Tax savings for the taking!

April to May is the ideal time to take advantage of last minute actions to maximise your tax savings. To help you make the most of your opportunities, First Class tax has prepared a four-part briefing that provides valuable insights and tips to maximise tax savings and avoid potential penalties during the tax season. It shares strategies individuals can employ, highlights the importance of understanding tax penalties for income declaration and lodgement obligations, and even touches upon the taxation of overseas income for Australian residents. It is a valuable guide for individuals seeking to optimise their tax positions while ensuring compliance with taxation laws and regulations.

Here is Part 1:

Tax savings for you:

There are some simple things you can do to reduce your personal tax: 

• Claim the cost of working from home – If you work from home some days, keep a diary of the hours you have worked at home to claim the 67 cents per hour shortcut rate. Other methods apply for home based businesses and where your expenses are higher and claimed separately.

• Costs connected to your job – If you spent money related to your work that was not reimbursed by your employer – e.g., meals while you were away overnight, etc. – you can generally claim these (make sure you have receipts). Check the ATO’s industry specific guides on what’s reasonable to claim.

• Donations reduce your tax – If you are likely to have a big tax bill this year from gains you have made, consider a larger than usual donation to a deductible gift recipient (DGR) charity before 30 June.

• Top up your super – You can claim a deduction for contributions you personally make to super from after-tax income up to $27,500 per annum (assuming you have not reached your transfer balance cap). You need to lodge a notice of intent to claim with your super fund. See below for super strategies.

• Pay in advance – While paying in advance for deductible expenses doesn’t save you cash, if you need to reduce your tax bill, you can pay some deductible expenses for next year by 30 June and take the tax deduction this year.

• Studying for work – Self education expenses that are related to the work you do are often tax deductible, although there are some parameters around this. So, if you have been taking short courses to improve your knowledge, you can often claim the cost of the course and some other related expenses. Just be aware that study costs to obtain new work or to start a new business are not covered. The study needs to be related to how you earn your income now.

• Building and managing your investments – The costs of earning interest, share dividends and income from your investments is generally deductible. This includes the account fees for investment accounts, interest on loans for investments you earn income from, the cost of investment seminars if they are directly related to investments you have made (not intending to make), fees for investment advice relating to existing investments, ongoing investment management fees, and specialist journals and subscriptions related to your investments. But, brokerage fees, an initial investment plan, transaction fees, etc are not generally deductible.

Avoiding penalties:

• The ATO can apply a penalty if you fail to declare income in your tax return that results in a tax shortfall. Penalties start at 25% of the tax liability owing and then escalate quickly if you were reckless (50%), or intentionally tried to evade tax (75%). Then, if they are really unhappy with you, they can increase the penalty base amount by 20%. There are also penalties that can apply if there is no shortfall but you didn’t take reasonable care, were reckless, or intentionally disregarded your obligations. Penalties of up to 75% of the tax liability can also apply if you don’t lodge your tax return and the ATO takes a position on what they believe you owe – tax is still owing even if you don’t lodge your return.

• If you are an Australian resident for tax purposes (and not classified as a temporary resident), you are taxed on your worldwide assessable income – salary, wages, director or consulting fees, some allowances, bonuses, commissions, interest, pensions, rental and other investment income, and if you are a content creator, gifts and other income. For those with income from overseas, if you have paid tax on that income overseas, you will need to declare the income on your tax return but you might be eligible to reduce your Australian tax bill by the tax you have already paid overseas.

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