If your intentions around this time last year were to be more organised next time with your tax return, then it’s still not too late; we’re here to help with some EOFY tips.
Even if you’re feeling on top of things, (and if you are, then good for you!) there may still be more you can do to maximise your tax savings before 30 June.
June is an opportune time to look ahead and consider whether there’s likely to be any significant change (i.e. increase or decrease) in your taxable income for the next financial year, and plan accordingly.
Looking ahead can give you a clearer idea of what deductions to claim and when – whether it’s time to buy those new work tools, a new briefcase or purchase any big ticket work items you’ve been thinking about for a while.
Claiming tax deductions
To claim any deduction, you must have incurred the cost in the process of producing assessable income (e.g. working in paid employment, not from shares or other passive income). You must have incurred the cost yourself and without reimbursement (from an employer, for example). It’s important to keep a record of all your expenses in an organised way that makes sense to you.
Deductions can vary according to industry, so double-check the deductions you’re entitled to. These may include subscriptions, educational courses, sunscreen, protective clothing and/or home office expenses – depending on your industry.
A list of claimable deductions according to industry can be found on the ATO website:
https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/occupation-and-industry-specific-guides
If you work from home – and, according to the ATO, this means more than just minimal tasks, like occasionally checking emails or taking calls – you’re eligible to claim expenses you incur as a result, such as stationery, energy and office equipment.
Working from home has become more common in recent years and changes to how and what you can claim are keeping pace. If you’re unsure, your accountant will be able to clarify what you’re eligible for.
You can also refer to the ATO website:
https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/working-from-home-expenses
Gifts and donations
Gifts and donations are an effective way to financially support the causes you believe in while also lowering your tax bill. Remember that not all gifts and donations are tax deductible, only those to organisations registered as Deductible Gift Recipients (DGRs).
To find out whether donations to your preferred charities are tax deductible, the Australian Charities and Not-for-profits Commission (ACNC) provides a list of registered DGRs on the ACNC Charity Register.
You can search for a registered charity here:
https://www.acnc.gov.au/charity/charities
Prepaying fees and expenses
If it’s likely that your taxable income is going to decrease in the next financial year (due to capital gains, retirement or change in work arrangements, for example) then consider prepaying any tax deductible expenses you’re eligible for in this financial year to take advantage of more immediate tax savings.
For example, you might choose to prepay this financial year any ongoing fees to your accountant for managing your tax affairs, and/or prepay your financial adviser for investment advice fees, as these expenses are tax deductible.
If your financial obligations include paying interest on an investment loan, a prepay option might include paying 12 month’s interest in one upfront payment (with a locked interest rate for the year ahead) to reduce your immediate taxable income.
This strategy can protect you from potential future interest rate rises in the following financial year, free up cashflow and help reduce your taxable income if you’re expecting your income to be lower from 1 July onwards.
If you decide on this strategy, talk with your lender early on to avoid any confusion or potential errors – make sure they’re clear that prepayment is for the interest portion of the loan, and not a payment to reduce the principal amount of the loan, which is not a tax-deductible expense.
Your end of financial year focus may feel like it’s about tax preparation and paperwork, but it’s also good to remember one thing: Tax time is an opportunity – to reflect on how you manage your tax obligations and have a solid look at your financial strategy and be better set for the year(s) ahead.
It’s never too late to plan for your future.
If you need help, we’re here. Call us at Align Financial on (02) 9913 9995.
