As we head towards tax season, you may have started pondering your final tax bill already. Will you receive a nice refund, or get slugged with an ugly amount-owing notice?
The good news is that it isn’t too late to improve your standing with the ATO. Here are some eleventh-hour ideas you can employ from now until the end of June to maximise the deductions you can claim on your personal income tax – not to mention minimise the likelihood of owing money to the tax office.
Claim work-related deductions
Claiming all work-related deduction entitlements may save considerable tax. Typical work-related expenses include employment-related telephone, mobile phone, internet usage, computer repairs, union fees and professional subscriptions.
Note that the Australian Taxation Office (ATO) will again check claims made in real time. Claim only what you are legally entitled to and be sure to have all necessary receipts or credit card statements to support them.
Claim work from home expenses
When part of your home has been set aside primarily or exclusively for the purpose of work, a home office deduction may be allowable. Typical home office costs include heating, cooling, lighting and even office equipment depreciation.
To claim the deduction, you must have kept a diary of the hours you worked at home for at least four weeks.
Claim self-education expenses
Self-education expenses can be claimed provided the study is directly related to either maintaining or improving current occupational skills or is likely to increase income from your current employment. If you obtain new qualifications in a different field through study, the expenses incurred are not tax deductible.
Typical self-education expenses include course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers, tablets and printers.
Higher Education Loan Program (HELP) repayments are not deductible. You must also disallow $250 of self-education expenses, which can include non-deductible amounts such as childcare costs.
Maximise motor vehicle deductions
If you use your motor vehicle for work-related travel, there are only two choices for how you can claim. One is cents per km and other one is logbook.
If the annual travel claim does not exceed 5000 kilometres, you can claim a deduction for your vehicle expenses on the cents-per-kilometre basis. The allowable rate for such claims changes annually, so it is important to obtain this year’s rate from the ATO or your registered tax agent. Such claims must be based on reasonable estimates.
Residential property and non-residents
The government announced that from 9 May 2017, Australia’s foreign resident capital gains tax regime will be extended to deny foreign and temporary tax residents access to the main residence exemption. Properties held prior to this date will be grandfathered until 30 June 2019.
Maximise tax offsets
Tax offsets directly reduce tax payable and can add up to a sizeable amount. Eligibility generally depends on your income, family circumstances and conditions for particular offsets.
Taxpayers should check whether they qualify for tax offsets which, among others, include the low-income tax offset, senior Australians and pensioners offset and the offset for superannuation contributions on behalf of a low-income spouse.
Bring forward deductions and delay income for higher income earners
The effective highest marginal tax rate will decrease from 49 per cent in the 2016-17 year to 47 per cent in 2017-18, given the removal of the two per cent temporary budget repair levy, which applies to individuals deriving taxable income over $180,000.
Individual taxpayers in the highest tax bracket may wish to consider delaying income into the 2017-18 year, as it would be taxed at a lower rate. Conversely, such taxpayers may consider bringing deductions forward into 2016-17, as such amounts will be deducted at the higher effective tax rate of 49 per cent.
Care should be taken to ensure any action does not breach general anti-avoidance provisions or any specific provisions that could curtail activities such as the prepayment rules.
Review salary sacrifice arrangements
Employees can consider salary sacrifice arrangements, under which their gross salary may be foregone to obtain either a packaged car for fringe benefits tax (FBT) purposes, or they can make additional superannuation contributions.
A 20 per cent flat rate applies when calculating a motor vehicle fringe benefit under the statutory formula method, regardless of how many kilometres it annually travels. However, there may still be some tax savings in packaging a car under these rules compared to the cost of funding all operating expenses from your net salary.
In addition, under these rules employees who predominantly use a car for work-related travel may be able to obtain tax savings by calculating the FBT paid on the car under the operating cost method, rather than funding their car expenses from after-tax salary.
Other Claimable Deductions
- Claim your depreciation for small assets that you have purchased this year for work purpose. Immediate deductions can be claimed for assets that cost under $300 to the extent the asset is used to generate income.
- You may wish to consider making the maximum allowed concessional contribution before the new reduced concessional contribution cap of $25,000 per annum commences from 1 July 2017.
For more information, please contact us at [email protected]
Disclaimer: These tips are of a general nature only. Individuals who want to maximise the claimable deductions on their personal income tax return should speak to one of our qualified tax accountant to get advice on the tax breaks relevant to their situation.