Despite The Current World In Which We Live, The Procedures For Completing And Lodging Tax Returns Remains Pretty Much The Same.
Before we talk with you to go over your tax return, certain information will be needed. Of course these days pre-filling takes care of a lot of the “paperwork”, and if you wait until late-July or mid-August the ATO’s systems will most likely be able to provide most of the information from employers, banks, government agencies and other third parties.
We will then be able to double-check the information is correct and enter any deductions you want to claim. However, to be thorough, before contacting this office to go over your tax return, here are the sorts of information needed to enable lodgement of your return.
Tax Return Tips
So you’ve got a spare $10,000 lying around, and your boss had put only $7,000 into your superannuation fund since June 30 last year? You can contribute that $10,000 into super and claim it as a tax deduction under new rules. Get onto your fund sooner rather than later to get the right forms because the money needs to be recorded in your fund’s bank account by next Saturday evening at the very latest.
New rules took effect on July 1, allowing people with solid incomes to claim a tax offset for contributions to a low-income spouses’ super fund. The full $540 tax offset can be claimed for contributions to the super fund of a spouse earning less than $37,000 or less. The offset is phased out by the time a spouse’s income hits $40,000. A rebate is at least twice as valuable as a deduction because it comes off the tax payable.
Work-related education is one of the best ways to make you more employable. But for expenses totalling more than $250 to be tax deductions, the education must improve your specific skills or knowledge required for your current job, or likely result in higher pay in your current gig. Kosher expenses paid in advance can go into the mix for 2017-18.
So you’re a gardener, and you need to read Better Homes and Gardens magazine to keep up with the latest design trends? Paying a year’s subscription in advance before June 30 could well give you an immediate tax deduction as a book, periodical or digital information used to earn assessable income.
There is no time better than now to donate to your favourite registered charity. Donations of more than $2 by next Saturday night are tax-deductible for the 2017-18 financial year. Make sure the donation is paid out of your bank account by next week. And check the charity is kosher here.
Clear Out Rubbish
It’s worth looking around to see if you’ve made some loss-making investments if you’ve sold other investments at a loss this financial year. Those dud shares you bought ten years ago for triple what they’re worth now could be used to offset the capital gains made by your share fund in 2017-18. But to claim the duds as an offset against your capital gains tax potential bill, you have to sell them by next Friday.
Unlike other forms of life insurance, premiums paid for income protection insurance are usually tax-deductible. Premiums paid in advance over the next six days can generally be an income tax deduction for 2017-18.
You can claim tax deductions for occupation-specific clothing, protective clothing and clearly-marked work uniforms. Clothing updates and upgrades bought before next Friday are generally claimable as tax deductions for 2017-18, as are the expenses of cleaning these threads. The tax office is quite strict about its definition of uniforms.
Union and professional association fees are generally fully tax-deductible in the financial year they’re paid. Paying a year’s dues in advance will get you the benefits of the deduction sooner rather than later.
Home Work Help
But it can give you some good tax deductions. You need that USB or hard-drive to lug stuff to and from work? Upgrade before June 30 to possibly claim a deduction. Like most bills, expenses for tech gear and home internet can only be claimed to the extent they’re incurred for work.
We often forget the desk, office and computer gear we keep at home is all too often used for work rather than play. Depending on how much work you do from home, you may be able to claim deductions for equipment, phone calls, heating, cool, lighting and cleaning. Equipment costing up to $300 may be immediately deductible.
People who use the log-book method to claim and apportion vehicle expenses can get a bit ahead this week by bringing forward repairs and maintenance. A $1000 service carried out on Friday can be claimed as a tax deduction for 2017-18, whereas a service on Monday week will have to wait for the 2018-19 tax return.
Small business can get a tax deduction this financial year by prepaying up to 12 month’s worth of deductible expense such as lease payments, insurance, rent, advertising and maintenance contracts.
Buying something a few weeks early than planned to get a tax deduction only makes sense if you can afford it. Cash flow is king in business. “If you’re going to purchase it anyway and you move it from July to June, that’s great,” said RSM manager Kym Carmody.
Prepaying interest on investment loans can bring their deduction into the current financial year, assuming you have the investment-related income to offset that against. The maximum interest prepayment is generally 12 months. This is a popular tax planning strategy for people with investment properties.
Landlords facing big tax bills can benefit from some end of financial year spending. You can immediately claim deductions for what the tax office calls repairs and maintenances, which includes things like replacing windows damaged in a storm or painting the joint. Don’t get too carried away because expenses not related to wear and tear tough to claim immediately.
When it comes to tax deductions, things like gardening, pest control, insurance, council rates, body corporate fees and charges, cleaning and agent costs are less complex. Yet accounting software group MYOB says these are areas that people with rental properties often forget to claim.
Know The Step
Pauline Hanson might not understand it, but working Australians should never forget we have a progressive tax system. No tax is payable on your first $18,200 of income. If you earn $88,000 a year, only $1000 of your income will be taxed at the rate of 37¢ in the dollar plus a 2 per cent Medicare levy. The income between $37,001 and $87,000 will be taxed at 32.5¢ in the dollar plus Medicare levy.
The progressive nature of the scheme means that the more you earn, the more a deduction is worth. Deductions of $1000 or someone earning $90,000 will save them $390 in tax and Medicare levy – giving the item a net cost of $610. At the same time, the same deductions will save just $345 tax for someone otherwise earning $40,000. Someone earning just under $37,000 will save around $210 in tax and be $790 out of pocket. Someone below the tax-free threshold will be $1000 out of pocket.
Keep your documents in check.
Have the summaries of your rental income and expenses all prepared, including all bank statements and loan documents. This way, everything is ready to lodge, rather than having to source everything in a rush.
Your Property Management team should help make this easy for you.
Order and pay for a tax depreciation report
A quantity surveyor can produce a depreciation schedule to allow you to claim the maximum depreciation. You can claim the surveyor’s fee too.
Your Property Manager can also help arrange this for you.
Inspect your existing property before year-end and claim the travel expenses
Remember that all the travel costs you incur to inspect your commercial investment property are tax-deductible (this is not for residential properties, unfortunately).
Take note of any repairs.
It’s possible to claim a certain percentage of repair and maintenance expenses after one year of owning the property. Check-in with your Property team to ensure these are all recorded.
Be mindful of your interest expenses.
Interest expenses from your mortgage are the only ones that are tax-deductible.
If your account was used for both your property investment and for personal use, you must identify which interest payments are for which.
Prepay non-capital expenses
Prepaying expenses such as insurance and interest costs can provide you with an immediate tax deduction, especially if you’re on the verge of being included in a higher tax bracket.
Manage capital gains effectively.
If you are thinking of selling your property, be aware of the date on the sale contract. The date of the contract (not the date of settlement) determines the timing of the capital gains tax event. You may be able to defer the taxing point of your capital gains for another 12 months.
Manage capital losses properly.
Capital losses earned in any year can be carried forward to indefinite periods if your capital gains can’t absorb them in the same year.
Which of these tips are you going to implement? You’ll notice that most of these tips involve having a good Property Management team right by your side.
Points To Remember
- Payment summaries (now called income statements): These outline the income you have received from your employer, super fund or government payments such as from Centrelink or the Department of Veterans Affairs.
- Bank statements: Details of any interest you have earned during the period and fees you have paid. § Shares, unit trusts or managed fund statements: Information on dividends or distributions you’ve received (dividends that you’ve elected to reinvest must be declared as income).
- Buy and sell investment statements: Needed to calculate capital gains and losses. If you bought or sold any shares, you can access the details on your online broking account, or you can get them from your investment adviser or stockbroker.
- Records from your rental property: If you use a property manager, you will probably get an annual tax statement that details income and expenses. Otherwise, you will need to gather details of income received, and expenses paid, including any capital gains or capital losses from the sale of the property.
- Foreign income: Details of foreign pensions or other foreign income.
- Private health insurance policy statement: Needed to complete the private health insurance section of your tax return (could be pre-filled this year).
- Income that must be declared.
The taxability of some forms of income may seem obvious, but in keeping with our objective of being thorough, here is a list of common types of income that must be declared on your tax return. (This remains the case even if the amount of income has been affected by the COVID-19 crisis.)
- Employment income (including JobKeeper payments)
- Super pensions, annuities and government payments
- Investment income (including interest, dividends, rent and capital gains)
- Business, partnership, and trust income
- Foreign income
- Income from crowdfunding (for example donations received for a venture in which you intend to make a profit)
- Income from the sharing economy (for example Airtasker, Uber or Airbnb)
- Other income, including compensation and insurance payments, discounted shares under employee share schemes, some prizes and awards
- JobSeeker or other relevant welfare payments.
When completing your tax return, you’re entitled to claim deductions for some expenses, most of which should be directly related to earning your income (called “work-related expenses”). Naturally, a deduction reduces your taxable income and means you pay less tax.
To claim a deduction for work-related expenses:
- you must have spent the money yourself and not been reimbursed
- it must be directly related to earning your assessable income
- you should have a record to substantiate your claim.
When your expenses meet these criteria, here’s a list of the things you may be able to claim.
- Vehicle and travel expenses: This does not normally include the cost of travel between work and home, but if you use your car for work or work in different locations then you may be able to claim a deduction.
- Clothing, laundry and dry-cleaning expenses: To legitimately claim the cost of a uniform, it needs to be unique and distinctive. This year, face masks and gloves for COVID-19 protection may be deductible, but only if related to earning income.
- Gifts and donations: Only claim for contributions to organisations that are endorsed by the ATO as “deductible gift recipients”.
- Home office expenses: Costs could include your computer, phone or other electronic device and running costs such as an internet service. There may be scope for depreciation, and you can only claim the proportion of expenses that relate to work, not private use. There is also an alternative “80 cents per hour” method that can be used for claiming expenses if you worked from home during the COVID-19 lockdown (only from March 1).
- Interest, dividend and other investment income deductions: Examples include interest, account fees, investing magazines and subscriptions, internet access, depreciation on your computer.
- Self-education expenses: Providing the study relates to your current job; you may be able to claim expenses like course fees, student union fees, textbooks, stationery, internet, home office.
- Expenses, professional journals and some travel.
- Tools and other equipment: If you buy tools or equipment to help earn your income, you can claim a deduction for some or all of the cost. The type of deduction you claim depends on the cost of the asset. For items that don’t form part of a set and cost $300 or less, or form part of a set that together cost $300 or less, you can claim an immediate deduction for their cost. For items that cost more than $300, or that form part of a set that together cost more than $300, you can claim a deduction for their decline in value.
- Other deductions: Other items you can claim include union fees, the cost of managing your tax affairs, income protection insurance (but not if it’s through your super fund), overtime meals, super personal contributions (that is, after-tax) and other expenses incurred in the course of earning an income.
Of course, check with TNR for more ideas.
Sometimes one’s circumstances will define what can and generally cannot be claimed as a deduction, so even if some of the above seem to fit your situation, it may pay to check with TNR first.
Off The Deduction Menu
The ATO is focused on helping taxpayers get their deductions right, but it’s also on the lookout for red flags that identify people who are doing the wrong thing. Here’s a list of deductions you usually can’t claim on your tax return.
- Travel between home and work, which is generally considered private travel.
- Car expenses, unless you are transporting bulky tools or equipment that you need to do your job, and that your employer requires you to transport (and there is no secure area to store the equipment at work).
- Car expenses that have been salary sacrificed.
- Meal expenses, unless you were required to work away from home overnight.
- Private travel, including any personal travel portion of work-related travel.
- Everyday clothes you bought to wear to work (for example, a suit or black pants), even if your employer requires you to wear them.
- Self-education expenses where there is no direct connection to your current employment.
- Phone or internet expenses that relate to private use.
For property investors, it’s important to be able to assess your financial position and how your properties performed so you can make smart decisions, especially around tax.
At the end of the day, as a sole trader or freelancer, your tax return is going to be pretty unique to your job and situation.