The end of the financial year is almost here and many Australians are scrambling to find ways to reduce their tax. While we encourage taking a longer-term, strategic view on tax planning, there are a few quick tax tips for getting extra cash in your back pocket.
We highly recommend you seek the services of a good, qualified accountant to maximise your tax deductions. A good accountant will take the time to understand your personal situation and give you strategic tax advice to minimise your tax obligations in the future. You’ll also have the peace of mind of knowing your return has been accurately prepared in compliance with tax laws in the event you are subject to an audit by the ATO.
Here is a list of tax tips for getting extra cash this end of financial year. Take advantage of before the tax year ends on 30 June.
1. Prepay expenses for an instant tax deduction
You may want to consider pre-paying some of next year’s expenses to receive an immediate tax deduction. It’s popular to pre-pay interest on investment debt, but it’s equally applicable to insurances and other tax-deductible costs. If you run a business, it’s even more pertinent. Pay particular attention to this idea if you’re planning on retiring, going on maternity leave or taking a year off next financial year. It’s a good chance to double up on some expenses this year instead of having deductions in a year that you have low or no income to offset them.
2. Claim tax deductions for charity donations
An easy tax tip for getting extra cash is to keep track of the donations you make to charity throughout the year. Any donations to a registered charity of $2 or more are instantly deductible. If you’ve been thinking of giving to a charity, bringing the timing forward could put more in your tax return this year. Note that you cannot claim for a donation that provides you with a benefit, such as raffle tickets or the cost of attending fundraising dinners.
3. Make concessional super contributions
Transfer some of your savings into super as a lump sum and claim a tax deduction. Note that this is only an effective strategy if you haven’t yet reached $27,500 concessional contributions cap, as any amount over this cap will be taxed at the top tax bracket. You can utilise unused concessional contribution cap for last 4 years, for example, if you didn’t contribute to the maximum limit in the last four years, you can carry the unused cap and catch up contribution this year.
4. Boost your super if you earn below $58,000
If you’re a low-income earner, have taken maternity leave or leave without pay this financial year, you might be eligible for a boost to your super from the government. For those who will earn less than $58,445 this financial year and more than 10 per cent of your income is from employment (i.e. not investment income), the government will match your after-tax super contribution up to $500. That’s free money you’d be silly to turn down.
5. Claim tax deductions for work expenses
Since COVID-19, more people have been working from home and are eligible to claim tax deductions for work-related expenses than ever before. This includes electricity expenses to heat, cool and light the area you’re working, cleaning costs for your work area, phone and internet expenses and home office expenses such as computers, printers, ink and stationery. You can use the fixed-rate method of 67c per hour or the actual cost method to claim a deduction on these expenses. Any courses, textbooks, subscriptions and other items to carry out your work or improve your skills may be deductible too. If you’ve started to use AI tools at work, such as ChatGPT Plus and Midjourney, the ATO has given the green light to claim the expense as a tax deduction this financial year.
6. Claim tax deductions for your uniform
If you are required to wear a uniform for your job, you may be able to claim a tax deduction for the cost of purchasing uniform items as well as any laundry and drycleaning expenses. There is a test for this so be careful with what you claim. Items such as steel cap boots, safety glasses or uniforms with logos may be claimed. However, this does not apply to a regular suit! Just because you’re required to wear a standard of clothing doesn’t mean it’s a uniform. If you’re in close physical contact with customers and clients you can claim for masks and gloves, along with sanitiser and antibacterial sprays.
7. Consider when to take leave if you’re about to retire
A great tax tip for those who are looking to retire soon and have some accrued holiday and long service leave, is to carefully consider when to take it. If it’s possible to control your timing, try and leave the benefit payments until the next financial year. Getting it all paid in a single tax year adds to your total income and pushes you into a higher tax bracket. If you earn over $180,000, then you’re paying almost half your benefit payment in tax!
8. Consider when to get work done on your investment property
If you have work that needs to be carried out on an investment property, think about what tax year to spend it in. For those who expect to have a higher income this financial year and are therefore in a higher tax bracket, see if you can get that last-minute maintenance done. If you’ve got to pay it regardless, you may as well get the deduction in the financial year when you’re on a higher tax rate. Also don’t forget to get a depreciation report, which is tax-deductible, to realise even more savings.
9. Claim asset write-offs (temporary full expensing)
Due to COVID-19, the government has introduced temporary full expensing which allows eligible businesses to immediately deduct the full cost of eligible assets purchased between 6 October 2020 and 30 June 2023. Eligibility includes all businesses with an aggregated annual turnover of less than $5 billion. Assets can be new or second-hand, but must be installed or be ready for use by 30 June. But remember that just because it’s tax-deductible doesn’t mean it’s free!
10. Consider when to sell assets
If you make a profit on the sale of an asset, you’re most likely going to have to pay tax. However, the timing of your sale could have a massive effect on how much tax you pay. If you sell an asset that you’ve lost money on in the same financial year, they may offset each other. If you don’t have any offsets, then selling an asset after 30 June can result in not having to pay tax for an additional 12 months. Keep the money in an offset account or term deposit and enjoy the interest. Remember, capital losses can’t be used to offset ordinary income. Simply selling an asset at a loss isn’t going to lower your tax unless you have a capital gain to offset.