Do you want to make sure you get the most out of your tax return? Whether you’re looking for ways to maximise your refund or want to ensure that you’re filing correctly, these tax return hacks will help.
From using deductions and credits to organising your records, we’ll show you everything you need to know.Â
You’ve probably heard that there are many ways to maximise your tax return, but what does that mean? And more importantly, how can you make sure you’re taking advantage of every available opportunity?
In this blog post, we’ll take a look at some of the most effective tax return hacks, so you can make sure you’re getting the most out of your refund.
Each year, as the tax deadline looms closer, hordes of taxpayers begin to feel anxious about their impending tax return.
Filing taxes can seem like a daunting task, but a few tips and tricks can make the process a little bit easier.
This blog post will outline some ways to maximise your tax return and get the most out of your refund.
Let’s get started!
Simple Tax Saving Techniques That Are Completely Legal
If you want to avoid paying additional taxes at the end of the fiscal year, there are a few things you can start doing right away to prepare for it.
Don’t forget to think about all of these in the context of your entire financial condition, your ambitions, and your constraints. If you still have questions, you should see a tax accountant about them.
- Prepay deductible expenditures. You can lower the amount of revenue subject to taxation by paying your costs within this fiscal year. Less income equals less tax.
- Take advantage of the reduced rate of tax on capital gains. When an asset is sold, the profit that is made is referred to as a capital gain. Because profits are considered to be income, they are subject to taxation. Individuals, trusts, and retirement savings accounts are all eligible for discounts, but careful preparation is essential.
- Start your own business, as companies are considered to be separate legal entities and are therefore subject to various tax rates, which are frequently lower than those applicable to individuals.
- Create a trust to reduce your tax liability and to safeguard your assets. There are several different kinds of trusts, each of which has its own unique set of advantages.
- Create your own self-managed retirement account (SMSF). You can save money on fees and reduce the amount of tax you pay on contributions and investment income. Make the most of the one-of-a-kind tax-effective investment techniques that are only available to self-managed super funds.
- In order to get reimbursed for your car expenses, you need to keep track of all the kilometres you drive for work.
- Make use of the negative gear. Your taxable income can be decreased by using negative gearing strategies. When the revenue obtained from an investment property is less than the loan repayments and maintenance expenditures, this helps to mitigate the losses that would otherwise be incurred.
- Contributions to superannuation as part of a salary package By contributing some of your salary to a retirement account, you can lower the amount of income that is subject to taxation.
- Prepare yourself. A tax strategy that has been thoroughly thought out will keep you in complete control of your tax bill at the end of the year – there will be no surprises. Avoid spending more money than is absolutely necessary.
Claim All Deductions
It is essential to have a solid understanding of the deductions that you are eligible to take. As soon as you get this information, you may begin to minimise the amount of your taxable income by claiming all permissible deductions related to your work.
The following are examples of some of these costs:
- Computer equipment
- Books and courses pertaining to a given technology or business
- Expenses incurred for the use of a vehicle and for travel, including board and lodging. However, there are very specific guidelines that govern what kinds of things cannot be claimed.
- Home office overhead costs.
If you limit your tax deduction to the portion of an expense that is relevant to work, you may still be able to deduct personal expenses associated with the purchase. There are extra ways to decrease your tax liability if you are the owner of a business or an investment in real estate.
It is important to be aware of the threshold for work-related claims in order to avoid being flagged by the tax department; if you are unsure of the level, you should seek counsel.
You need to be able to offer documentation for any claims that are worth more than $300 in order to be eligible for the financial prizes. If the amount is less than $300, you will be required to demonstrate how you calculated the claim but will not be required to produce written documentation to the tax department if they ask you about it.
How To Lower Your Tax Bill
1. Submit deductible costs
Deductions can be claimed by individuals for costs that are immediately associated with the production of taxable income.
For instance, in order for a person to be eligible for a deduction connected to their employment, they need to be in possession of documentation demonstrating that a purchase was made, as well as proof that they paid for the item out of their own pocket and did not receive any reimbursement.
2. Give to a charitable cause
Those who give money as a present may be eligible for a tax break in exchange for their generosity.
Donations made by individuals to organisations that qualify as deductible gift recipients are eligible for tax deductions for the individuals making the donations (DGR).
The gift must consist of money or property and be a genuine gift, which is defined as a transfer of ownership that is made voluntarily and from which the donor derives no financial or other advantage.
3. Create a mortgage offset account
Individuals who have a home loan may use something called a mortgage offset account to compensate for the fact that the interest they pay on the loan is not tax deductible by receiving interest on the standard taxable profits of money that has been deposited.
It refers to an arrangement in which borrowers open a savings account with the institution that is providing them with financing.
Then, rather than paying interest on the total amount of the home loan, consumers are charged interest on the remaining balance of the loan after deducting the amount that they have in their savings account.
4. Delay receiving income
To avoid having to pay tax for the current fiscal year, it is best to put off getting paid until after the 30th of June if at all possible. This will help reduce the amount of taxable income you bring in during the current fiscal year.
5. Place your investments in a flexible family trust
Those with a high income who want to redistribute some of that income to family members in tax bands lower than their own can benefit from establishing a family trust with discretionary powers.
A discretionary trust that has been properly drafted gives trustees the ability to distribute assets to the members who will benefit the most from them in terms of their tax situation.
This means that trustees can give more income to beneficiaries who are in lower tax brackets or to those who have no other income in order to take advantage of the tax-free threshold of $18,200.
Any profits made on the sale of assets might be given to beneficiaries who have capital losses accessible to them or who are eligible for the discount of fifty percent.
Beneficiaries, who are eligible to use the imputation credits to lower the amount of tax that must be paid on other income, may also get franked dividends.
If an asset is held for longer than a year, the capital gains tax on the sale of that asset is discounted by fifty percent. This discount is available to trusts as well.
6. Prepay expenses
It is possible to carry forward the tax deduction to the current fiscal year by prepaying tax-deductible expenses for up to a year’s worth of service. One example of this would be making interest prepayments on a loan for investments.
7. Invest in an investment bond
Investment bonds, also known as insurance bonds, are investments that are considered to be “tax paid” and can be utilised as a strategy for the accumulation of wealth.
They are a type of life insurance policy that is sold by insurance companies and building societies and combine aspects of managed funds with traditional life insurance coverage.
Earnings such as interest and capital gains made from a bond are not considered part of the individual’s taxable income because the bond provider pays an internal tax rate of 30%, leaving the individual with nothing to report on their tax return. After ten years, no additional tax is required to be paid.
Investors are permitted to contribute additional capital to the fund provided that the total amount of their further contributions does not exceed 125% of their initial capital contribution. This results in the activation of the 125% rule, which resets the 10-year benefit for the newly invested amount to the beginning of the first year.
8. Review your income package
To lower the amount of taxable income you report, you might want to consider salary sacrifice. By agreeing with your employer to pay for certain things or services directly from your pre-tax salary, a practise known as “salary sacrifice” can be carried out.
Many products, including technological devices, motor vehicles, daycare, private health insurance, superannuation, and so on, are eligible for salary sacrifice for individuals.
The majority of firms will provide salary sacrifices to super, but it is in your best interest to speak with your company about what additional perks they provide.
Anyone who earns more than the tax-free level of $18,200 can participate in salary sacrifice through their employer. On the other hand, those with moderate to high earnings are the best candidates for this.
9. Make spousal contributions
Those with higher incomes who contribute some of their retirement savings to their partner’s account may be able to lower the amount of tax they owe.
Spouses can claim a tax offset of up to 18 per cent on super contributions of up to $3,000 made on behalf of their non-working or low-income earning partner.
10. Expense reimbursement for educational programmes
Employers are eligible for a tax deduction for education costs paid by employees if the expenses are directly related to the employee’s existing work, serve to maintain, improve, or expand the employee’s skills or knowledge necessary for their present role, or raise the employee’s income.
11. Take a look at the setup of your company
In Australia, the most frequent types of organisational forms for businesses are sole proprietorships, partnerships, companies, and trusts. The owners of businesses need to have a solid understanding of the obligations associated with each business structure since the business structure they choose will have an effect on the amount of taxes they owe, the level of asset protection they enjoy, and the continuous expenditures they incur.
By doing a review of your current business structure, you may determine whether or not it is still suitable for the current circumstances of your company.
12. Eliminate bad debts
If a company is registered for GST on an accruals basis, they are eligible to earn a GST credit on their subsequent BAS as well as a tax deduction for writing down bad debts, providing the following conditions are met:
- The company has done all in its power to collect the debt, but all of its efforts have been in vain, and there is no longer any reasonable hope that it will be paid back.
- Before the close of the fiscal year, the accounting records are updated to reflect that the bad debt has been formally written off.
- Your unpaid debt is counted towards your assessable income for either the current or the previous fiscal year, depending on when it was incurred.
13. Claim deductions for depreciating assets
From May 12, 2015, through June 30, 2018, small firms have the opportunity to claim an instant write-off of up to $20,000 for qualified assets that they start using or have installed, are ready to use, and have paid for. This opportunity is available.
The limit of $20,000 can be applied to an unlimited number of different things. If an asset costs $20,000 or more, it will be added to the small business pool of the corporation and will be depreciated at a rate of 15% in the first income year and then at a rate of 30% in each subsequent income year.
14. Apply for the 15-year exemption
If the owner of a small business is 55 years old or older, has retired or been permanently unable to work, and has owned a business asset for at least 15 years, then the owner is exempt from paying the capital gains tax (CGT) when they sell the asset.
15. Utilise the active asset decrease of 50%
The potential capital gain on an active asset can be reduced by a small business owner’s 50% under certain circumstances. A tangible or intangible asset that is used in the operation of a firm, or that is held ready for operation, is referred to as an active asset.
16. Take into account utilising the small business rollover
If a small business owner realises a capital gain through the sale of an asset, they may be eligible to defer the payment of the capital gains tax (CGT) on the gain if they purchase a replacement asset during the next two years.
17. Depreciation claim submitted for the property
The vast majority of properties that bring in revenue are eligible for depreciation on some level or another. Investors in real estate are eligible to claim the capital works deduction (Division 43) and the plant and equipment depreciation deduction (Division 40).
Renovating a home qualifies for the capital works deduction, which applies to goods that are permanently attached to the structure of a property.
The plant and equipment deduction refers to the amount that you are permitted to claim for certain things that are located within the property.
These items include window coverings and blinds.
18. Make use of a quantity surveyor
Quantity surveyors are able to assist in the preparation of a depreciation schedule, which can help investors maximise their claims for depreciation. In addition, you can deduct the money you spent on generating this report from your taxes.
19. Negatively gear your property
The process of producing tax losses through the use of tax-deductible costs that are greater than investment income is known as negative gearing.
When the annual rental income of a property is less than the owner’s deductible expenses for maintaining and improving the property, the owner is eligible to deduct a portion of the net rental loss from their taxable income.
20. Submit an advertisement expense claim
Investors in real estate are allowed to deduct the money they spend trying to lease their properties to tenants and keep them there.
Both direct and indirect expenses of advertising can be recouped; direct costs are those incurred when an investor advertises independently, while indirect costs are those incurred when an agency advertises on the investor’s behalf.
21. Make a claim for the many other costs
Investors are also allowed to deduct costs associated with the upkeep of a pleasant, sanitary, and risk-free environment. Some examples of this would be the costs associated with cleaning, gardening, rodent control, and security patrol services.
22. Make super contributions
Instead of being taxed at the higher marginal rate, contributions to a superannuation account that were made concessionally (that is, before taxes were withheld) are subject to a 15 percent tax (which can be as high as 49 per cent).
Salary sacrifice and personal deductible contributions are two examples of the several kinds of concessional contributions that individuals are able to make.
The practise of consenting with your employer to have a portion of your pre-tax pay paid straight to your super fund is referred to as “salary sacrifice.” A salary sacrificed amount does not result in taxable revenue for the employee.
You are eligible to contribute to your super and claim a full tax deduction if you are self-employed, substantially self-employed, or a person who does not receive financial support.
23. Franking Credits
Franking credits are a type of tax credit that enable Australian corporations to pass on to their shareholders the amount of tax that was paid at the company level.
Franking credits have the ability to either reduce the amount of income tax that must be paid on dividends or be obtained as a tax refund.
When a firm pays out fully franked dividends to its shareholders (and when those dividends are included in the taxpayer’s taxable income), the shareholder is eligible to receive a credit against their own taxable income equal to the amount of tax that has already been paid by the company from which the dividend was received.
24. The retirement exemption
The timing of the sale of assets with significant capital gains that are held outside of a small company owner’s retirement account should be considered in order to minimise the amount of capital gains tax incurred.
There is a lifetime cap of $500,000 on the capital gains tax exemption that can be claimed on the sale of assets from an active business. In addition, individuals who are under the age of 55 are required to deposit the proceeds from the sale of an asset into a retirement savings account or a superannuation fund.
If you have owned the asset for longer than a year, you are eligible for the CGT discount of fifty percent.
25. The bring-forward rule
The bring-forward rule enables eligible Australians to contribute up to the equivalent of three years’ worth of non-concessional contributions in a single financial year, which represents their annual non-concessional contributions ceiling spread out over a consecutive three-year period.
When after-tax contributions surpass the limit for the fiscal year in which they are made, the bring-forward rule is immediately activated. Since July 1, 2017, the limit for this has been set at 100 000 dollars.
When it is activated, the standard contribution limit for non-concessional accounts is removed for the subsequent two years, and the maximum amount of money that can be contributed over the course of the three years is $300,000.
26. Set up an enforceable death benefit nomination
Your retirement benefits will not be included in your will. In the event that you do not make a nomination prior to your death, the trustee of your super fund will decide which of your beneficiaries will be entitled to receive your super benefits.
The term “Binding Death Benefit Nomination” (BDBN) refers to a formal nomination that you submit to your super fund in order to appoint your dependents as beneficiaries in the event of your passing.
In most cases, a BDBN will become invalid after three years, which is why it is essential to update it on a regular basis.
27. Plan to avoid the ‘death tax’
The dependents of a deceased member are exempt from paying taxes on the super death benefits. Nevertheless, a significant number of members are not survived by dependents.
They are frequently survived by self-sufficient adult offspring who do not qualify for tax-free benefits from the Social Security Administration. In most cases, the taxable portion of the lump-sum super death payout is subject to a tax rate of 15%, which is added on top of Medicare and any other applicable levies.
Members should think about utilising a contribution scheme, having a separate pension, or even pulling down on their super before they pass away in order to reduce the likelihood that their adult offspring who have survived them may be required to pay the “death tax.”
28. Administering a deceased estate
As the executor of an estate that belongs to a deceased person, you are responsible for fulfilling a number of special tax duties, including the following:
- You are required to inform the ATO that you have been appointed as executor.
- The final return for lodging as well as any trust tax returns
- Give beneficiaries the information they need to report their share of the distribution on their tax returns.
- Having to make tax payments on money earned by the estate of the deceased
29. Utilise a testamentary trust
After a person’s death, testamentary trusts make it possible to distribute their income in a tax-efficient manner. Testamentary trusts are created both within and by a person’s will, but they do not become active until after the individual has passed away.
Any taxable income that is produced by a testamentary trust is either kept by the trustor or distributed to the beneficiaries in a way that minimises the beneficiaries’ tax liability.
On the amount of income they receive from the trust, beneficiaries are subject to taxation at their highest applicable rate.
However, beneficiaries under the age of 18 are subject to taxation at the standard adult rate rather than the higher tax rate that is normally imposed on children. When it comes to taxes, this is where the potential for savings might be quite significant.
30. Prepare for your funeral
If funeral costs are paid in advance or money is invested in a funeral bond, the taxpayer may be eligible for large tax savings in the future.
Bonds with a face value of up to $12 000 are regarded as “exempt assets” for the purpose of the age pension means test administered by Centrelink and the Department of Veterans Affairs.
In order to qualify for the tax benefits associated with funeral bonds, the total amount invested needs to be for “reasonable” funeral expenses.
When individuals prepay for their funerals, they are able to be quite particular about what they want, while also paying the fees that are in effect today.
How You Can Put That Tax Refund to Use
1. Pay off debt
According to the data provided by the Australian Bureau of Statistics, a significant number of households in Australia are in some type of debt. It could be a debt from a credit card, a personal loan, or even a mortgage (or a combination of all).
More over a quarter of these people had total debts that were equal to or greater than three times their annualised income from disposable sources.
You can improve your ability to manage your money by using a portion of your tax refund to pay off some of your outstanding bills.
2. Boost the amount in your savings
Putting any unexpected money, such as money from a windfall or a tax refund, into savings while you mull over your options is a prudent thing to do if you aren’t sure what to do with the money right immediately.
There are accounts that will provide you extra interest during the first few months that you have the account, which will add to the initial sum that was sent to you by the tax office.
After that, you will be able to get access to your money as soon as you have made a decision regarding how you would like to spend it.
A term deposit is another option for you to consider when looking for a safe location to put your cash. The temptation to spend it right away is eliminated because you won’t be able to access it for a defined length of time, but it can get some decent interest while you decide what you want to use it for because you won’t be able to access it for that amount of time.
3. Top up your superannuation
You can boost the amount of your retirement savings by making a personal contribution to either your own or your spouse’s retirement account.
This is money that is added on top of any mandatory super payments that are made on your behalf by your company, as well as whatever that you add through any salary sacrifice agreement that you may have.
Contributing to your superannuation account with money that has already been taxed is a straightforward method that, if you have the financial flexibility to do so, can help you build up your retirement nest egg.
Please be aware that there are limits placed on the amount you can contribute to your retirement account during any given tax year. To make sure you don’t go over these limits, the caps may change based on your age and whether or not your contributions are made before or after taxes.
You should consult with an independent and competent financial and tax professional before settling on any course of action concerning your retirement savings.
Get further details from the Australian Taxation Office.
4. Invest in a few different stocks
Because the Australian Securities Exchange (ASX) is home to more than 2,000 different companies, you should be weary of investing all of your money in just a single stock. However, there are strategies that can help you diversify your share investments and reduce some of the dangers associated with the volatility of the market.
Investing in exchange-traded funds, also known as ETFs, can provide you with greater diversification across multiple markets.
ETFs are listed on stock exchanges, and investors can buy and sell units in an ETF much like shares of stock through a broker.
This gives investors access to a certain region or country, as well as a particular investment theme (e.g. real estate).
ETFs give a relatively low-cost entry method into markets that might otherwise be difficult to access. In addition, they can provide diversification, transparency, and liquidity to limit risk, which is especially helpful when markets are volatile.
5. Boost the value of your house
Renovating your home or apartment can increase the value of your property and give it a cosier, more lived-in atmosphere. Before you get started on the remodelling, make sure you look through any local council norms and requirements.
Be conscious of the fact that, similar to other types of investments, the value of real estate markets is not always guaranteed to go up. It is simple to make a mistake by either investing too much money in the renovations or concentrating on the wrong areas.
Keep to your spending plan, and don’t try to accomplish too much in too short of a time with the money you have available. Even if you just paint one area, you can breathe new life into things for the new fiscal year.
