Ten com­mand­ments of tax

Avoid the an­nual scram­ble with this handy guide

The Western Star - - TASTE -

THE end of fi­nan­cial year comes around at the same time every 12 months but al­ways seems to catch un­pre­pared. Tax time is al­ways a mad scram­ble.

Nat­u­rally, as good cit­i­zens, we don’t mind pay­ing the right amount of tax but we are damned if we are go­ing to pay a dol­lar more than we have to. The prob­lem is that tax is so com­pli­cated many of us have given up try­ing to un­der­stand what we can and can’t do.

So here are our Ten Com­mand­ments of tax to think about now to make sure you make the most of tax time.

1. SPLIT YOUR IN­COME

It’s easy. Put all the bank ac­counts and other in­come­pro­duc­ing in­vest­ments in the name of the spouse on the lower in­come tax bracket. With joint ac­counts the Tax Of­fice 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.

In­come split­ting is very at­trac­tive in a fam­ily where there is one pri­mary in­come earner be­cause the other spouse can earn up to $1820,000 tax free.

2. HAVE YOUR TAX AD­JUSTED

If you think you are pay­ing too much tax, ap­ply to have it ad­justed. With in­ter­est rates at record lows many peo­ple, par­tic­u­larly re­tirees, have seen their in­ter­est in­come cut sharply. You can ap­proach the tax of­fice for a vari­a­tion of tax.

Talk to your ac­coun­tant and tax agent or check out the forms on the ATO web­site.

3. SELF ED­U­CA­TION

As a rule of thumb, 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 which end up in you gain­ing an award like a de­gree or a diploma. But you don’t nec­es­sar­ily have to come out with a bit of pa­per to claim a de­duc­tion. You’ve just got to be able to prove the skills or knowl­edge you gained are suf­fi­ciently re­lated to your job.

4. KEEP AC­CU­RATE RECORDS

The rea­son you re­ceive your tax re­fund so quickly is be­cause the Aus­tralian Tax­a­tion Of­fice takes your word for it. Hard as it may seem, the tax of­fice ac­cepts your cal­cu­la­tions at face value and pays the re­fund.

All your cal­cu­la­tions are matched against the av­er­age of other tax­pay­ers like you but the tax of­fice com­puter will put a red flag next to you if you’re out step. Then they come knock­ing.

So make sure your records are right to avoid any penal­ties.

5, DE­LAY IN­COME UN­TIL NEXT FI­NAN­CIAL YEAR

Every dol­lar we earn, whether it be from wages or in­vest­ments, is taxed at our mar­ginal rate. But if you ex­pect to earn less next fi­nan­cial year, and so be on a lower tax bracket, de­lay re­ceiv­ing things like in­vest­ment in­come, dividends, money from a side hus­tle or con­tract work un­til July.

6. TOP UP YOUR SU­PER­AN­NU­A­TION

Be­fore-tax su­per­an­nu­a­tion con­tri­bu­tions (up to $25,000 a year) re­duce your tax­able in­come, so less money goes to the tax man and more goes to your su­per sav­ings. Af­ter-tax con­tri­bu­tions (up to $100,000 a year) are also worth­while be­cause re­turns are taxed at a max­i­mum 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. While cal­cu­lat­ing CGT can be com­plex, it is roughly based on your mar­ginal tax be­ing ap­plied to 50 per cent of the gain. But any losses made on th­ese types of in­vest­ments can be off­set against prof­its.

So if you have made a big profit on one in­vest­ment, sell some of your dis­as­ters.

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 to can be paid 12 month in ad­vance. In­vest­ment prop­erty own­ers should also be get­ting those main­te­nance jobs done, and paid for, now to be claimed in this year’s re­turn.

9. WORK OUT ANY NEGA­TIVE GEAR­ING IM­PLI­CA­TIONS

Aus­tralians seem to have a pas­sion for nega­tive gear­ing. We think the ad­van­tages are ex­ag­ger­ated by most peo­ple.

Nega­tive gear­ing is where you bor­row to in­vest and if the loan re­pay­ments are more than the in­come gen­er­ated from the in­vest­ment, the dif­fer­ence can be claimed as a tax de­duc­tion.

Nega­tive gear­ing works best at a time of high in­come tax rates, high in­fla­tion and high in­ter­est rates. But to­day we have lower tax rates, in­fla­tion is low and in­ter­est rates have dropped. For most peo­ple now, nega­tive gear­ing sim­ply does not stack up in this eco­nomic en­vi­ron­ment.

That is not to say, don’t bor­row to in­vest, but do it be­cause of the in­vest­ment po­ten­tial, not just for tax.

10. CLAIM WORKRE­LATED EX­PENSES

Many jobs de­mand spend­ing money on unusual items which are a ne­ces­sity to earn­ing an in­come. The cost of th­ese items can be claimed against tax as work-re­lated ex­penses. But you must keep re­ceipts and the ex­penses must di­rectly re­late to earn­ing an in­come.

Check out the tax of­fice web­site (www.ato.gov.au) re­source cen­tre which lists the el­i­gi­ble work de­duc­tions for a whole range of oc­cu­pa­tions.

Il­lus­tra­tion: JOHN TIEDEMANN

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