This article is from the first issue of CommBank's magazine, Brighter.
Sure, it’s tempting to pounce on EOFY bargains to reduce your tax bill. But spending money just to get a last-minute deduction doesn’t necessarily make sense. Mark Chapman, director of tax communications at H&R Block, does the maths – “If someone on a 32.5 per cent marginal tax rate spends $1000 on a deductible item, they don’t get $1000 deducted – they get 32.5 per cent of that.” So, if you’re in a refund position, your tax refund could increase by $325 but you’re still spending $675. The other thing to consider is that if you buy a depreciating asset, you’ll get deductions over a number of years. If the $1000 was spent on a printer, for example, you may only be able to claim a deduction of, say, $150 in the first year.
If “planning” is code for “scrambling through drawers the night before your tax return is due”, why not enlist the help of an app to streamline things? The free myDeductions record-keeping tool from the Australian Tax Office (ATO) is an easy way to keep track of expenses, including donations or vehicle trips. It also captures receipts with a click of your phone’s camera. At tax time, simply email your records to yourself or your tax agent. Or upload to the ATO to assist with the pre-fill of your return. See ato.gov.au for details.
Got a side hustle that’s bringing in extra dollars? Sold some shares? You need to ensure that any extra income is reflected on your return. While most of our income may be pre-filled from data sent to the ATO by employers or financial institutions, you may have received or earned other amounts that need to be included, from rent to a return on an investment.
Still clocking on at home? Claiming deductions for work-from-home (WFH) expenses requires some extra effort this financial year. The temporary 80-cents-per-hour shortcut method introduced during the pandemic has been abolished, along with the 52-cents-per-hour fixed-rate method. You may want to consider whether you can claim the single 67-cents-per-hour fixed rate method.
But that also comes with record-keeping requirements that taxpayers may not know about , says Chapman. “From 1 July 2022 to 28 February 2023, you need to produce a representative four-week diary if you are claiming WFH expenses.” And from 1 March onwards, “you must substantiate all your time working from home. You need to keep time sheets or diaries to prove every single hour you’ve worked from home.”
The most recent ATO data shows only 29 per cent of Australian taxpayers claimed a deduction for donations to charity so if you’ve made a one-off donation or give regularly to a good cause, you may want to check if you can claim it. Generally, the donation must be $2 or more – the charity must be deductible gift recipient endorsed – and you need to keep a receipt or record of the donation.
If you’ve jumped on the FIRE (Financial Independence Retire Early) movement or become an investment property mogul then it’s wise to set aside a couple of hours to ensure you understand the tax implications of both the income that you earn and the costs that you incur. For instance, expenses on a holiday property may not be deductible even if the property generates some rent. The upside? In some circumstances, fees for financial advice may be deductible.
Using your car for work? This one’s for you. Although you generally can’t claim expenses for getting to and from your usual workplace, there are some work-related vehicle expenses you may be able to claim, such as attending offsite meetings. You can use the 78-cents-per-kilometre fixed rate or claim the actual costs of running your car. “People don’t realise that the actual cost method often produces a bigger deduction,” says Chapman. It takes a little more work because you have to substantiate your expenses and keep a logbook for 12 weeks but, as they say, “time is money”.
Doing a little legwork now may lead to a bigger refund down the track. Check out the ATO website, book in some time with a tax accountant or swot up on CommBank’s Tax Tips and Guides to discover possible ways to manage your tax bill.
This article is intended to provide general information only and doesn’t take into account your individual objectives, financial situation or needs. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
Commonwealth Bank is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 so you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.
Story by Christine Long.
Read more articles from Brighter magazine.