There’s nothing worse than buying something, and then finding the same item on sale in the next shop. It’s enough to set your teeth on edge. Nobody likes to pay more than they have to – and believe it or not, you don’t have to pay more tax than you have to either.
So, how can you pay less tax? The answers might save you $$$.
Keep Good Records
The Australian Taxation Office (ATO) expects you to back up your claims, and the way you do that is to keep receipts. A lot of people miss out on thousands of deductions because they didn’t keep their receipts and were unable to back up their claims.
The ATO has three golden rules when it comes to making your claims:
- The tax deductions you claim should directly relate to your income
- The tax deductions you make must have been a personal expense and not have been reimbursed by your employer
- You must prove your claims
If you can’t prove the tax deductions you claim, the ATO gets to keep your money.
The best way to get on top of this is to start a new habit of spending 5 to 10 minutes a day going through your transactions. You can allocate the category of your expenses, put your receipt into a folder and take a photo of that receipt for extra backup. The ATO accepts electronic receipts as long as they are a clear and a true representation of the original. Record your receipts as you go along if that makes it easier for you. An app is a good idea to use as people always have their phone handy. You’ll love this new habit come tax time because you’ll already have all of your paperwork done!
Pro Tax Tip: Make sure you track your monthly expenses that you might have forgotten about, such as subscriptions and other monthly payments to unions, professional associations or charities. If you use an app, these payments can be tagged and categorised when they are automatically paid from your bank account or credit card.
You’ll need to make sure you put your receipts in a safe spot, as the ATO can ask to see them for up to 5 years from your purchase date. The ATO can ask for a receipt based on deductions made for depreciation purposes, for up to 5 years from when the last depreciation claim was made.
Did you know that every donation over $2 to a DGR charity can be claimed as a tax deduction? What’s a DGR charity?
Deductible Gift Recipients (DGR) are registered organisations who can receive donations that are tax deductible. The ATO is responsible for the DGR status. If you’re unsure if your favourite charity is registered, you can check the DGR endorsement through their ABN number at the Australian Government Business Register web site.
Pro Tax Tip: Your donation is not subtracted from your tax refund. The amount is taken off your total taxable income and you will receive a percentage back. The amount claimed will lower your total taxable income.
Make All Your Claims
Do you know EVERYTHING you can claim? Most people don’t and this is where a lot of people are missing out. It’s easy to pay for an item for work and not realise that you’re throwing away a tax deduction – and they add up. If you’ve spent money relating to your income and it’s an expense made from your own pocket, you’ll be able to claim it back. Even if you use the item partly for personal use, you’ll still be able to claim the business portion.
Basic items you can claim are:
- Any fees related to your tax agent or preparing your tax affairs
- Income protection insurances
- General work related expenses such as professional memberships, licenses, unions fees
- Self education expenses
- Work-related equipment, such as tools, computers, phones, tablets, stationery, safety equipment
- Work-related travel – accommodation, plane and bus fares, meals, parking fees
- Home office expenses – desk chairs, office furnishings, office equipment, stationery
- Work-related clothing – clearly defined uniforms, protective clothing, laundry costs
Pro Tax Tip: Items that cost over $300 will be claimed through depreciation over the period of its lifetime. The ATO deems what is the lifetime of an item.
Get Tax Advice
Advice from a tax accountant will not only save you money through savings, their advice will also save you money at tax time. Tax Accountants are experts in reducing tax for individuals and businesses. They stay up to date with changes to rules and tax law and know how to deduct every last cent – legally! Quite often, they spot mistakes that would have slowed down your tax refund that you might have overlooked. Remember, it’s the ATO’s job to maximise tax. It’s a tax accountant’s job to minimise tax. Even more, that ATO recommends the use of a tax accountant to help you with your tax affairs.
A part of the tax you’re obligated to pay is the Medicare Levy Surcharge (MLS). This is a tax you have to pay if you don’t have private health insurance and your annual taxable income is over $90,000 for singles or $180,000 for couples. The surcharge will be between 1% to 1.5% on top of the tax you already pay. It’s designed for people to take up private health insurance for higher wage earners. The MLS is paid on top of the 2% Medicare Levy everyone is required to pay.
The MLS is calculated on your taxable income, meaning the more you earn, the more you pay. The ATO calculates this rate on your total taxable income and will include your salary and wages, reportable fringe benefits, total net investments and reportable super contributions. The ATO receives this information when you file your tax return.
Pro Tax Tip: Research your private health fund and only pay for what you need according to your stage of life and your finances. It’s unlikely you’ll need obstetrics when you’re 60. Your Tax Accountant will help you work out if it’s better if you purchase private health insurance according to your financial situation.
ITP Accounting Professionals have helped Australian individuals and businesses for 50 years. Phone 1800 367 487 and chat with a friendly tax professional to see how they can help you with your tax today.