Tax might be a necessary evil, but one of the positives as this financial year closes is that if you play your cards right, some money might just be going back into your pocket.
To reduce your tax liability, knowing how to navigate the murky waters of tax returns is crucial, so as 2014-15 comes to its accounting conclusion, Neos Kosmos shares some professional advice on what to look out for.
Leo Athanasakis, managing director at K & A Accountants, and Helena Kaias, senior accountant at Kaias Phillips give a few expert tips on claiming what you’re entitled to.
Leo Athanasakis (LA): You should always take advantage of prepayments for tax (such as interest prepayment up to 12 months on investment loan).
It’s very popular with high-income-earning property investors who want to maximise the negative gearing.
Helena Kaias (HK): One of the main ones might be interest on your home loans. Many people sometimes mix their loans, so they might take out $20,000 for personal use like a holiday, and that’s when it can get messy and that’s where they should get advice.
So the interest on that whole loan is suddenly not all tax deductible because it’s now a mixed loan. Look at the difference between repairs and improvements.
Repairs are fully deductible where as improvements of the property have to be depreciated depending on what it is. Travel to and from the property to collect rent or do repairs, or to inspect the property can all be claimed.
Small business owners
LA: Immediate write of up to $20,000 per item is a huge tax winner and saver for small business owners with a turnover of less than $2 million.
People should be taking advantage of this before the end of the financial year.
Tax Planning before the end of the financial year is the key ingredient to maximising returns and minimising tax, in particular for small business
HK: It’s probably best to see an accountant before June 30 It’s a good idea to do some tax planning and budgeting before June 30 hist, because if something happens before that, that they weren’t aware of, they can actually do it or pay it before it gets included in their current return, rather than having to wait another 12 months. Monitoring your business, what structure you use and your cashflow is important. As your business grows, your structure might not be relevant or as tax effective. There is a measure in the budget that might come out that will actually give even more tax deductions for businesses that change into partnerships or trusts, if your business is growing.
LA: Due to the complexity in preparing a return it’s recommended people use a professional to lodge their returns. This will assist maximising legitimate claims to any refunds and minimising their existing tax payable position.
HK:The ATO’s mytax and e-tax software can be used. If you have nothing to claim, don’t have any investments, and you’re pretty confident you don’t have any deductions to claim, it can be easier to just use the software they provide, because the ATO pre-fills information already. HECS is an important aspect young people need to look at. If they’re working part time and studying, there could be self education claims depending on what work and study they’re doing.
LA: There are some tax offsets that you won’t be able to use this financial year. The Mature Age workers Tax Offset (MAWTO) and the Dependent Spouse Tax Offset have been abolished.
HK: Investments under the kids names:
You’ve got to be careful of that these days, because any income earned by minors under 18 (assuming that it’s not income that they’ve earned themselves like at a part time job, they are taxed at the highest rate possible. So if you’ve got money sitting in a savings account ready for when your kids turn 18, and the interest on that account is more than $416 per year, you need to do a tax return and pay a high tax rate on it.
Sometimes it’s better to put an investment fund for your kids and keep the money under your own name. So you pay tax on it, but you give it to them which ends up being more tax effective.
Look at your combined family income for private health insurance. If you’re over the combined family income bracket you’ll be charged a medicare levy surcharge.
To be exempt from the surcharge, you have to have private health insurance, but If you’ve got kids, it has to be family cover. So it can’t be two single covers, you’ll be charged a surcharge because your kids weren’t covered.
Supply your agent with complete documents, otherwise your agent’s fees will increase.
Ensure you’ve included any interest from bank accounts and other investments you have (sometimes statements aren’t sent out to you until August September)
The ATO will data match your claims: Be sure to have proof for everything you claim. You don’t want to incur fines if your return is chosen by the ATO to be audited.