The Happy EOFYS adds have started on tv and in the newspapers, so you know we must be only a few weeks until the end of the financial year. But, you’re an individual Pay As You Go salary earner, so nothing to see here – right? Wrong! While it’s true that most of these adds are targeted to the business owner, as a wage earner, there may still a few things you can do before 30 June to reduce your tax.
The first is to make a tax deductible deduction into your Super Fund. It used to be that if you were a wage and salary earner you couldn’t make a personal contribution into super. It could only be done through salary sacrifice arrangements. Well this has changed. You can now make your own personal contribution into superannuation and claim a tax deduction. There are a few rules (aren’t there always when tax is involved!).
First and most important, is that you must not exceed the contributions cap – for the 2018/19 financial year, this is $25,000. This includes the superannuation guarantee payments that your employer has already paid on your behalf (it pays to check with your payroll department).
Secondly, you must advise your super fund that you intend to claim a tax deduction. Usually this is done on a form provided by your fund.
A trick to watch is the cut off dates for your fund. In order to claim, the super fund must have received and processed your contribution prior to 30 June. All funds have different cut off dates, so it pays to check you fund website or give them a call to check when the money must be received by.
Next, you could consider giving some money away! Don’t panic – I mean give a donation to a registered charity. It’s a win/win – you feel great and your favourite charity can continue to do their good work. Sponsor your fellow worker on their Coastrek journey, support the CEO in the Vinnies’ CEO sleep out – all great causes and all tax deductible.
The next tip is to manage the timing of your tax deductions. For example, if you have a subscription that’s due in July, consider prepaying it. You get the deduction in the current financial year rather than waiting until next year. This applies to all payments – other suggestions are union fees, stationery supplies, professional associations etc.
If you have an investment property, think about pre paying expenses such as interest, rates etc. This brings forward the deduction, so it’s especially relevant if you expect your income to fall in the next financial year, you get the benefit now and will get greater benefit while your marginal tax rate is higher.
If you have a mortgage and some savings in a separate account earning interest, consider an offset account. You get a benefit of paying less interest on your mortgage and don’t have any interest income to declare. The earlier in the financial year that you do this, the more you will save.
Did you sell investments during the year and make a capital loss? Be sure to review all your investments and take the opportunity to realise losses to reduce any gains. Alternatively, think about selling until after 30 June. But remember for capital gains tax purposes the sale is considered to have occurred when contracts are exchanged, not when settlement happens.
Overwhelmingly my biggest tip is to keep good records. The more receipts you have kept, the more you are able to claim. Keep them in one place so that you don’t forget or lose them – think about taking a photo or using the ATO’s free App or email them to yourself. Some retailers will offer to send a text or email receipt – take advantage of the service. Be sure to record all business trips in your car when they actually occur so that they don’t get forgotten. Keep a diary of when you work from home. All these little things add up by the end of the financial year.
Don’t forget the most important part of tax planning: Always consider your personal circumstances. Just because an option saves you tax, doesn’t mean it should be done. Your starting point should be: this is something I want/need. After all, a tax deduction doesn’t mean you get all the money back, it’s a saving in tax. The amount you will save depends on your marginal tax rate – the higher your marginal tax rate, the more you save. And if you don’t pay any tax, you won’t get anything back!
Finally, remember the three golden rules of claiming a deduction:
- You must have spent the money yourself (and weren’t reimbursed by your employer)
- The amount must relate directly to earning your income and isn’t private or domestic.
- You have a record to prove it.
Need some help to reduce your tax leading up to 30 June? I offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!