10 Simple Ways to Save Money On Tax

They say death and taxes are the unavoidable parts of life!

Well, lets look at some ways in which ATO policy allows various professionals and contractors to legally save money on tax (I don't think the ATO can help you with the death part!)

Why are deductions available?

The Australian Taxation Office puts in place some 'deductions' - these are allowed to be subtracted from the tax you would have otherwise have paid (usually you can get them back in your tax refund). Deductions are usually seen as a thing the Government or the ATO wants to encourage for the society at large - particularly more education, more business, and more investment.

10 Simple Ways To Save Thousands On Tax

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1) Salary Sacrifice into your Super

This is one of the best ways to pump up your investing in the low tax environment that is Australian superannuation. You can invest this salary sacrificed super contribution up to a certain level (presently up to $25,000) as a 'concessional contribution'. This contribution will help supercharge your nest egg.

2) Negative gearinG SHARES OR PROPERTY

if you have a rental property, and the expenses to hold that investment (including mortgage payments) are greater than the rental income then you are in a situation where its is negatively geared. You can legally reduce your personal income tax payable by the amount of the net loss. Negative gearing is an effective way for higher paid (and higher taxed) individuals to invest and hold assets that they will hold for the long term.

3) Education expenses

tuition fees and associated education costs (including trade journals, travel expenses between the place of education and home) are deductible.  Courses of education that have a strong link to your current profession and that enable you to be paid more are eligible to receive this deduction. Check out the ATO's self education expenses calculator to see if your education expenses can be deducted from your tax.

4) Financial planning expenses

Financial planning expenses can be deductible in many cases, partiality if you are self employed or a contractor that runs their own business. The initial meeting (which will result in a Statement of Advice) is seen as capital in nature, however, ongoing financial advice may be eligible to be a deductible expense for you. 

5) Depreciation

Many people do not claim depreciation on their rental property, but they definitely should - its often the second biggest expense behind the mortgage repayments. What you are claiming here is the wear and tear on the properties fittings, renovations, and the building itself, if built after 18 July 1985. The allowable deductions for depreciation do vary, but will be in the region of $4,000-$9,500 per annum generally.

MyDepreciation.com.au has a good online calculator to use to get an idea of what you can claim. 

Get in touch with us to arrange accounting and depreciation reports through our partner businesses.

6) Franking Credits

Do you hold Australian shares? if so, you are likely to hold companies from which you receive a dividend each year, and attached to those dividends are franking credits. These credits are like a little tax refund that allows you to claim back the tax that the company has already paid on that income, so you don't pay tax twice on it. Lets check out an example: ANZ paid a 0.73c dividend per share in May 2013, it was 'fully franked' - with company tax fully paid on that income. So, an Aussie taxpayer that had 500 shares of ANZ @ 0.73c gets a franking credit of $156.42 which is refunded to them by the ATO. A simple calculator can be found at mymoneycalculator.com.au,  and there are some useful articles on the ASX ("Fabulous Franking Credits") and on The Bull ("Dividend Imputation") which may be helpful.

7) Income protection insurance

an essential insurance if you have a mortgage, loan commitments, or a family to support. Income protection insurance is so fundamental, and directly related to you income, that the ATO allows you to deduct the cost of the policy premium. The ASIC MoneySmart site has some nifty resources to research more on income protection. See their page 'Income protection - an important safety net' for more details.

8) Work related deductions

these can include diaries and logs, educational books, software, laptops, mobile phones, postage, briefcases, interest on loans for work related purchases, and calculators. If possible, get your employer to pay for the expense, or if you are a contractor or self employed, arrange these items (supported by a receipt or invoice) to be deducted by your accountant.

9) Home office

Many professionals now work from home one day or more per week, even if they do a corporate or managerial job.

It is likely you will be able claim a deduction for the use of furniture (i.e. desk, printer), energy, home telephone and stationary to be able to conduct business effectively from home.

The government thinks the NBN will support this into the future - read more on this at NBN - Working remotely

10) When you use your private car for work trips

Many of us will use our private vehicles to bring in large files or items to work, undertake travel to other sites including client sites, or out of hours work from time to time (perhaps IT implementations in the weekend at AM hours, finishing off important material between home and office in the weekend, etc).

This can be deducted via four different methods, but the two most popular are the 'cents per kilometre method', and the 'logbook method'. You can refer to the ATO guidance at - 'Tax Tools - work related car expenses'. 

You can claim a maximum of 5,000 kilometres with the cents per km method (e.g. if you have 10,000 business kilometres you can still use the cents per km method but only claim 5,000). The cents per kilometre claim for a small car (1.6L or less) is 63c, (1.6-2.6L) is 74c or 75c for large (more than 2.6L) car. For example if you made 500 kms worth of trips in a 1.8L Audi A3 x $0.74 gives you a $370 tax deduction.

Tips: remember you tolls also if you travel via a paid toll route, and to help you map your distances, Google Maps is invaluable.