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Tax Savings For the Taking

Tax Savings For the Taking

This is the time of year when everyone starts thinking about how they might minimise their tax liability. 

Here are a few tips you can take to help lower your personal tax:

  • Claim the cost of working from home – If you work from home occasionally, keep a log of the hours you spent there in order to qualify for the 67 cent per hour shortcut rate. 
  • Costs related to your employment – In general, you can claim these expenses as long as you have the necessary documentation, such as receipts, if you paid for anything relevant to your job that wasn’t reimbursed by your employer, such as meals when you were away from home overnight. 
  • Donations lower your tax – Before June 30th, think about making a larger-than-usual donation to a deductible gift recipient (DGR) charity if you anticipate paying a significant amount of taxes this year due to gains you have achieved. 
  • Superannuation Cap – A deduction of up to $27,500 can be claimed annually (provided you haven’t reached your transfer balance cap) for personal super contributions made from after-tax income. With your super fund, you must file a notice of intent to claim. The best tactics are listed below. 
  • Pay in advance – While paying deductible expenses in advance won’t save you money, you can pay some of them by June 30th and deduct them from this year’s taxes if you need to lower your tax payment.
  • preparing for a job – Self-education costs that are directly relevant to your line of employment are frequently tax deductible, albeit there are restrictions. Therefore, you may be able to deduct the cost of the course as well as some other relevant expenses if you have been attending short courses to advance your skills. 

Please be advised that study expenses for starting a new business or finding new employment are not covered. The study must be relevant to how you now make money. 

  • Creating and overseeing your portfolio – Interest, stock dividends, and other investment income are typically tax deductible. This covers account fees for investment accounts, interest on loans for investments that generate income, the cost of investment seminars if they are directly related to investments you have already made (and do not intend to make), fees for investment advice relating to already-existing investments, ongoing investment management fees, and specialised journals and subscriptions relating to your investments. 

Although they are occasionally deductible, brokerage costs, an initial investment plan, transaction fees, etc.

Individual Tax Targets:

Targets for this tax season include: 

  • Rental property revenue and costs
  • Earnings and ‘gifts’ from the creation of online material (OnlyFans, YouTube, TikTok, etc.)
  • Gains in cryptocurrencies
  • Gig economy workers who do not disclose their income
  • Unreported foreign income
  • Work-related expenses are always overstated, along with work-related expenses incurred while working from home.

The ATO is increasingly likely to catch you if you fail to report gains from the sale of assets, platform revenue, or cryptocurrency transactions due to the increasing sophistication of datamatching programmes. 

Any legitimate expenses can be subtracted from your taxable income. A tax-deductible expenditure is one that has a reasonable relationship to the production of the taxpayer’s income. 

The ATO is more likely to scrutinise your expenditure claims if you are making unusually large claims, claiming the same amount or goods every year (cut and paste claims), or claiming sums that are significantly higher than the typical for your industry.

Staying out of penalties

If you under report your income on your tax return, the ATO may assess a penalty. Penalties begin at 25% of the tax liability owed and rise precipitously for those who were either careless (50% of the tax owed) or dishonest (75% of the tax owed). 

The punishment base can then be increased by 20% if they are extremely dissatisfied with you. Even if there is no deficit, you may still incur fines if you act carelessly, recklessly, or wilfully neglect your responsibilities. Tax is still payable even if you don’t lodge your return, and you could face penalties of up to 75% of the tax liability if the ATO takes a stance on what they feel you owe.

Salary, wages, director or consulting fees, some allowances, bonuses, commissions, interest, pensions, rental and other investment income, and if you are a content creator, gifts and other income are all subject to taxation if you are an Australian resident for tax purposes (and not classified as a temporary resident). 

If you have earned money from outside of Australia and have already paid tax on it in your home country, you may be able to deduct some or all of that tax from your Australian tax payment.

If you choose to disregard the ATO’s warnings about their tax season targets, they are less likely to treat any omission as honest mistakes. 

Properly managing rental properties

You can deduct the costs associated with owning an investment property that generates income. These costs can be deducted in two ways: immediately and gradually.

Interest on loans, council rates, maintenance and repairs, and depreciating assets costing $300 or less may be deducted in the tax year in which they were paid. Depreciation also occurs over time for things like fences, retaining walls, and ovens that are part of a larger project.

The ATO is focusing heavily on rental properties this financial year.

Include any rental revenue (including Airbnb, room rentals, insurance proceeds, and the sale of rental bonds) on your tax return.

  • Rental revenue – Include all rental income on your tax return, including short-term rentals, room rentals, insurance payouts, and rental bonds maintained.
  • Rental expenses – Rental expenses can only be claimed for the time the property was actually available for rent or was actually rented during that time. You cannot deduct the cost of the expenses incurred during this time if, for instance, you did not rent out the property while making renovations. 

Even though a property is advertised as being available for rent, the ATO will occasionally claim that it is not really available. This may be pertinent for homes in areas with very little demand during particular times of the year.

  • Interest and redraws – Your ability to deduct interest will be affected if you refinance or redraw on your loan for a rental property to pay for personal costs like vacations or a car.
  • Asset sales – If you received revenue from renting out a residential property (a room or the entire home), you probably have to pay capital gains tax on any profit you made. 

However, you might be able to request a complete or partial exemption from CGT if the property served as your primary residence for a while. If the property has only ever been used as your primary dwelling, it may be required to acquire a value of the property when it is first used to generate revenue.

For more information on personal tax, send an inquiry to the Bates Cosgrave team.