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It’s been a year of change like no other and that extends to tax and superannuation. As the end of the financial year approaches, now is a good time to check some new and not so new ways to reduce tax and boost your savings.
Below, Invest Blue’s Scone Financial Adviser and former Tax Accountant, Michael Gillett shares a number of small business and personal tax tips to help you improve your overall financial situation in 2020-21.
Michael has been in the financial services industry for over 25 years, working in various roles in Australia, the US and UK. For 17 years he was a Chartered Accountant in Scone, NSW and Perth, where he provided tax and business advice to primarily small businesses.
Now, Michael is firmly focused on sharing his expertise with his hometown community. He is passionate about helping local people and families access quality financial advice that has the ability to make a positive impact on their lives.
If your super could do with a boost and you have the cash to spare, now is the time to check whether you are making the most of the contribution strategies available to you.
You can make tax-deductible contributions up to $25,000 a year, including super guarantee payments by your employer, salary sacrifice amounts and your personal contributions.
Super pays tax at 15% so if you are personally paying more than that, this could be an appropriate way to get a tax deduction and save for your retirement,
The carry-forward rule involves accessing unused concessional cap amounts from previous years. This means, if your super balance is less than $500,000, you are able to contribute the unused portion of the previous years’ caps and have the advantage of claiming a tax deduction on this amount.
This is useful for smoothing your tax liability from year to year. Especially if you have realised a capital gain during the year which may lead to a nasty tax bill.
Work from Home Dedication
If you have been working from home, the Australian Taxation Office (ATO) has introduced a temporary shortcut method that can be used for the 2020-21 financial year. This allows you to claim 80c for each hour you worked from home during the year.i
The shortcut method covers the additional running costs for home expenses such as electricity, phone, internet, cleaning and the decline in value of home office furniture and equipment.
Some people may get a better result claiming the work-related portion of their actual working from home expenses using the actual cost method.
Alternatively, if you do have a dedicated home office, you can claim using the fixed-rate method. The fixed-rate is 52c an hour for every hour you work at home and covers things like gas and electricity, and the decline in value or repair of office furniture and furnishings. On top of this, you may be able to claim the work-related portion of phone and internet expenses, computer and stationery supplies, and the decline in value of your digital devices.ii
Pre-pay expenses
While COVID has changed many things, some things stay the same. Such as the potential benefits of pre-paying next year’s expenses to claim a tax deduction against this year’s income.
Some examples are pre-paying 12 months’ premiums for your income protection insurance and work-related expenses such as professional subscriptions and union fees. If you are unsure of what you can claim, the ATO has a guide for a range of occupations.
If you own an investment property, you might also consider pre-paying 12 months’ interest on your loan and other property-related expenses. This effectively brings forward your interest expense and allows another avenue for income smoothing for the tax year. Of course, the loan has to be for investment purposes that generate taxable income. This will also fix your rate for the next 12 months.
Learn about the major changes coming to insurance protection in our article ‘time to review your cover.’
Clean up your Investment Portfolio
Now is a good time to look at your portfolio for any loss-making investments with a view to selling before June 30. Any capital loss may potentially be used to offset some or all of your gains.
Of course, any decision to buy or sell should fit with your overall investment strategy and not for tax reasons alone.
Determine the investment style that is most appropriate for you with our tools and calculators.
Review your Direct Debits
This is not so much a tax tip but good housekeeping. Those direct debits that chew through your monthly cashflow may be worth reviewing to see if you still use those services or could actually do without them. Don’t forget the ones that hide in your credit card statement or on alternative platforms like Google, Apple and PayPal.
For assets first installed and ready for use from 12 March 2020 until 30 June 2021, an instant asset write-off from business assets up to $150,000 for each asset is available. Just to confuse things a little, if certain requirements are met, for any eligible asset purchased after 6 October 2020 until 30 June 2022, full expensing of the asset can occur without any upper threshold limit.
Prepay expenses
As mentioned under the prepayment of interest rules, this also extends to other prepaid expenses such as rent or leases. Just remember the 12-month rule will apply.
Pay June quarter Super guarantee
If you are on the ball and can calculate your super guarantee obligation and pay this before June 30, you can claim this in the current tax year.
Purchase consumable/office supplies
If you need to re-stock the stationery cupboard, June is a great time to do this. These will be completely deductible if incurred before the end of the financial year.
Review your direct debits
This housekeeping rule applies to a small business as much as the individual taxpayer. After all, there is no point in spending $1 to get a $0.40 tax deduction.
For all the challenges of the past year, there are still many ways to improve your overall financial situation. To make the most of the strategies available to you before June 30, book an appointment with an Invest Blue Adviser.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
