Tax time. Two words that can strike fear into hearts and send the average Australian spinning in circles with flurries of despair. This is a time when many begin to regard their finances with fear and trepidation. To wonder if they’ve paid too much tax or even worse – if they’ve paid too little.
You don’t have to clutch your chest and fake a heart attack in the hopes that it’ll buy you time with the Australian Taxation Office (ATO). There’s no need to feel any pain at all. The number one treatment for this kind of chest pain is organisation and knowledge. In fact, if you get some facts and actions under control, you’ll look forward to EOFY and rub your hands in glee at the extra cash headed your way.
Your superannuation fund is your secret – or not-so-secret – weapon against paying too much tax. If you’re employed or work for yourself, it’s a legal requirement to pay superannuation. The amount paid is a percentage of your income.
Employees earning at least $450 per month at present and aged 18 and over must be paid by their employer – even if your job is casual! If you’re under 18, you must work more than 30 hours a week to attract super.
Your employer must pay 10% of your ordinary earnings into your super fund. You can nominate your own fund, saving extra cash on fees is you’re a savvy industry fund hunter. Just tell your employer and they’ll have to pay your super into your nominated fund.
Pro Tax Tip: You can always check your super by looking at your payslip, checking your MyGov account, logging into your superannuation account or asking your tax agent.
You can even grow your savings by paying extra money into your super fund. Small amounts add up over time and voluntary payments, known as concessional contributions, can reduce your tax!
Asking your employer to pay a little extra into your fund with each pay packet means you won’t even miss the money. This is known as salary packaging and is one of the easiest ways to contribute into your super. Concessional contributions are taxed at a much lower rate – only 15%. For most, this is lower than the marginal tax rate of 37%. In the 2021-22 financial year, you can contribute up to $27,500 to attract this tax rate.
It’s a little known secret that unused concessional caps can be carried forward. From 1 July 2018 if you have a total super balance of less than $500,000 on 30 June of the previous financial year, you may be able to contribute more than the concessional cap and make extra concessional payments for unused amounts. The first year this can be carried forward is from the 2019-20 financial year. These amounts are available for 5 years before they expire.
Pro Tax Tip: If you earn more than $37,000, you may benefit by making concessional contributions. Chat with a tax agent to see how much you can contribute and work out a budget to keep your cash under control.
If you want to make extra payments after the $27,500 cap – you can. This is known as non-concessional payments and can only be made with your money after tax has been taken out. This is a great idea if you want to use the super-charged investment opportunities a super fund can offer. The non-concessional cap is $110,000 for the 2021-22 financial year.
Do you have expenses you know you’ll have to pay that will impact your tax deductions? In certain situations, it could benefit you by paying expenses before the end of financial year to claim an immediate tax deduction which will lower your total taxable income.
Expenses such as insurances, rent, utilities and subscriptions are all work-related expenses and can be used to lower your taxable income and thus paying less tax for that financial year. This works well if you know how much income you’ll earn and if that income will be less in the upcoming financial year.
Similarly, if you have your own business, it might work in your favour to purchase capital equipment and claim it in the instant asset write off, or hire contractors to make products before the end of financial year in order to claim their wages and extra costs of making your product.
Manage your Investments
Income isn’t restricted to your wage or salary. Income can come in many forms, from rent, shares, cryptocurrency, trust accounts or managed funds. The timing of the sale of your investments will impact your tax and the tax deductions you’re able to claim.
Any gains from your investments can push you up into a high tax bracket, in which you’re obligated to pay more tax.
Pro Tax Tip: If you going to sell a non-performing investment, it’s best done before 30 June because you can use the capital loss to reduce tax on other capital gains made in that year or rolled over into the following years until all gains are claimed against.
Private Health Insurance
Private health insurance isn’t for everyone. It’s also a minefield understanding which fund would be best and working out the cover that you need, however it might be worth the effort because paying for private health insurance will save many Australians at tax time.
The federal government’s health system ‘rewards’ people for taking out private health insurance. If you reach a certain income level, the extra amount you pay in extra taxes towards public health will mean that private health cover is cheaper than the surcharges you’ll attract.
People earning $90,000 or more for singles, and $180,000 or more for couples are required to pay the Medicare Levy Surcharge at around 1 – 1.5% of their annual income.
Medicare Levy Surcharge Rates from 2014-15 to 2022-23
|Threshold||Base tier||Tier 1||Tier 2||Tier 3|
|Single threshold||$90,000 or less||$90,001 – $105,000||$105,001 – $140,000||$140,001 or more|
|Family threshold||$180,000 or less||$180,001 – $210,000||$210,001 – $280,000||$280,001 or more|
|Medicare Levy Surcharge||0%||1%||1.25%||$280,001 or more|
The family income threshold is increased by $1,500 for each MLS dependent child after the first child.
Pro Tax Tip: It pays to chat with a tax professional and crunch some numbers to work out what you can afford and what rebates private health cover will give you to make a decision that best suits your situation.
If life has gotten in the way or you’ve put off thinking about tax, you might be your own best friend if you decide to tackle it head on. The best way to reduce stress at tax time is to do something about it. These tips are just a few of many that could be good options for you. With over 50 years helping Australian lower their tax bill, ITP Accounting Professional can help navigate your personal situation and devise a plan to suit your needs.