The end of the financial year is rapidly approaching and if ever anyone needed a financial boost or a smaller than normal tax bill, it is now. COVID-19 is causing havoc in most parts of our lives and finances for many are stretched. Mr Taxman, Dr Adrian Raftery, offers these tips to maximise your tax refund this year.
1. Claim a deduction for the costs you incur in running your home office
More and more people are doing work at home due to the COVID-19 pandemic, but some may not be aware they can claim a deduction for costs incurred in running a home office, even if a room is not set aside solely for work-related purposes. At an absolute minimum, keep a diary of the days or hours that you work from home. While you can use the ATO’s shortcut method of 80 cents per hour (from 1 March 2020), it will probably be significantly less than actual deductions for the work-related portion of home telephone, internet, stationery, printers, computer equipment and consumables together with the 52 cents per hour claim for electricity, gas and depreciation of home-based furniture under the fixed costs method. This is one claim that will skyrocket in 2019/20.
2. Take advantage of the government’s free money service known as the ‘super co-contribution’
It is surprising how few people actually take advantage of some free money from the government. If your income is under $38,564 and you contribute $1000 post tax into super, the government will match it 50 cents in the dollar. While this incentive gradually phases out above this figure – at $53,564 – it’s free money. Also, if you earn less than $37,000 your spouse can put up to $3000 into your super fund and he/she will receive an 18 per cent rebate ($540) on tax via the spouse super contribution rebate.
3. Minimise capital gains tax (CGT) by deferring sale or offsetting losses against gains already made
The share market had a pretty good run for the first seven months of 2019/20 before it got smashed at the peak of the COVID-19 pandemic, before bouncing up in the past few months. If you made a nice capital gain or two earlier in the year, then you can reduce CGT by selling any non-performing shares that you may be currently holding. Any unrealised gains should be sold after 1 July to defer tax for another year. And remember that if you hold shares for more than 12 months, you reduce CGT by half. Any capital losses incurred can be carried forward to future years, so keep a record of them.
4. Build your nest egg quicker by paying 15 per cent rather than 47 per cent by salary sacrificing into super
Salary sacrificing into superannuation is one of the best, and legitimate, ways to minimise your income tax bill. You can contribute up to $25,000 per year into super (including the compulsory 9.5 per cent employer contributions), which is only taxed at 15 per cent instead of your marginal tax rate (potentially 49 per cent). PAYG employees can make a lump sum contribution at the end of the financial year to take them up to the $25,000 cap and claim as a tax deduction. For those who don’t have excess cash lying about there are not many pay packets left to do it this tax year, so keep in mind to start putting extra away when 1 July arrives.
5. Income expected to be lower next year? Bring forward some 2020/21 expenses into this year
If you are expecting a lower income next year – due to factors such as redundancy, a smaller or no bonus or perhaps cuts to overtime – then why not try to bring forward your deductions into this tax year? Stocking up your home office with stationery, laptops and printers or prepaying subscriptions and interest for up to 12 months in advance are just some of the simple ways to reduce your income before 30 June.
6. Recontribution to split superannuation balances between spouses
With substantial changes to superannuation over the past few years, financial planners across the country have been working like crazy to maximise the benefits for individuals. $1.6 million is the magical figure to have superannuation tax-free in retirement, so it is crucial that couples maximise their $3.2 million combined tax-free balance and not have one spouse over the $1.6 million threshold with one well under. A simple strategy would be to have the higher-balance spouse withdraw up to $300,000 in super and recontribute into the lower-balance spouse’s super under the three-year rolled forward rule for non-concessional contributions. It’s important to see a financial planning expert here.
7. Keep your receipts
With the need to get back as much as you can while things are financially tough during COVID-19, not to mention the ATO continuing to ramp up audit activity yet again, it is important to keep your receipts. The ATO motto is no receipt = no deduction, so you could be costing yourself $$$ by not keeping those dockets! The ATO has a great app called MyDeductions, which is an easy way to keep your receipts for year end.
8. Get a great accountant
Avoid paying too much in tax or leaving yourself open to a visit from the taxman. Great accountants are like surveyors – they know where the boundaries are. You can generally delay the lodgment of your return to May next year and their fees are tax deductible.
Do you take advantage of the super co-contribution?
Dr Adrian Raftery is principal of Mr Taxman and author of 101 Ways to Save Money on Your Tax – Legally! 2020-2021 edition(Wiley, May 2020), RRP $25.95.
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This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.