Today marks eight weeks until the end of the financial year, and while many of us will spend the final weekend scrambling for last-minute tax deductions, a more orderly approach means you can tweak the system to maximum effect.
If 2021 was the year you finally offloaded the investment property that’s been a yoke around your neck and you made a small, or big, capital gain, then read on.
Tax deductions help to reduce taxable income and, mostly, help those still in the workforce or earning big incomes. Lower taxable income translates to a smaller tax bill and, hopefully, a bigger refund. As a general principle, you can only claim expenses that are associated with the generation of tax-assessable income. An extension to that is if the expense can reasonably be applied to private use, it can’t be claimed.
The Australian Taxation Office website has common deductions for most specific occupations. Simply type in your occupation and the words “tax deduction” in the ATO search engine and it will take you to common and acceptable deductions. Stick to the ones listed and you are unlikely to raise any eyebrows. Above all, make sure you retain proof of the expense. Even evidence of a bank transfer will suffice.
Tempo Tax and Accounting’s Elliott Brannen said one trick was to pre-pay deductible expenses for up to 12 months in advance.
“Things like power, communications, advertising and insurances could be paid in advance, but bear in mind that you might then not be able to claim them next year,” Mr Brannen said. “A compromise might be to pay some in advance and the balance claimed as normal next year.”
If you are an employee, you can ask the boss to provide some new techno-gadgets which are exempt from fringe benefits tax which, while paid by the employer, is usually factored into an employee’s total remuneration cost. “Things like laptops, tablets and smartphones are expensive items that your employer can purchase for you to use as part of your job but obviously, for private use as well,” Mr Brannen said. “These items are fully tax deductible to the employer and, in effect, could come to you tax-free.”
You could, for example, get the latest iPhone and iPad totalling $3000. If your salary was $80,000 a year, the boss buys you the gear and then your cash salary becomes $77,000, with your tax calculated on that lower figure. It’s a similar trick to salary sacrificing pre-tax income to super, and with eight weeks until June 30, there’s still time to do it.
The biggest tax impost often arises through capital gains. With Perth’s booming house prices, many property investors have elected to sell up and are now looking at increased tax debts, thanks to capital gains tax. At the same time, you might have collected a clutch of dodgy penny-dreadful shares over the years that, on paper, have dropped in value. Now might be the time to convert the paper loss into a real loss.
“The loss comes off any capital gain you might have, and it is not quarantined against that type of asset,” Mr Brannen said. “So the losses you make in the share market can be used to reduce the gains you have made in the property market.” Even if the full loss can’t be used this year, it carries forward to future years and can be used to reduce capital gains down the track.
Previously listed shares may have been delisted off the stock exchange and can’t be sold through normal channels like a stock broker.
Enter delisted.com.au.
This site offers a service where, for a modest fee, you can sell your delisted shares and realise an actual loss to minimise the gain on other assets.
The most popular tax reduction strategy is to top up your super with a concessional contribution.
Including your employer’s compulsory 9.5 per cent, you can claim a maximum of $25,000. So if the boss will have paid in $10,000 by June 30, you can make and claim up to $15,000. If you have less than $500,000 in super and didn’t make full use of the deductions in previous years, you may be able to pay in even more.