‘Tis the season to be tax savvy! With the holidays approaching, here are 12 tips to help you maximize your tax savings and financial well-being this Christmas.
1 Claim self-education expenses. If you undertake a work-related course or training over the holidays, you may be able to claim the costs as a tax deduction.
One way to make the most of your holidays this year is to take some time for further learning. While time with family and friends is so important during this season, seizing opportunities to develop your skills can help set you up for future success – both professionally and financially.
Receipts for fees, materials and transportation associated with an eligible course may come in handy if the ATO requests documentation down the track. You can then itemize your deductible self-education costs in the work-related expenses section of your tax return.
So, while you relax and recharge over the holidays, consider further developing your skills through study too. Not only will you be investing in your career, but you may also gain an additional tax deduction – making the most of your time both professionally and financially. Just be sure your course clearly relates to your current role before claiming costs.
2 Donate to charity. Make a donation to an eligible charity or cause and claim it as a tax deduction.
The holiday season is a time when many feel more generous and want to give back to those in need. One way to spread some goodwill while also gaining a tax benefit is by donating to an eligible charity or cause. Under Australia’s taxation system, individuals can claim tax deductions for donations of $2 or more made to approved charities and deductible gift recipients (DGRs).
The ATO maintains a register of all DGRs, which includes organisations focused on relief of poverty, education, health, culture or environment protection. Donations to registered DGRs are tax-deductible, provided the gift is purely voluntary and the donor receives no material benefit in return. If you receive a pen, badge or a raffle entry then it is no longer a tax deduction.
To claim, you’ll need a receipt from the charity documenting your donation amount. Then simply include details of your eligible donations in your tax return.
For larger donations, it’s also possible to claim deductions over a period of up to five years. This can help time your donations more strategically for maximum tax benefit. Whether you give a small amount or make a more substantial contribution, donating to approved charities during the holiday season allows you to spread goodwill while also reducing your taxable income under Australia’s tax system. Just be sure to only claim for donations genuinely made to registered DGRs.
Read more about DGR charities here.
3 Consider salary packaging. Ask your employer if you can salary package items like meals or entertainment expenses to save on tax.
In addition to regular wages, many Australian employers offer the option of salary packaging certain items and services. This involves arranging for benefits to be provided by the employer instead of taking the equivalent amount as salary.
Through salary packaging, expenses like meals, entertainment, additional superannuation contributions and more can be deducted from pre-tax income. This means you pay less tax because your taxable salary is reduced.
There are caps on how much can be packaged for different benefits before Fringe Benefits Tax applies. But speaking to your employer about packaging eligible expenses is a legitimate way to potentially lower your taxable income under Australia’s tax system. Just be aware that any packaged amounts will usually represent a permanent salary sacrifice rather than a one-off arrangement.
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4 Use FBT exemptions for gifts. Small gifts provided to employees at Christmas like hampers or gift cards may qualify for Fringe Benefits Tax exemptions.
Come the festive season, many employers like to show appreciation for their staff through small gifts. Under Australian fringe benefits tax (FBT) laws, certain low-cost gifts provided to employees around Christmas time may qualify for exemptions. FBT is a tax paid by employers on benefits like company cars and expense payment fringe benefits provided to employees.
The ATO allows an FBT exemption for gifts like Christmas hampers, bottles of wine or gift cards valued at less than $300 per employee. As long as the gifts meet this criteria, employers can provide them to staff tax-free. This exemption aims to encourage goodwill between employers and employees during the holiday period.
For employers, using the FBT gift exemption is preferable to claiming the gifts as deductions. While deductions reduce taxable income, FBT exemptions mean the benefits are provided completely tax-free. To qualify, gifts must be provided to employees (not associates) and can’t be cash or vouchers redeemable for cash. Proper record keeping is also required in case the ATO reviews compliance.
By understanding these FBT rules, employers can express appreciation for employees through small gifts that won’t incur any fringe benefits tax liability under Australia’s taxation laws. It’s a win-win for both employers and staff around the festive season.
5 Prepay investments. Prepay up to 12 months of interest on investments to bring forward deductions.
When it comes to reducing taxable income, investors in Australia have the option to bring forward deductions for interest expenses by prepaying them in advance. Taxpayers can prepay up to 12 months of interest on investments like shares and claim the deduction up to a year earlier.
By prepaying interest before July 1, the deduction can be claimed in the current financial year’s tax return rather than waiting until the following year. This brings the tax savings forward and lowers the tax bill sooner. However, it is important to have sufficient income in the financial year of early deduction to make full use of it.
The ATO also requires proper documentation of prepayments, including proof from the investment body that the interest relates to a period of up to 12 months in advance. If done correctly and strategically, prepaying investment interest can help maximize deductions and lower the taxable income reported to the ATO each year under the Australian income tax system. Just be aware this brings forward but does not increase total deductions claimable over time.
6 Sell investments at a loss to offset capital gains.
We’re already half way through our 12 tax tips of Christmas and hoping you like them so far. In Australia, capital gains or losses from the sale of investments like shares and property are generally included in your taxable income. Selling assets at a loss provides taxpayers an opportunity to reduce their overall capital gains tax liability for the financial year. Under the capital gains tax provisions, any capital losses can be offset against capital gains made on other assets.
It’s important to keep accurate records of all purchase and sale dates and prices when realizing capital losses for tax purposes. The ATO requires proper documentation showing the assets were held on capital account. Strategically selling losers and realizing those losses before the end of the financial year provides a legitimate way to lower your capital gains tax bill according to Australia’s capital gains tax provisions.
7 Contribute to super. Make extra concessional or non-concessional super contributions to benefit from tax savings.
Australia’s superannuation system provides incentives to save for retirement through various types of tax-effective super contributions. Both concessional (before-tax) and non-concessional (after-tax) contributions can help reduce your current tax obligations. Making additional contributions before the end of the financial year is one way to maximise these tax savings.
Concessional contributions, such as employer contributions and personal deductible contributions, are included in your assessable income but receive a 15% contributions tax in the super fund. This can help lower your taxable income versus paying your marginal tax rate. Non-concessional contributions are made from after-tax income so don’t provide an immediate tax deduction. However, both types of contributions help your savings grow tax-free until retirement.
8 Use the CGT small business concessions. Small business owners may be able to reduce or even eliminate a capital gain using these concessions.
If you own and sell a small business asset, Australia’s tax system provides some generous capital gains tax (CGT) concessions to support small businesses. Under specific conditions, small business owners may be able to reduce their capital gain or even pay no CGT at all using these concessions.
One such concession allows small business owners aged 55 or over to pay no CGT on up to $500,000 of their capital gain if they retire and cease involvement in the business. For active asset ownership of at least 15 years, small business owners of any age can also access the 15-year exemption to disregard part of their capital gain. There are also CGT rollover relief options available to defer tax if selling one active small business asset and replacing it with another. To access these small business CGT concessions, the business must satisfy certain tests around turnover, assets, and owner involvement to qualify.
9 Keep accurate records. Ensure you have records of all deductible expenses and income to support your tax return.
Accurate record keeping is essential when it comes to tax time in Australia. The Australian Taxation Office (ATO) requires taxpayers to be able to substantiate all income earned and expenses claimed on their tax return. Maintaining proper records, even after the busy holiday period, is important to avoid potential penalties from the ATO down the track.
Taxpayers must retain records of receipts, invoices, bank/credit card statements or other documents for at least five years to support any income or deductions reported. This includes records related to work-related expenses, capital gains or losses, donations, and business transactions. Keeping digital or physical copies of records organized will help if the ATO selects your return for review or audit in following years.
So, while the festive season is busy, tuck these 12 tax tips of Christmas somewhere safe and make sure to maintain thorough records to back up your tax return and satisfy the ATO’s requirements down the track.
10 Claim work-related uniform expenses. Purchasing or cleaning eligible work uniforms over the holidays may be tax deductible.
Many Australian workers are required to wear an official uniform or protective clothing as part of their job. If you’ve had to purchase or replace eligible work uniforms over the holiday season, you may be able to claim a tax deduction. The cost of buying, renting, cleaning or repairing a non-compulsory work uniform can be deducted, provided it has your employer’s logo or is specific to your occupation.
To claim a deduction, the ATO requires uniforms to be unique and distinctive to your employer or registered organisation. Plain clothing like black pants or white shirts usually don’t qualify. Keep receipts for eligible uniform expenses to support your claim. Uniform cleaning costs are also deductible if your employer doesn’t offer to clean them for you.
With proper documentation, claiming work uniform expenses provides an opportunity to offset some of the costs associated with mandatory dress codes and PPE requirements under Australia’s tax system.
11 Consider refinancing loans. Refinancing to a lower interest rate loan before January 1 could help secure interest deductions for the entire next financial year.
Investment property owners in particular should consider refinancing loans before the new year. Interest costs incurred on loans to purchase residential or commercial rental properties are tax deductible under Australia’s tax system.
By refinancing a rental property loan to a lower interest rate, investment property owners can secure tax deductions but on lower repayments.
It’s important to remember that loans must be genuine and solely for investment purposes. But for eligible loans used to purchase income-generating real estate, timing a refinance can maximize deductions over the long-term. Run the numbers carefully as upfront fees may affect returns. However, with rental property loans often representing significant interest costs each year, the tax savings may outweigh these initial expenses.
12 Review your tax withholding. If you’ve had a pay rise over the year, ensure your employer has the correct tax withholding to avoid an unexpected bill or large refund next tax time.
In Australia, income tax is primarily collected through the pay-as-you-go (PAYG) withholding system. Employers are required to withhold an amount of tax from each pay based on the employee’s taxable income and submit it to the ATO.
However your salary increases over the course of a financial year, the amount withheld may no longer accurately reflect how much tax you will owe. To avoid getting a large tax bill or refund at the end of the year, you should check with your employer that the correct tax withholding amount is being deducted from your new higher pay.
ITP Accounting Professionals provides a Tax Withholding Calculator on our website you can use to determine the appropriate tax withholding for your updated salary. Don’t leave it up to your employer to get your tax right. Tax obligations are the individuals responsibility. Ultimately, getting it right it up to you. It’s important to be proactive about reviewing your tax withholding whenever your income or financial situation changes.
As the holiday season approaches, we wish everyone a safe and happy time spent with loved ones. This is also a good opportunity to take a break from the busyness of daily life. In the midst of celebrations, we encourage taking just a few moments to review your tax situation.
Checking that your tax withholding is accurate if you received a pay rise, reviewing receipts for potential deductions, and organizing your records will help avoid stress in the new year. Spending a small amount of time now on your taxes can save hassle down the track. Most importantly, have a wonderful holiday filled with rest and enjoyment – you deserve it! We hope you’ve enjoyed reading our 12 tax tips of Christmas. May the new year bring health, happiness and prosperity to all.