David Koch’s Tax Commandments

Sunrise host and savvy money man DAVID KOCH explains how to approach tax time like a pro

1 SPLIT YOUR INCOME

Put all the bank accounts and other incomeproducing investments in the name of the spouse in the lower income tax bracket. With joint accounts, the ATO splits the interest earned and applies the tax rate of each individual partner to their share. The partner on the highest tax bracket pays the most tax on their interest.

2 HAVE YOUR TAX ADJUSTED

If you think your withholding rate (the tax subtracted from each income payment) is too high, apply to have it adjusted. You can approach the ATO for a withholding variation. Talk to your accountant and tax agent, or check out the forms on the ATO website (ato.gov.au/forms/ payg-withholding-e-variation).

3 CONSIDER YOUR SELF-EDUCATION EXPENSES

You can claim a tax deduction for the costs of self-education, provided it’s related to your income-earning activities. Generally, self-education is associated with courses run by schools, colleges and universities that end in you gaining an award such as a degree or a diploma. You’ve just got to be able to prove the skills or knowledge you gained are sufficiently related to your job, the idea being that the completion of the course will help you get a pay rise or promotion – and pay more tax.

4 KEEP ACCURATE RECORDS

Hard as it may seem, the ATO accepts your calculations at face value and pays the refund. All your calculations are matched against the average of other similar taxpayers like you, but the ATO computers will put a red flag next to you if you’re out of step with the others... then they come knocking. Make sure your records are right to avoid any penalties.

5 DELAY INCOME UNTIL NEXT FINANCIAL YEAR

If you expect to earn less income next financial year, and therefore be in a lower tax bracket, delay receiving things like investment income, dividends, money from a side hustle or contract work until July. That way it will be part of the next year’s tax return when you’re in a lower tax bracket.

6 TOP UP YOUR SUPER

Pre-tax superannuation contributions (up to $25,000 a year) reduce your taxable income, so less money goes to the ATO and more goes into your super savings. After-tax contributions (up to $100,000 a year) are also worthwhile because returns are taxed at a maximum of 15 per cent, not your regular income tax rate.

7 OFFSET CAPITAL GAINS WITH LOSSES

Profits on selling investments like shares, property or managed funds purchased after 1985 will be charged capital gains tax (CGT). CGT is roughly based on your marginal tax rate being applied to 50 per cent of the gain. But any losses made on these types of investments can be offset against your returns from other investments.

So if you’ve made a big profit on one investment, sell some of your disasters. You can then offset your losses from the “dogs” against the profits from the winners and cut your CGT bill.

8 PRE-PAY ELIGIBLE EXPENSES

Talk to your accountant about pre-paying eligible expenses into this financial year to reduce taxable income. For example, interest on an investment loan attached to a property can be paid 12 months in advance. What you’re doing is bringing forward expenses to reduce this year’s income and pay less tax.