Your essential EOFY Checklist
No one wants to pay more tax than they need to or face unnecessary risks. We’ve compiled a list of our top tips for you.
Super Co-Contributions (Money for free) – If you are a low or middle-income earner and make personal after tax (non-concessional) contributions to your super fund, the federal government will also make a contribution up to a maximum of $500.
To receive the co-contribution your total income must be below $51,813 for the 2018 financial year. If you are earning less than $36,813, the federal government will pay $0.50 for every dollar contributed to super, as an after tax contribution, up to a maximum of $500. If you are earning between $36,813 and $51,813 the figure reduces by 3.33 cents for each dollar over the $36,813. Consequently, if you earn less than $36,021 and you make an after tax (non-concessional) contribution of $1,000, the government will contribute $500 to your Superannuation fund, subject to the eligibility requirements set by the tax office. For more information, please refer to Super Co-Contribution.
The personal superannuation contributions need to be received by your superannuation fund prior to 30 June to be eligible to receive the government co-contribution.
Spouse Super Contribution
On 1 July 2017, the spouse income threshold increased, meaning more people are now eligible to claim the tax offset for the 2017-18 and future financial years. You can claim the maximum tax offset of $540 if:
- you contribute to the eligible super fund of your spouse, whether married or de-facto, and
- your spouse’s income is $37,000 or less.
The tax offset amount will gradually reduce for income above this amount and completely phases out when your spouse’s income reaches $40,000.
You will not be entitled to the tax offset when your spouse receiving the contribution:
- exceeds their non-concessional contributions cap for the relevant year, or has a total superannuation balance equal to or exceeding the general transfer balance cap ($1.6 million for 2017–18) immediately before the start of the financial year in which the contribution was made.
Superannuation opportunities from 1 July 2017
The general concessional contributions (CC) cap was reduced to $25,000 for all individuals regardless of age.
The 10% Rule was removed for the 2017-18 and future financial years. This means most people under 75 years old can claim a tax deduction for personal super contributions (including those aged 65 to 75 who meet the work test). This change improves the flexibility of the super system so that more Australians can use their concessional contributions cap.
The non-concessional contributions (NCC) cap was reduced to $100,000 for members under 75 (members aged 65 to 75 must meet the work test to contribute). Members under 65 who have a superannuation balance of under $1,600,000 may be able to trigger the ‘bring-forward’ rule. This rule allows the member to bring-forward two years’ worth of non-concessional contributions and add it to the current year’s cap, meaning the maximum non-concessional contribution available for the year is $300,000.
The contribution and bring-forward amount available to members under 65 is outlined in the following table.
Donate – If you are going to donate to charity, now is the time. Any donations you make to deductible gift recipients can be deducted this year. Remember, if you received something in return for the money, like goods purchased at a charity auction, you may not be able to claim a deduction for the full payment. There are special rules dealing with this situation that need to be taken into account.
Work related deductions – you can claim a deduction for business expenses you have incurred that have not been paid by your employer. But be careful, you need to be certain that what you are claiming is a genuine business expense and able to be claimed. For example, you cannot claim the cost of dry cleaning the clothes you wear to work unless it is protective clothing, a uniform required by the business, or occupation specific clothing (like the checked pants chefs wear).
Deductions for items like laptop bags have been in the news recently because some handbags can be used to carry laptops. This does not mean that your Gucci bag is suddenly deductible. It is really up to you to justify the deduction that you are claiming, keeping records of the actual usage of the item can help with this.
Home office expenses – if you work from home as part of your employment, you may be able to claim items such as phone expenses, running costs for your home, and equipment. Just bear in mind that expenses need to be in proportion to your use of your home for work purposes. If your home is a place of business and you are entitled to claim a deduction for interest expenses or rent, then this will generally impact on your ability to claim the full main residence exemption from CGT when you sell your home.
Earning extra cash from AirBNB style services – The tax treatment of what you earn by renting all or part of your house through AirBNB and similar services is the same as any other residential rental property arrangement. You must include the rental income in your income tax return, but you can also claim tax deductions for rental expenses, such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, and insurance. Expense claims need to be in proportion to the rental, that is, how much of the house is used and for how long. Also, be wary that this type of activity can restrict your ability to claim the CGT main residence exemption when you sell the property if it is, or has been your home.
Uber – If you drive for Uber or a similar service, the income you earn needs to be declared on your income tax return. Plus, you need to be registered for GST, regardless of your turnover. You can claim expenses for your car that relate to transporting passengers (relative to the kilometres travelled with passengers).
Danger zones – Expense claims that are high on the Australian Taxation Office (ATO) hit list include:
- Travel expenses – Problems arise when people make claims for expenses that they did not actually incur. Typically, this happens when someone receives an allowance for travel but does not spend it (they might stay with family or friends instead). While the ATO publishes some reasonable rates each year for food and accommodation expenses, these only provide limited relief from the full record keeping rules. You cannot claim a deduction for the ATO reasonable rate amount if you spent less than this on food and accommodation.
- Self-education expenses. Any study you claim as self-education must be connected to the income you are currently earning (either to maintain or improve your specific skills or knowledge) or is likely to result in increased income from existing income earning activities. Merely doing a course while working full time does not make the course deductible. Be careful of excessive claims for overseas travel and luxury courses. You need to prove that these expenses are essential to your current work.
You can no longer claim – If you are a property investor, you can generally no longer claim the cost of travelling to and from your investment property.
Delay Pay – Look for ways to delay income until July where your taxable income is likely to be higher this year than next.
Bring forward tax deductions – Where possible, look for ways to pay tax-deductible expenses now and bring forward the tax deduction. Consider pre-paying 12 months’ interest on deductible debt or premiums on your personal income protection insurance or pre-paying subscriptions, conferences and membership fees for professional associations.
Insurance discounts – Premiums for personal income protection insurance can usually be paid one year in advance with a discount for this annual payment. This provides a significant benefit as opposed to paying in regular instalments.
Investment deductions – It is important to understand what can be tax deductible in relation to your investments such as property, shares and managed fund investments. Most of the expenses incurred with managing an investment property – for example strata fees and council rates – are tax deductible. This also applies to shares or managed fund expenses – for example ongoing fees for financial advice. Some investment expenses, for example interest on a margin loan, may be able to be pre-paid one year in advance to bring forward the deduction. You need to confirm which fees are tax deductible and can be claimed.
The ATO will continue to focus on rental property deductions to ensure that expenses are claimed correctly. If you are a new rental property owner, you can access this fact sheet for an overview of your deductions.
Realising capital losses – The end of the financial year is a good time to assess your capital gains and work out if you have a net capital gain from stocks sold. If so, you should also be looking through your portfolio for stocks with losses that you could sell to offset paying tax on the gains. However, it is important to sell assets legitimately, not purely for taxation purposes. The ATO has issued a warning on what they consider ‘wash sale arrangements’, so be wary, certain transactions may be scrutinised as to the primary purpose of the sale.
If you are concerned about how this may affect you, please contact your tax professional or financial adviser before proceeding.
Source: Written by Felicia Jamieson, Director of Cambridge & Kent Pty Limited, Sydney, June 7, 2018