The end-of-financial-year period isn’t really a time most people relish, but it does offer an excellent opportunity to review your finances and possibly free up funds for more important and enjoyable pursuits.
Below we’ll show you, in five easy steps, how to streamline the income tax return process and possibly free up funds for the more important things in this great Australian life.
Step 1: Learn what you can and can’t claim
Many people don’t take the time to understand what they can and cannot claim as a tax deduction.
If you’re guilty of simply sliding a box full of receipts across your tax agent’s desk, now’s an important time to learn, especially as the ATO announced they’ll be cracking down on ‘other work-related deductions’ this year.i
That said, you don’t want to miss out on any work-related deductions that you’re legally entitled to claim.
So when you sit down with your registered tax agent to discuss your tax return, take the time to learn exactly what you can and cannot claim.
Step 2: Stop mixing business with pleasure
One of the reasons many people find tax time painful can be put down to the ‘work related expenses’ scavenger hunt we’re forced to undergo.
That’s because too many people get paid into a bank account, linked directly to a debit card, and then start spending without a plan.
However, this creates the risk that your work-related expenses and personal transactions will become all mixed up.
Establishing a work-expenses bank account that’s separate from your personal bank account can be a quick and cost-effective way of helping to identify your work-related expenses for your next tax return. Remember you need to have written evidence that you spent the money, what you spent it on, who the supplier was and when the purchase occurred and that the expense had a direct connection with deriving your assessable income. Bank or credit card statements usually won’t contain all the information you need to keep on record so read Step 3.
Step 3: Use apps to make life easier
Why keep track of all your expenses if you can download an app to do so for you?
The ATO’s myDeductions app helps you save and store accurate information about your deductions throughout the income year – ensuring no expenses slip between the cracks.ii
The information can then be provided directly to your tax agent, or uploaded directly to myTax, which you can access through myGov.iii
Step 4: Salary sacrificing
Once you’ve gone through the process of identifying and collating the written evidence for work-related deductions, refer to ASIC’s MoneySmart website to see if there are any expenses on the list that your employer might consider allowing you to salary sacrifice.iv
As stated on ASIC’s MoneySmart website, salary sacrificing is generally a tax-effective option.v
It helps you save on tax by allowing you to forego your salary in return for non-cash benefits. In doing so it reduces your taxable income, and thus, reduces the amount of income tax you pay.
Expenses and items that can typically be salary sacrificed include laptops and computers, car parking, childcare, superannuation contributions and some insurance premiums. Fringe benefits tax may apply to certain expenses and items and if it applies you should check whether your employer will pass the cost of that tax onto you.
Step 5: Protect your family’s way of life
One way to set yourself up for the year – and an important way to use the extra tax funds you’ve freed up in the previous steps – is to invest in the right type of protection for you and your family.
As we explained in the previous step, salary sacrificing is one strategy to save on life insurance.
But even if your employer doesn’t offer salary sacrificing, you may be able to claim tax deductions for income protection insurance premiums.
Income protection premiums for insuring against loss of your income should generally be tax deductible.
~ Please note that Australian tax law is complex and varies depending on your individual circumstances, so to make informed decisions always seek tax advice from a registered tax advisor.