"If anybody in this country doesn't minimise their tax, they want their heads read, because as a government, you're not spending it that well that we should be donating extra!"
Most of us would agree the old Kerry Packer adage still applies today. Proper tax planning should be a strategy pursued throughout the year, not just as the June 30 deadline is approaching.
However, there are still some things that can be done last minute to minimise the tax you pay, while keeping the taxman onside. Here is a checklist of some last-minute moves you might consider:
If a taxpayer has made a capital gain this year, they should check whether it is worth selling a loss-making investment before June 30 to offset the gain, says Peter Bembrick, a tax partner with Sydney accountants and advisers HLB Mann Judd. Capital gains tax must be paid in the financial year they are realised. Losses can be carried forward but they cannot be carried back.
Bembrick says taxpayers should also make sure to claim every legitimate deduction possible, whether donations, subscriptions to magazines that are work-related or income protection insurance premiums before 30 June to ensure that they make it into this year’s tax return.
Private health insurance
The Medicare levy surcharge adds an extra 1 per cent tax for singles earning over $88,000, or couples earning over $176,000. This rises to 1.25 per cent at higher income levels, and up to 1.5 per cent for singles earning over $136,000 and couples earning over $272,000. “The surcharge can be avoided if the family takes out the appropriate level of hospital cover with an approved health fund,” Bembrick says. “As with investment decisions, your approach to private health insurance should consider the likely financial, and in this case medical, impact of making particular choices and not be ruled entirely by tax considerations."
There is a further complication to the private health insurance rebate this year. The rebate is the amount the government contributes to insurance premiums. It is worked out according to age and income. Rebates are now indexed annually, starting from April 1, 2014. That means there will be two different rebates for the current financial year – one from July 1, 2013, to March 31, 2014 and another from April 1, 2014 to June 30, 2014. They will show up on private health insurance statements as separate lines and both need to be entered into tax returns.
Tax office targets
The tax office is targeting work-related expense claims, especially computer and phone expenses and home office claims, and rental property deductions this year. It has warned it will be looking closely at claims for a proportion of work-related use of computers, phones and other electronic devices. If taxpayers are claiming work-related expense deductions, they must have spent the money, the expenses must be related to their job and they must have a record to prove it, says Karen Anstis, an assistant commissioner at the tax office. Other work-related expense claims at which the taxman will be looking closely include overnight travel and the transport of bulky goods and equipment.
The tax office says rental property deductions is a big area for wrong claims as the ranks of property investors grows. It is often first-timers who get it wrong, Anstis says. She says common mistakes include claiming rental deductions for properties that are not genuinely available for rent and overstating the interest deduction claims on the mortgages taken out to buy the properties.
The deficit “levy” announced in the May budget is a tax of 2 per cent on the portion of taxable incomes above $180,000 a year. It is not yet law, but will likely be waved through by the Senate and will come into force for the 2014-15 year. The Medicare levy will also rise from 1.5 per cent to 2 per cent from July 1 to fund the national disability scheme. As the deficit levy applies to taxable incomes, high earners will be looking for ways to increase their deductions for next financial year as the deductions will be worth more. Strategies such as borrowing to invest, where the interest on the loan is tax deductible, are likely to become even more popular with higher earners. For this financial year, Bembrick says that high earners may seek to have any bonuses brought forward and paid before June 30 and the start of the deficit levy. High earners may want to push deductions into the next financial year when they will be worth more.
Online filing easier
Taxpayers who prepare their own returns and have straightforward tax affairs - about 1.4 million of all taxpayers according to tax office estimates - will find it easier this year with My Tax, which is a short-form version of E-Tax. My Tax can be filed online and is no longer than about 10 screens compared to E-Tax, which has to be downloaded, and is up to 200 screens. My Tax is also available on tablets and smart phones.
Both E-Tax and My Tax will be accessible this year though my.gov.au/, which is a portal for government services such as the tax office and Centrelink. Taxpayers must first register at My Gov and link to the tax office. If you already have a My Gov account, simply link the tax office as one of your member services. By filing online, the tax return can be filled with your previous tax return and with information provided by your bank, employer, government agencies and others. The tax office takes until early August to gather the information. Self-preparers are best off waiting until then to complete their returns. The data added to the return by the tax office can be reviewed and any missing details added by the taxpayer. Tax return booklets are no longer available from newsagents. If taxpayers need to lodge on paper, they can order a booklet and instructions from ato.gov.au/onlineordering, or by calling 1300 720 092. Copies are also available from tax office shopfronts.
Be aware of the deadlines that apply for tax returns. The tax office can charge $170 a month for late lodgement. The deadline is October 31 for those filing their returns themselves. Those who use a registered tax agent are usually eligible for a later deadline of May 15, 2015, as long as taxpayers are not in dispute with the tax office.
Last minute super contributions
June 30 may be mere weeks away, but for thosewho qualify thereis a couple of things they can do to top up their super and receive tax savings as well. Under the government’s co-contribution scheme, for each after-tax dollar contributed to their super fund the government contributes 50 cents into their fund. The maximum government co-contribution is $500. The maximum government co-contribution of 50 cents for each dollar applies for incomes up to $33,516. For incomes above this threshold, the co-contribution phases out. It cuts out altogether once income exceeds $48,516.
A spouse has until June 30 to make a contribution into their non-working or lower-income-earning partner’s super fund. If the partner earns less than $10,800, the spouse receives an 18 per cent tax offset in their tax return for a contribution of up to $3,000, providing a maximum tax offset of $540. The tax benefit reduces and cuts out altogether once the partner’s income reaches $13,800.
Do not leave these superannuation contributions to the last minute, says Bill Watson, the chief executive of industry super fund First Super. He says at least five working days should remain before the end of the financial year to allow time for the transfer of the money and processing by funds.
Taxpayer paid $17,000 in tax and penalties
The tax office gives the following real example of how a teacher who claimed massive home office expenses ended up paying back almost $17,000 in tax and penalties. The teacher claimed more than 3000 hours of work-related use of their home office at 34 cents per hour. That works out at about eight hours every day using their home office for work purposes.The teacher claimed $13,000 for this part of the claim, without any supporting evidence - which the tax office disallowed - and also claimed $1,250 for internet access, telephone and mobile phone, without giving a break-down of private and work-related use. A diary covering the four-week period of use of these items would have been acceptable, but no evidence was provided to support the claim. As a result, the claim was disallowed. Finally, the taxpayer claimed $9200 for IT equipment and software but did not show how these items were split between private and work-related use. To support the claim, the taxpayer was asked to provide estimates of work-related and private use over a four-week period but was unable to provide the information. As a result, that claim was also disallowed in full. The taxpayer was required to pay almost $17,000 in tax and penalties.