With the ATO announcing their hit list for 2013-14, it is time to do some urgent tax planning.
1. Keeping a car log book could increase your refund by thousands
If you use your car for work purposes and keep a log book for 12 weeks then the deductions can be in the thousands. Make sure that you keep all costs associated with the running of your car (such as petrol, insurance, registration, servicing and lease payments) for the whole year, not just the period that you kept the log book. Remember that the ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!
2. Claim a deduction for the costs you incur in running your home office
This is a big hit-list item of the ATO this year. More people these days are working at home, but not many are aware they can claim a deduction for costs incurred in running a home office, even if a room is not set aside solely for work purposes.
Deductions are available for the work-related portion of home telephone, internet, stationery, computer equipment and printers. Keep a diary of your time that you work from home and claim a 34 cents per hour deduction for electricity, gas and depreciation of home-based furniture.
For those that use mobile phones, look at a bill for one month to work out your ‘mobile phone log’ and apply the work-related percentage across the whole year.
With respect to internet, tablet and computer usage, take note of the time that you use them for work versus personal (especially the kids playing games or doing homework). Note that it is expected that you will have a personal usage as we become more reliant on this technology for personal and social media purposes. On investigation, the ATO would like to see proof of websites that you regularly look at for work.
3. Minimise capital gains tax (CGT) by deferring sale or offsetting losses against gains already made
The sharemarket has had a roller-coaster year in 2013-14. If you made a nice capital gain or two earlier in the year then you can reduce CGT by selling any non-performing shares that you may be holding. Any unrealised gains should be sold after July 1 to defer tax for another year. And remember that if you hold shares for more than 12 months you reduce CGT by half.
4. Build your nest egg quicker by paying 15% rather than 46.5% by salary sacrificing into super
Salary sacrificing into superannuation is one of the best, and legitimate, ways to minimise your income tax bill. You can contribute up to $25,000 per year into super ($35,000 for those aged 60 and over) which is only taxed at 15% instead of your marginal tax rate (potentially 46.5%). There are not many pay packets left to do it this tax year, so keep in mind to start putting extra away when July 1 arrives.
5. Income expected to be lower next year? Bring some 2014-15 expenses forward into this year
If you are expecting that you will have a lower income next year – due to factors such as maternity leave, redundancy, a smaller bonus or perhaps cutbacks to overtime – then why not try to bring forward your deductions into this tax year.
Stocking up your home office with stationery, laptops and printers or prepaying subscriptions and interest for up to 12 months in advance are just some of the simple ways to reduce your income before June 30.
6. Prepay private health insurance
A 29.04% rebate on private health insurance premiums gradually phases out for those who earn over $88,000 (single) or $176,000 (couple). If you are currently under these thresholds, but think you will earn above these levels in 2014-15, you can still get the rebate in full if you prepay 12 months of premiums before July 1.
7. Take advantage of the government’s free money service known as the “super co-contribution”
It is surprising how few people actually take advantage of some free money from the government. If your income is under $33,516 and you contribute $1000 post tax into super, the government will match it 50 cents in the dollar. Whilst this incentive gradually phases out above this figure at $48,516, it’s free money! Also, if you earn less than $10,800 then your spouse can put up to $3000 into your super fund and they will receive an 18% rebate ($540) on tax via the spouse super contribution rebate.
8. Buy a new business asset for under $1000 and claim it as a tax deduction this year
There have been some great tax concessions over the past few years for small businesses, with none greater than the immediate write-off available for the purchase of new business assets.
However, draft legislation is in place to reduce the threshold for this concession from $6500 to only $1000 for business assets purchased after January 1, 2014, so don’t get caught by wily retailers trying to tell you otherwise! There is no limit to the amount of assets that you can purchase under this concession.
Businesses also can no longer immediately write-off the first $5000 of any new vehicle purchased. If your business is registered for GST, then you can buy a business asset for less than $1100, claim the 10% GST credit and get an immediate write-off for the balance in this year’s tax.
9. Keep your receipts
With the ATO continuing to ramp up their audit activity yet again it is important that you keep your receipts. The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!
10. Get a great accountant
Avoid paying too much in tax or leaving yourself to a visit from the taxman. Great accountants are like surveyors – they know where the boundaries are. And their fees are tax deductible!
Dr Adrian Raftery is a senior lecturer in financial planning and superannuation at Deakin University and author of 101 Ways to Save Money on Your Tax – Legally! 2014-2015 edition.