Tax Savings for the Taking

It’s that time of year when we all look at what last-minute things we can do to maximise tax savings. Here are our top tips to help you save:

Claim the Cost of Working from Home

If you work from home some days, keep a diary of the hours you have worked at home to claim the 67 cents per hour shortcut rate. Other methods apply for home-based businesses and where your expenses are higher and claimed separately. This can lead to significant tax savings.

Costs Connected to Your Job

If you spent money related to your work that was not reimbursed by your employer – e.g., meals while you were away overnight, etc. – you can generally claim these (make sure you have receipts). Check the ATO’s industry-specific guides on what’s reasonable to claim for additional tax savings.

Donations Reduce Your Tax

If you are likely to have a big tax bill this year from gains you have made, consider a larger than usual donation to a deductible gift recipient (DGR) charity before 30 June. This can provide substantial tax savings.

Top Up Your Super

You can claim a deduction for contributions you personally make to super from after-tax income up to $27,500 per annum (assuming you have not reached your transfer balance cap). You need to lodge a notice of intent to claim with your super fund. This strategy can lead to considerable tax savings.

Pay in Advance

While paying in advance for deductible expenses doesn’t save you cash, if you need to reduce your tax bill, you can pay some deductible expenses for next year by 30 June and take the tax deduction this year.

Studying for Work

Self-education expenses that are related to the work you do are often tax deductible, although there are some parameters around this. So, if you have been taking short courses to improve your knowledge, you can often claim the cost of the course and some other related expenses. Just be aware that study costs to obtain new work or to start a new business are not covered. The study needs to be related to how you earn your income now. This can contribute to your overall tax savings.

Building and Managing Your Investments

The costs of earning interest, share dividends, and income from your investments are generally deductible. This includes the account fees for investment accounts, interest on loans for investments you earn income from, the cost of investment seminars if they are directly related to investments you have made (not intending to make), fees for investment advice relating to existing investments, ongoing investment management fees, and specialist journals and subscriptions related to your investments. But, brokerage fees, an initial investment plan, transaction fees, etc., are not generally deductible.

Avoiding Penalties

The ATO can apply a penalty if you fail to declare income in your tax return that results in a tax shortfall. Penalties start at 25% of the tax liability owing and then escalate quickly if you were reckless (50%), or intentionally tried to evade tax (75%). Then, if they are really unhappy with you, they can increase the penalty base amount by 20%.

There are also penalties that can apply if there is no shortfall but you didn’t take reasonable care, were reckless, or intentionally disregarded your obligations. Penalties of up to 75% of the tax liability can also apply if you don’t lodge your tax return and the ATO takes a position on what they believe you owe – tax is still owing even if you don’t lodge your return. Avoiding these penalties can help preserve your tax savings.

If you are an Australian resident for tax purposes (and not classified as a temporary resident), you are taxed on your worldwide assessable income – salary, wages, director or consulting fees, some allowances, bonuses, commissions, interest, pensions, rental and other investment income, and if you are a content creator, gifts and other income. For those with income from overseas, if you have paid tax on that income overseas, you will need to declare the income on your tax return but you might be eligible to reduce your Australian tax bill by the tax you have already paid overseas. This can contribute to your tax savings.

The ATO is upfront about what their tax time targets are so if you ignore the warnings then it’s less likely they will consider any omission an honest mistake. A bit like watching those border control shows when someone claims that they had no idea that seafood is considered a food and should have been declared.

Getting Rental Properties Right

If you are earning income from an investment property, you can claim deductions for your expenses. These expenses fit into two categories; what you can claim now, and what is claimed over time.

You can claim interest on loans, council rates, repairs and maintenance, and depreciating assets costing $300 or less, in the year that you paid for them. Other items, like structural improvements, ovens, adding fences and retaining walls, are depreciated over time.

Rental properties are a major target for the ATO this year:

Rental Income

Declare all rental income (including short-term stays, renting out a room in your house, insurance payouts, rental bonds retained).

Rental Expenses

Rental expenses can only be claimed for the portion of time that the property was rented or genuinely available for rent. If, for example, you did not make the property available for rent while you were renovating it, you cannot claim the cost of the expenses over this period. Sometimes the ATO will argue that a property is not genuinely available for rent even if it is advertised as being available. This can be relevant for properties in locations where there is very little demand during certain times of the year.

Interest and Redraws

If you have refinanced or redrawn on your rental property loan for personal expenses like holidays or a car, this will impact the interest you can claim.

Sale of Assets

If you earned income from a residential property (renting out a room or the whole house), then it’s likely you will pay capital gains tax on any gain you make on the sale of the property. However, if the property was your home for a period of time, you might be able to claim a full or partial exemption from CGT, which will increase your savings. In some cases, it will be necessary to obtain a valuation of the property at the time it is first used to produce income if it has previously only been used as your main residence.

Tax Time Targets for Individuals

Key tax time targets include:

• Rental property income and expenses
• Income and ‘gifts’ from online content creation (OnlyFans, YouTube, TikTok, etc.)
• Cryptocurrency gains
• Gig economy workers (not declaring income)
• Foreign income (not declared)
• Work from home expenses (inaccurately claimed)
• And as always, work-related expenses (overclaimed).

Increasingly sophisticated data-matching programs mean that the ATO is more likely to notice if you have failed to declare income from the sale of assets, income earned through platforms, and made a gain on crypto transactions.

You can offset your assessable income against any allowable deductions you can claim. To be tax deductible, an expense must be directly related to how you earn your income. When it comes to expenses, if you are claiming for items not normally associated with your industry, claim the same amount or same items each year (cut and paste claims), or claim amounts outside of the norm, then it is likely the ATO will take a closer look.

By following these tips, you can maximise your tax savings and ensure you stay on the right side of the ATO.