When you got your group certificate for the last financial year there is a number in the “Total Tax Withheld” box, and for some this dreaded number is in the 10 of thousands. But, it doesn’t have to be so high as there are many different, and yes legal, ways to reduce this figure, as Kerry Packer stated;
“I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn’t minimize their tax they want their heads read, because as a government I can tell you you’re not spending it that well that we should be donating extra.”
Here are some tax minimisation tips.
- Keep Good Tax Records (I promise you it’s not that hard!)
Claiming deductions is one of the easiest ways to reduce your tax. If you have spent money during the year that relates to your income then you can claim it, even if it is part personal and part work, keep the receipts.
To claim Tax deductions, you need to have a receipt to prove the purchase to the ATO. It’s the law and good record keeping ensure you get the best possible tax deduction, and makes doing your tax a lot easier.
It’s not hard, it just take 5 minutes every week to put the receipts into a file or scan into your computer. Even better there are now some great smart phone apps around where you just take a photo of the receipt and store it – can’t get easier than that!
If you are not sure if you can claim an item, still include the receipt with the documents you give to your accountant when doing your tax return. It’s better to get professional advice on an item than throw the receipt away and then finding out that you could have claimed it!
- By helping others you also help yourself
Every donation you make to a registered charity over $2 is tax deductible. So do make sure you get a receipt every time and do include them the documents you give to your accountant.
You accountant will use the total sum of your donations for the year and deduct that amount from your taxable income, meaning you will get a percentage of the donations back. So by helping others you also help yourself to reduce your tax.
- Avoiding the Medicare Levy Surcharge
If your income is over $90,000 for a single or $180,000 for a family and you do not have private health cover you will be required to pay the Medicare Levy Surcharge, which is a minimum of 1% of your gross income on top of the compulsory 2.0% Medicare levy paid by most Australian taxpayers.
It pays to have private health cover as in most cases the cost is less than the 1% of your gross income.
- Seek the advice of Tax Professionals
Over 70% of Australians use a tax agent or accountant to do their annual tax return.
Why so many? A reputable registered tax agent or accountant are experts in their field, and they have the latest in-depth knowledge of tax laws and therefore are able to ensure they get the best deductions possible for you.
Remember the cost of getting your tax done this year, will be a deduction on next year’s tax return, so keep the receipt!
- Investment Property
If you own an investment property you offset expenses relating to the acquisition and maintenance costs of the investment property against the rental income. With an investment property you can claim depreciation on newly purchased fixture and fittings such as blinds, appliances, hot water system and furniture.
If your investment property is negatively geared, which means the annual costs of your investment is greater than the income return, then the government allows the loss on the property to be deducted from your gross income, reducing your tax liability.
As always make sure you seek professional advice from your financial team to see if investing in property is suitable to your situation.
- YOU control the amount of deductions
Depending on your circumstances you are able to control the amount of interest you pay.
Short term investments – If you have a partner who earns less than you, and you have funds in a short term account earning interest, it would be wise to ensure this account is in the lower income earners name as they will would pay the least amount of tax on the interest earned, resulting in more return on investment in your pocket.
Managing timing of Tax-deductible expenses – If you know you are going to have a large tax-deductible expense, you may be able to choose which financial year you purchase them in. For example you know that you income this year is in a certain tax bracket and by purchasing an item related to your income would drop you to the lower tax bracket then purchase that item now. If you know that due to personal or business circumstances you are going to be earning less this year than next then, if possible, it may be more beneficial to hold off until the next financial year.
Selling an Asset – If you plan to sell an asset that is subject to Capital Gains Tax. It would be beneficial to do so in a year where your income is lower, and therefore the impact of the capital gain would not be as great on your tax liability.
Once again it is always wise to talk to your accountant about the best way to manage your assets in relation to your tax minimisation strategy.
At The Wealth Centre we are here to help you get your finances sorted and our experts are able to assist you in the areas of tax, accounting, financial broking, financial planning, and investment acquisition, legal and insurance. For your FREE Financial Health Check please call 1300 132 648.