By Tenika Kirkwood
It is almost that time of year again – the time when you will be digging around trying to find receipts for everything you have purchased during the year in an attempt to save a dollar or two from your tax bill. To put you at ease and save you time and money, we have provided some basic tips and tricks for completing your tax which could help minimise your tax bill.
Firstly, it is important to understand what makes up your ‘assessable’ income. The following are the most common types of income that you may have received:
- The income you earn from your day-to-day work (which is usually the biggest part of your income).
- Rental income from an investment property.
- Income you have earned from Centrelink or the pension.
- Interest earned on bank accounts (Yes those amounts no matter how little, are all included). (Usually your bank statement ending 30 June will have the total calculated for you!)
To help you on the right track, we have also outlined a number of basics when it comes to claiming tax deductions:
- You are allowed to claim deductions for expenses if they relate directly to the income you have earned. For example union fees, travel expenses and subscriptions/memberships.
- If you have a rental property, these expenses are also deductible, including the interest you have paid on the bank loan.
- If you paid an accountant to get your tax done in the previous year, this amount is deductible and is an easy way of reducing your tax bill.
- If an expense is both private and work-related, the expense can be proportioned. (However, a common pitfall is trying to claim private expenses or expenses for which you have been reimbursed. These are not deductible!)
After you have totalled your income, you can subtract your eligible deductions and you are left with your ‘taxable’ or ‘assessable’ income. This is the amount that you pay tax on. Any tax withheld from your income (usually by your employer) would reduce the payable amount, or possibly create a refund depending upon your eligible deductions.
So in order to reduce your tax bill (the amount of tax payable), we have some great tips! Firstly, for any charities or organisations that you make donations of $2 or more to, these can all be claimed as a deduction. However, you must ensure that the charity/organisation has a status of ‘deductible gift recipients’ – a great way to check is by reading your receipt or checking online.
Another tax saving strategy by way of a deduction is claiming the cost of your income protection insurance. The trick here is that you are not allowed to claim a deduction for life insurance, trauma or critical care premiums – it must purely relate to income protection.
Becoming one of the more popular ways to save money on tax is by salary sacrificing. This is when you place some of your income towards a particular benefit, before tax is calculated on your regular income. For example, you may salary sacrifice a vehicle, with the vehicle leasing cost being deducted from your income before tax is taken out. This option is generally more suited to medium to high income earners.
I know it is easier said than done, but if you can defer your income and prepay your expenses; this is a great way to save money on your tax in the current financial year.
Finally, private health insurance would have to be one of most debated topics. For some it can be expensive and not warranted, whilst for others, it is a great way to reduce their tax bill. This is because someone who has private health insurance, is exempt from paying the Medicare Levy Surcharge that is otherwise mandatory at a rate of 2%.
We hope that you have found our tax saving tips useful! If you have any questions on what deductions may be relevant to your particular circumstances, or wish to have your tax return completed by an accountant, please feel free to contact our office on (07) 4638 1155 to make an appointment. Don’t forget – the cost of having your tax completed by an accountant this year will be deductible next year in your 2016 tax return!