With less than three weeks to the end-of-year tax deadline, implementing a few simple tax tips can significantly improve your tax position.
Frank Brass, H&R Block Regional Director, said many taxpayers fail to act before the official end of the financial year on 30th June and miss out on many benefits from effective tax planning.
“Tax planning over the next three weeks can make a difference to someone’s overall tax position. Many taxpayers want to tune-out to the constant noise around new taxes, levies and changes to superannuation and benefits, but those who tune-in and act now can make a significant impact on their tax position,” said Mr Brass.
“There are some simple things that can be done before 1st July which can have a positive impact on your tax return. Remember, if you can push taxable income or benefits out to July, and make tax deductible payments in June, many taxpayers can make a significant impact on their tax position,” said Frank Brass.
“Taxpayers will see the impact of the first year of the tax-free threshold of $18,200 and for many taxpayers, particularly the self-employed, pre-paying deductible expenses in the next few weeks may potentially provide a significant tax advantage.
“Contributing to superannuation remains one of the better tax saving options. Many taxpayers can make additional contributions, or salary sacrifice, up to $25,000 per year into super – where it is flat taxed at 15%.
“Some taxpayers can even benefit from going to the dentist in the next few weeks. A tax rebate of 20 cents in the dollar, for every dollar spent over $2,120, for combined out-of-pocket family medical costs, can be claimed in this tax year.
“It is important that taxpayers act now on their end-of-year strategies. Simple measures like deferring income, pre-paying expenses, contributing to superannuation and getting the right method of claim for work related vehicles; can result in thousands of dollars of claimable and deductible expenses,” said Frank Brass.
H&R Block has produced a nine-point guide to assist Australian families and businesses maximise their tax positions before the new financial year ticks over.
These strategies must be completed by 30 June 2013 to be effective for your 2013 tax return.
1. Defer taxable Income.
Whilst there is no change to tax scales this year there are can be advantages to defer income if any of the following apply
To utilise this strategy of delaying income you need to check what income you are likely to receive in the last quarter of the financial year and, if appropriate, delay that income to the next financial year.
a. Important note for small businesses, such as Sole Traders and Partnerships
There would be little point in deferring this income if it pushes you into a higher tax bracket next year which would result in more overall tax being paid.
b. Important note for salary & wage earners
This is harder to do for this group, but if you are due a bonus, you may be able defer its payment.
c. Important note for Companies
Companies pay a flat rate of 30% on profits, so this does not apply.
2. Superannuation
a. Superannuation deduction for self-employed business people
You can claim 100% of the amount contributed provided
* You notify the fund of the contribution
* Receive a confirmation in writing from the trustee of the super fund
* A tax loss is not created
Concessional - (where you claim a tax deduction) $50,000
Non Concessional – (no deduction allowable) $150,000
If you are 75 or over, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned 75.
If you are under 18 at the end of the income year, you can only claim a deduction for your personal super contributions if you earned income as an employee or a business operator during the income year in which you claim the deduction.
b. Contributions on behalf of spouse
This is subject to income limit of $13,800 for the spouse. A rebate of $540 is available to those who qualify. A full rebate will apply if the assessable income, reportable superannuation contributions and reportable fringe benefits of the spouse is no more than $10,800. A reduced offset will be available provided the spouse’s income does not exceed $13,800.
c. Co-Contribution - where the government contributes as well
You will be eligible for the co-contribution if all of the following apply:
* you make a personal superannuation contribution by 30th June each year into a complying superannuation fund or Retirement Savings Account and don't claim a deduction for all of it and your total income (less any business deductions for the 2012–13) is lower than $31,920
* 10% or more of your total income is from eligible employment or carrying on a business or a combination of both
* you are less than 71 years old at the end of the year of income
* you do not hold an eligible temporary resident visa at any time during the year, unless you are a New Zealand resident or holder of a prescribed visa
* you lodge your income tax return for the relevant financial year.
How much will I receive?
The government will contribute to your superannuation fund $1 for every $1 you contribute; up to a maximum co-contribution of $500 a year but the amount will reduce by 3.333 cents for every dollar your total income is over $31,920 and cuts out fully at an income of $61,920.
3. Offset capital gains against capital losses
If you have a capital gain in this financial year, look to your other investments to see if it is worthwhile to realise a capital loss to offset the capital gain against.
4. Maximise medical expenses
If you or your family members need to have some medical work or procedure done it is worthwhile trying to consolidate them into this financial year as you are entitled to a rebate of 20c in the dollar for every dollar spent over $2,120. An income test applies, your adjusted taxable income must not exceed $150,000.
5. Income protection
If you purchase your Income protection insurance prior to 30th June you can claim it in this year’s tax return.
6. Start keeping log books and record cards to enable claims for
* Motor Vehicle - need to keep a log book for 90 days to determine claimable percentage
* Home Office - keep one month’s log
* Mobile and Home Phone - keep one month’s log
7. Accelerate deductions - important for Sole Traders and Companies
a. Carry out any repairs to equipment and premises prior to 30 June. Repairs are deductible in the year they are carried out. Improvements and additions are generally depreciated.
b. Prepay expenses where possible. Rent, accounting fees, interest expenses and subscriptions. Be careful of the different prepayment rules that apply to different classes of taxpayers.
c. Trading Stock. Good management of the trading stock will decrease your income for the year.
d. Advance purchase business consumables. A4 paper, toner cartridges, stationery items, etc.
e. Donations. Pre-payments do not apply.
f. Write off bad debts. You need ensure your bad debt qualifies to be written off.
8. Asset register
Review your asset register for any assets that are obsolete and no longer used in the business and dispose or scrap them. This will give rise to a Balancing adjustment and a deprecation claim. This is particularly important for businesses.
9. Business Owners - Other matters to consider at the end of the financial year
a. You must do a stock take of any trading stock you have as at 30th June. These should be listed with a total value calculation
b. Prepare a debtors and creditors list as at 30th June if your business uses the accruals accounting method.
c. Companies must manage the shareholder loan account
d. Plan to prepare the Pay As You Go Withholding annual statements for your staff to be issued in early July
e. Ensure all your BAS’s have been lodged for the financial year. Large penalties can apply for non-lodgement of BAS’s.
The Guide is indicative and not exhaustive. It is provided as a broad outline and individuals should seek professional advice.
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