsure, browse the Australian Tax Office website.
Get an expert opinion.
Make an appointment with your accountant as soon as the financial year begins. That way, you can put in place any investment and deduction strategies to maximise your return and implement it before June 30.
Maintain an organised office
If your home office is a mess, you might find it difficult to keep on top of administrative tasks and likely to misplace important tax paperwork. Make your office space efficient by investing in a filing cabinet, scanner, printer, filing trays etc. Remember, most of these items may be deductible if you work from home.
Save digital copies
To lodge your tax return, you'll need adequate purchase records. The ink on most receipts fades, so be sure to scan them and keep a copy on digital storage – having all your documents saved to one file also makes for a seamless process come June 30.
Keep a track record.
Claiming on items used solely for work or study at home (such as accounting software or stationery) is straightforward. For costs that are split between personal and business use, such as your mobile phone or running costs, you'll need evidence to support the proportion of cost you wish to claim. Keep an accurate record of home office expenses such as an itemised phone bill or diary entries over a minimum four-week period.
Bring forward expenses
Another tip to maximise your tax return is managing your bill payment schedule to fall within this financial year – the more expenses you can claim before June 30, the bigger your tax return could be!
Tell your employer if you take on a second job.
A common tax error is taking on a second job and claiming the tax-free threshold ($18,200) twice by mistake - this often results in a tax bill rather than a return! Make sure you clear this off with your employer immediately upon starting a second job.
Check your thresholds
There are a number of tax offsets and rebates that may be available to you, so check how close you are to the relevant thresholds. Some examples include the net medical expenses tax offset, the low-income earner's tax offset and the health insurance rebate.
Keep the Department of Human Services updated
The number of government benefits you are entitled to will depend on your family's income level. If you discover that your earnings have changed when compiling your tax return, be sure to let the Department of Human Services know. The organisation offers an online estimator to help you determine any level of payment you may be entitled to. It's important that you get onto this well before June 30 as it can take some time to lodge and receive the required forms.
Lodge your tax return on time
It's a shame to do all the hard yards of collating your paperwork – only to lodge your return late. The deadline will differ depending on your method of lodgement; make sure you check it out, so you don't run the risk of a fine or general interest charges. Ask your accountant for a list of key lodgement dates, or visit the ATO’s website
Migrating to Australia – Tax Tips
First things first
If you're still in the planning stages of your visit to Australia and you plan on working while here, ensure you apply for a Tax File Number (TFN). Anyone working in Australia is required to have one and failing to do so will result in you being taxed at 45% of your income.
Understanding the Medicare Levy
Depending on your home country, you'll be granted one of two Working Holiday Visas (417 or 462). The main difference is that with a Subclass 417, residents of 11 countries are eligible for the Reciprocal Health Care Agreement and therefore are required to pay the Medicare Levy at 2% of their taxable income.
Those who are granted a Subclass 462 are not eligible for the Reciprocal Health Care Scheme and therefore will be eligible to claim back the Medicare Levy with their tax return.
As a working holidaymaker (read: backpacker) or international student, you'll be considered a non-resident for tax purposes, which means you're being charged at a slightly higher rate than residents. Unfair, we know, but it also means you'll end up getting more back when you leave to head home.
On all income up to $37,000, you'll be taxed 15%. Any dollars earned after that jumps to 32.5%.
What can you claim?
Okay, here's the good part. You're eligible to claim back some expenses depending on your line of work.
We've put together a list of items which are deemed tax deductions given they are accrued directly about your job and fall outside of the normal stuff you'd be expected to pay for (e.g. you can't claim your commute to and from work, sorry!).
This includes travelling between job sites, meetings, or, if the home is your main place of work, having to travel from home to attend work events.
If your job requires you to travel long distances or make overnight stays, you can claim the expenses you incur through accommodation, meals and transport. However, you can only claim up to the amount of allowance given by your employer, and obviously, you won't be able to account for these if they're reimbursed.
While you can't claim against the actual cost of your car (even if you're purchasing it primarily for work), you can claim for depreciation based on the percentage of use for work, plus running costs, fuel, oil and maintenance.
If you want to claim a deduction for your car, there are two ways to go about it.
Keep a logbook for a minimum of 12 weeks recording the odometer readings when the car is being used for work purposes to submit as proof of use.
If you haven't maintained a log, don't worry, you can claim up to 5,000kms at the government accepted rate of 68 cents per kilometre. You don't need to show fuel receipts, but in the event of an audit, you will need to be able to show how you calculated the total kilometres.
If you're required to purchase clothing for work, whether it is a uniform or not, you're able to claim a portion of these costs back. This is particularly relevant for any mandatory protective or preventive clothing such as hats and sunglasses. And don't forget to account for cleaning fees!
Tools & equipment
If you work a job which involves the use of tools and equipment (such as a trade or construction work) and you're having to personal finance the purchase or transport of these, these count as deductions on your tax return.
Winding Up a Deceased Estate
In administering and winding up a deceased estate, a legal personal representative may need to dispose of some or all the assets of the estate. Assets disposed of in this way are subject to the normal rules, and any capital gain the legal personal representative makes on the disposal is subject to CGT.
Similarly, it may be necessary for the legal personal representative to acquire an asset – for example, to satisfy a specific legacy made. Any capital gain or capital loss they make when they dispose of that asset to the beneficiary is subject to the normal CGT rules.
If a beneficiary sells an asset they have inherited, the normal CGT rules also apply.
Collectables and personal use assets
A post-CGT collectable or personal-use asset is still treated as such when you receive it as a beneficiary or the legal personal representative of the estate.
The main residence and other dwellings
Special rules apply if the asset was the person's main residence.
Even if a dwelling was not the deceased person's main residence, special rules might mean you qualify for a full or partial exemption when you dispose of it.
It's never too late to start tracking your spending and setting better habits for the next financial year. Download a receipt/spending tracker, and you'll be amazed at how much difference it could make to your bank account – bot at tax time and now.