JUNE IS THE month when our minds turn to tax and the obligation to lodge our tax returns, which brings to mind Kerry Packer’s memorable claim, “I pay what is due and not a penny more.”
The purpose of this column is to assist you in adopting the same philosophy which you are perfectly entitled to do, providing you understand the important difference between tax evasion and tax avoidance.
Tax evasion is acting contrary to the law and incurs severe penalties, whereas tax avoidance involves working within the law to avoid paying more tax than you need to.
So what do you need to understand in order to implement Kerry Packer’s advice?
Claim all deductible expenses
Make sure you claim all expenditure incurred in the tax year that is tax deductible.
This will require you to keep either paper (invoices, receipts etc.) or electronic records that contain date of expenditure, description and amount.
Bank statements and credit card statements may suffice if they contain sufficient identifying information.
Alternatively download the ATO myDeductions App and use it to record your deduction records on to your mobile or tablet.
This App is suitable for use by individuals and sole traders.
Work related expenses totalling less than $300 do not require supporting documentation but you will be expected to have a reasonable basis for arriving at the amount you are claiming.
This may apply for example when claiming laundry of uniforms or protective work clothing.
Claiming all expenditures such as donations, work related expenses, business and investment related deductions etc. can be quite complicated, so give consideration to using the services of a registered tax agent whose fees and your travel time to visit are deductible.
Your tax agent will also be able to advise you on the appropriate records you will need to claim the deductible component of motor vehicle, phone, computer, home office expenses, laundering of uniforms and protective clothing, self-education expenses and depreciable assets etc.
Use timing to increase deductions
We have probably all heard the saying “a bird in the hand is worth two in the bush”. This equally applies to tax by bringing forward deductions into the current year and reducing your tax liability for the current year rather than waiting a further 12 months or more before you claim the tax saving from the deduction.
Deductible expenses such as insurance premiums should be timed to fall due in June rather than any other month of the year.
The same goes for depreciable assets that are deductible such as computers, rental property depreciable contents, and particularly tools, plant and equipment and motor vehicles used in a business.
If you donate to charities, school building funds etc. give a thought to making these donations in June rather than earlier in the year, reducing the time period between the cash outlay and the receipt of the tax deduction benefit.
Delaying receipt of
Timing benefits can also be accessed by delaying the receipt of income until July rather than having it paid to you in June.
This strategy could be applied to timing the sale of investments that are likely to trigger a capital gain where there are no offsetting capital losses available.
Wage and salary earners entitled to a year-end bonus may be able negotiate payment in the first pay period in July rather than the last pay period in June.
Sole traders selling on credit could consider delaying invoicing for work done in June until early July.
Tax saving and impact on
The income and deductions strategies explained above whilst reducing your taxable income will have a significant impact on your cash flow if you are entitled to
a refund and lodge your tax
Example: A sole trader on an otherwise taxable income of $60,000 brought forward the purchase of an item of plant costing $15,000 from July to June which is fully tax deductible being under the $20,000 cap for a small business.
She also delayed billing customers for work done in June until July 1 amounting to $6,000 thereby reducing her taxable income by $21,000 to $39,000.
With tax levied at $0.34 per dollar in the range from $37,000 – $87,000 her tax saving and increased cash flow would amount to $7,560 including a low income tax offset of $415.
Tax-free gift of up to $500
Your homework is to Google “Super Co-Contribution” to discover whether you are eligible to receive your free gift.
The content of this article is not intended to be used as professional advice and should not be used as such. If you have any questions you should consult a registered
Brian Spurrell – FCPA CTA, Director
Personalised Taxation & Accounting Services Pty Ltd. 0412 011 946