The end of the financial year is fast approaching. By being organised and prepared you can give yourself the best opportunity to minimise the tax you need to pay and increase your chance of a refund this year.
Forward planning is really the key when it comes to strategies to help you minimise the tax you need to pay each year. Time is running out for this current financial year, but the below strategies can help you over the next 30 days to put yourself in the best tax position come June 30.
- Contribute to Super
If you contribute to your Super before June 30 you may be able to get a deduction, tax offset or even a cash payment into your Super from the Government. Here are three Super contributions you could consider this financial year (FY):
- Concessional Contribution – these are the contributions made into your Super by your employer each year. They are tax deductible contributions and there is a cap on these contributions of $25,000 per annum. If your employer hasn’t contributed $25,000 this financial year into your Super, you can contribute the difference between the cap and what your employer has contributed and claim a tax deduction for this contribution.
- For example – if your employer has contributed $10,000 this financial year, you have the ability to contribute $15,000 before June 30 and claim a deduction on this amount (which will reduce your taxable income for the year)
- Government Co Contribution – If you earn less than $53,564 per annum and you make an after tax contribution to your Super fund of up to $1,000, you may be entitled to a Super contribution payment from the government (free cash) of up to $500.
- Spouse Contribution – if your spouse is earning under $37,000 and you make a contribution into their Super account you may be entitled to a tax offset (reduction in tax payable) of up to $540 for the financial year that the contribution is made.
- Prepay deductible expenses
There are some expenses that you have that are tax deductible and help reduce the tax you need to pay each year. The two big ones that we talk about quite often with clients are:
- Income protection insurance premiums
- Investment property interest repayments
Both of these expenses are 100% tax deductible and both can be prepaid before the end of the financial year. To do this you will need to speak to the provider you have your policy/loan with, to understand what is involved and how this can be done.
The benefit of this strategy is that by prepaying the next 12 months of premium/interest repayments before the end of the financial year, It means that you can claim a deduction for these expenses in the current financial year, rather than waiting until the end of the next FY to claim these expenses as a deduction.
For example if you have an income protection policy that costs you $2,500/annum in this prepayment example you could prepay the 2020/21 FY premium payments before the end of June 2020. Meaning that when you do your tax for the 2019/20 FY you can claim a deduction for your income protection premiums of $5,000 – $2,500 for the 19/20 FY and $2,500 for the 20/21 FY (premium payment made in advance).
This prepayment strategy can be useful in a tax year where you are likely to have more tax to pay than usual or if you have come into some money and you are looking at ways to reduce your tax.
- Get Covid-19 tax ready
The world was changed forever in early 2020 following the spread of the Coronavirus from Wuhan in China to the rest of the world. It led to the shut down of countries, economies and businesses around the world. Due to these shut downs most workers have had to make adjustments to how they work, with the majority of people required to work from home.
Because of this, there may be some additional deductions that can be claimed this financial year that may not have been relevant in previous financial year’s. To claim a deduction for working from home, the ATO has stated that all of the below must apply:
- You must have spent the money (not your employer)
- The expense must be directly related to earning an income
- You must have a record to prove it
From an expense point of view, the expenses that you can look to claim at tax time include:
- Electricity associated with heating, lighting and cooling the area in which you are working
- Cleaning costs for a dedicated work area
- Phone and internet expenses
- Computer consumables e.g. paper, printer cartridges and stationary
- Home office equipment including computers, printers, phones, furniture
- Full cost of item up to $300
- Decline in value for items up to $300
There are a number of different ways in which you can calculate what deductions you can claim on the above expenses. The ATO has also introduced a temporary shortcut method from 1 March to 30 June 2020 where you can claim a fixed hourly rate on these expenses with minimal record keeping requirements. Please speak to your Accountant about these different options and they will be able to help you determine which one will give you the biggest tax benefit.
The most important thing to remember when looking to claim a deduction on the above work from home expenses is that you will need to have proof to support these claims. This proof will need to include a record of the number of hours you worked from home during Covid-19. As well as a record of these expenses – ideally in the form of statements and receipts for all of the expenses outlined above.
We hope that the three tips outlined above have been useful and have given you some practical options to consider before the end of financial year. These strategies if implemented can help you to reduce the tax that you need to pay this financial year.
Ryan Porter is a Wealth Coach at Catalyst Wealth Group. His mission is to help his clients achieve financial success and live their ideal life.
Disclaimer: Any advice or information in this publication is of a general nature only and has not taken into account your personal circumstances, needs or objectives. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your objectives, financial situation or needs.