There are a number of ways to legally avoid paying more tax than you need to. There is still time in this financial year to implement these tips:
1. Income Protection Insurance
The Australian Taxation Office actually encourages you to claim your income protection (or ‘Sickness and Accident’) insurance premiums against your income tax, and if you pay your premium annually in advance before 30 June, you can claim the deduction in the current year.
2. Other Prepayments (including interest)
If you are able to prepay expenses for the next financial year you may be able to claim them against your income in this financial year. These may be:
- work-related expenses considered deductible by the ATO. Check out out A-Z guide of deductions.
- work tools you know you will need next year,
- investment expenses such as interest on a loan relating to a rental property or some other passive investment such as a share portfolio,
- pre-paying council rates and strata levies relating to a rental property.
3. Capital Gains
If you’re thinking of selling an investment, your timing will likely have a significant impact on the tax you pay. You may wish to consider delaying realising an investment profit until after June 30 to ensure that you’ve held it for more than 12 months to access the 50% discount.
Equally, realising an investment loss might mean you’re able to use that capital loss to reduce the tax on any other capital gains.
You must be careful, though. The ATO has a Public Ruling relating to “wash sales”. The Ruling considers that the ATO can apply Part IVA anti-avoidance provisions to cancel offsets and apply penalties so if, for example, you have a loss on your BHP shares, you must not sell them to realise the loss then buy back into them immediately. Make sure you obtain advice from your financial advisor, accountant or broker before acting.
As well as topping up your superannuation balance, making additional personal deductible or employee salary sacrificed contributions may help you reduce your overall tax bill. Talk to your accountant or financial advisor about some of the possibilities including:
- If you’re self-employed (perhaps example retired or not working) you can make contributions to your super and potentially claim a full tax deduction. Concessional contributions (made with pre-tax money) are limited to $30,000 per person per year ($35,000 if you are above 49 years of age).
- Salary sacrifice is available to employees, subject to the same concessional contributions cap. If you earn an annual bonus you may be able to arrange with your employer to salary sacrifice it into superannuation.
- If your spouse is on a low income, you could receive a tax offset for making a contribution to their superannuation fund, as long as their assessable income is less than $13,800.
- If your income is below $50,454 make enough of an extra contribution to receive the Government Co-contributions.
5. Max out your tax refund by claiming more
The ATO allows you, even encourages you, to claim work-related tax deductions to minimise your tax. But if you go too far you risk penalties and even, in extreme cases, criminal prosecution.
What any individual can claim depends on the details so we have prepared a handy guide that shows over 50 expense types.
There are 4 main things to remember when claiming work-related tax deductions:
- The claim must be directly relevant to your taxable income and incurred in the same year.
- It can’t be a capital expense (i.e. the purchase of asset – but the asset can be depreciated)
- Personal expenses are not claimable but an expense may be partially work-related and you can claim that portion,
- You need to keep written evidence (for 5 years) for claims totally more than $300 for in any one year.
Find out more. Our guide provides simple explanations of over 50 tax deductions, some of which you may be able to claim.