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TIPS FOR REDUCING YOUR TAX

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Keep records to ensure you claim all available tax deductions

The better your records, the easier it is for your financial adviser to prepare your return and ensure you claim everything to which you’re entitled. If you’re not sure if something is tax-deductible, don’t be tempted to throw away your receipt. Instead, confirm with your accountant if part, or all, of the expense is deductible.

Apart from the usual suspects, i.e. charitable donations, self-education expenses, income-protection insurance premiums, and work-related expenses, there are three other items that people often don’t think about when it comes to deductions:

  1. Claim your car expenses by keeping a log book. This will help your financial adviser determine how much you can claim as a work-related expense of your car expenses.

  2. If you are self-employed, any purchased business asset worth less than $20K is deductible in full. Please note that this deduction expires 30 June 2017, when the deduction drops back to a $1,000 limit only.

  3. If you have a rental property, consider organising a depreciation report. If not, you can miss out on a significant deduction.

IF you are an employee, consider salary packaging

  • Salary packaging involves the receipt of certain non-cash benefits in place of a taxable salary.

  • There are two types of salary packaging: one for meals and entertainment, and the other for personal expenses. Salary packaging caps and tax deductions differ from state to state, and hospital to hospital.

  • Not everyone can obtain a real benefit from salary packaging, so talk to a professional adviser before embarking on this strategy.

Contribute to superannuation

Contributions to superannuation can reduce the amount of tax you pay because super is taxed at a maximum of 15%, possibly 30%, depending on your income and how much you put in. The rules surrounding superannuation tax deductibility provisions and contribution limits are complex. Please refer to our superannuation article in this newsletter for a more comprehensive exploration of this issue.

Manage capital gains

When you profit from the sale of an investment, you are considered to have made a capital gain. Capital gains will be included on your annual income tax return. Assets acquired before 20 September 1985 are exempt from Capital Gains Tax (CGT). If you have a CGT liability, there are a few strategies that will reduce the amount you need to pay.

  • Keep an investment for at least 12 months. You can claim a 50% discount on capital gains made on assets held for longer than a year.

  • Consider deferring the sale of a profitable asset until after the end of the financial year. By doing so, you will delay incurring CGT for another financial year. This will free up short-term cash flow if required.

  • Use carry-forward capital losses to reduce CGT. Capital losses (i.e. when you sell an asset for less than you initially paid for it) incurred in previous tax years that have not already been offset against capital gains may be carried forward in future tax years and can mitigate the effect of any CGT liability. It is important the prior year capital losses are incorporated in your ITR and accurate documents are kept to record these CGT events.

Remember, tax-minimisation strategies can differ greatly, in accordance with individual circumstances. Always consult your financial adviser regarding your best course of action. We are always here to help. Please call on (02) 9326 2788

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