The end of the financial year just passed and it’s time to get serious about taxes. If you are lodging your tax return yourself, it has to be done by October 31, and it’s worth being meticulous about it because it could be the difference between having several thousand dollars returned to you by the Australian Taxation Office, or allowing the government to keep it.
The sooner you lodge your taxes for the 2018-19 financial year, the sooner you receive your tax refund. While it is too late to increase your 2018-19 tax deductions by incurring new expenses, there is no better time than now to start planning for the current 2019-20 year’s tax return! Your tax accountant and your Wealth Market Financial Adviser can discuss some tax advantageous strategies which may help lower your 2019-20 tax bill.
Mostly, planning for taxes is concerned with understanding your status and then ensuring you are using your deductible expenses to full benefit.
Self-employed people can generally claim the expenses they incur in the conduct of earning revenues.
When it comes to employees, a tax refund is paid because you had expenses that were not paid by your employer. These deductible expenses will reduce your income and result in you paying less income tax. The greater your expenses – the greater your refund.
Deductible expenses can be complicated with a lot of employee expenses ruled ‘in’ and ‘out’, so the earlier you see an adviser and get planning, the better the outcome for you.
The ATO lists the rules of employee expenses on it’s website and it’s worth reading them because they are detailed and cover just about every scenario.
The most contested expenses are usually vehicles and travel, clothing and footwear and work-from-home expenses.
You can claim vehicle/travel costs if you travel from your home to ‘alternate’ workplaces (ones that are not regular); if you travel between two workplaces (primary workplace and second job); and if your job requires carrying bulky items so you can do your job. Generally speaking you can’t claim expenses for travel between your home and your workplace.
If you can claim travel and vehicle expenses, then you must keep records such as vehicle logbooks and receipts from operating costs. This is the planning part of the tax equation, and the ATO has a phone app called myDeductions into which you record your deductions as you go, including photographs of receipts etc.
Other popular deductions are clothing and footwear, but these are tightly defined as ‘occupation specific’ – such as chef’s pants – and ‘protective clothing’, which includes steel-cap boots, welder’s jackets, hi-viz vests and overalls. Deductible clothes and footwear can not be general in nature, such that you would wear them in everyday life.
Home offices are also claimed-on, given the ability for work to be conducted at home on computers. Employees who have to do some work from home fall into two categories, of either having a designated work area, or not having a designated work area. If you do, you can generally claim running expenses, work-related phone and internet, decline in value of the work-related part of your computer and depreciation of office equipment. You can not claim any costs of occupancy (unlike self-employed people who work from home).
If you do not have a designated part of your home for office work, you can claim the same expenses as the person who does have a designated area, except for running expenses (heating, cooling, lighting, computer repairs, printer and printer paper etc.)
If in doubt, look at the ATO site or speak to your tax accountant. However, the main rules for claiming deductions are that anything claimed must have actually been spent by you and the expense cannot already be covered by your employer.
If the ATO decides to refund your over-paid taxes they will take up to 10 weeks to send you a cheque if you lodge via paperwork, although most people have their refunds within two weeks if their annual lodgement is through an online portal such as myTax or eTax.
It’s worth being not only organised with your taxes, but planning for them. Not only is it required of you, but it helps get you get organised with your finances and your retirement planning. For instance, did you know that you could potentially offset capital gain taxes incurred through the year, by making a tax deductible contribution to your superannuation fund (contribution caps and other rules apply)?
See a Wealth Market Financial Adviser and see how the tax system can work for your longer-term goals, as opposed to it just being an annual irritation.
Always remember: tax refunds can only be made if you keep good records and receipts, and the best results from the tax system start with knowledge and planning.