Come tax time, it’s easy to get bewildered by the labyrinthine world of tax rebates, exemptions, penalties and claims- not to mention the bundles of receipts and documents you have to hang on to throughout the year! To avoid ending up in a tax evasion scandal a’la Dolce and Gabbana or missing out on much-needed (ok, wanted) shoe money, we spoke to finance professional Dr Steven Enticott about the biggest mistakes to avoid, what changes we need to know about this financial year, and how to get the most back from your tax return.
RESCU: What do we need to know about changes to superannuation come tax time?
Dr Enticott: We have two very ‘good news’ superannuation items for the 1st of July, 2013. First up, the super guarantee (on our wages) rises from 9% to 9.25%, meaning more money heading into your retirement planning. Secondly, the maximum deductible contributions for the over 60s increases from $25,000 to $35,000. So, right now is a very good time to review your superannuation and salary sacrificing situation.
RESCU: Is contracting an accountant to do our tax return a sound investment?
Dr Enticott: Of course it is (and excuse my bias). A good accountant always knows how to maximise your tax returns and keep you out of trouble with the Tax Office. The reality is that the accounting profession loves tax. We often lie awake at night reading about tax rulings before we go to sleep. We love it and we know more about it than just about anyone. What’s more, an accountant’s fees are tax deductible and that includes the cost of travelling to see them!
RESCU: How can we get the most out of our tax return?
Dr Enticott: This is a big one! Take the time to ensure you have collated and summarised all the expenses that have any connection with earning your income (no matter how remote a connection it is). Even if your accountant can’t fully claim the expense, they should be able to at least claim a percentage of it. It really is worth your while to spend the time to find all the deductions possible. It’s money in your pocket!
RESCU: What are the hidden penalties and rebates we need to look out for?
Dr Enticott: You have to be very careful with the timing of your claims and the income estimates you submit. For example, if you contribute more to superannuation than your allowable maximum, then the penalties (which can be quite draconian at times) do not emerge for 12 months or more. Another big one is estimating your total income for Centrelink payments (such as Family Tax Benefits). Underestimate your income and won’t hear a word, that is until you lodge your tax return… Then bang, you get hit with a back payment and often when you can least afford it. So be very careful to get it right!
RESCU: Were there any changes made in this year’s budget that will affect our tax returns for this financial year?
Dr Enticott: One big change to remember is that next year (2014) is the last tax year there will be a big claim for self-education expenses. If you’re planning on study that will cost you more than $2,000, then make sure you do as much of that study as you possibly can in the 2014 financial year, because in future your claim will be capped. It’s a silly policy in my opinion, given we supposedly want to be the ‘clever country’. Wanting a ‘clever country’ while consciously removing the incentive to be clever? Go figure…
RESCU: What’s the biggest mistake people make when it comes to their taxes?
Dr Enticott: The number one mistake is forgetting to include all your interest, dividend, and managed fund/trust income in a tax return. Every time you submit your tax file number to an institution, your income information is sent to the Tax Office. So the Tax Office already knows all about your earnings when it runs its data matching tools over your return. So take the time to find and declare everything. It will save you time and money in the future.
Dr Enticott’s top tips on what to look out for to maximise your tax return
Superannuation co-contributions are still something you should look at. Yes, the Government has lowered the matching rate to 50% (meaning a 50% return on your money instead of 100%) and reduced the amount to $500 (from $1,000), as well as lowering the eligible income threshold. It’s still tax free money from the ATO, so why not take it? You must earn below $46,920 to start qualifying (including add-on adjustments like fringe benefits and reportable superannuation).
Low-income superannuation contributions. Up to another $500 tax-free bonus is available on (adjusted) taxable incomes of up to $37,000 to directly boost your retirement savings.
Goodbye medical expense offset! If your medical out-of-pocket expenses exceed $2,120, then currently you can get a 20% rebate, but if you don’t claim the rebate this year (FY 2012-13), then it’s gone! If you do claim, the rebate will be extended for the next two years (if you keep claiming), so pay any costly medical bills before June 30 to remain eligible.
New Medicare levy surcharges and rebate reduction income tests. To determine your Medicare levy surcharge or your health fund rebate, visit the ATO website. But if you’re on an (adjusted) single income greater than $84,000 or family income greater than $168,000, then consider insurance before it’s too late!
Capital gains. Have you made a capital gain this year from the sale or part sale of a business, shares or property? If the answer is ‘yes’, start thinking about managing your capital gains tax liability. Start by looking for capital losses from anything you‘ve sold (or should sell) this year (before June 30), or any losses carried forward from prior years, to offset your gains.
Superannuation. The concessional cap payments into super have increased to $35,000 for anyone aged 60 or over on 30 June 2013 (for financial year 2013-14) and for anyone aged 50 or over on 30 June 2014 (for financial year 2014-15), so review your future salary sacrifice arrangements today!
Excess superannuation contributions. From 1 July 2013, the Government is proposing to make these refundable instead of taxing them. However, penalties remain for this financial year, so make sure you check your existing contributions before making more. And make sure contributions for this year are paid well before June 30!
Prepay your business expenses. If it’s been a great year, prepay expenses where you can and don’t be too hasty sending out your invoices prior to June 30.
Business stock takes. If you have stock, do the dreaded count on June 30.
Finally, don’t forget! You can claim expenses for sunglasses, hats and sunscreen if you’re a taxpayer in any outdoor occupation (including driving), but only if you have a receipt (so don’t lose them!).
Dr Steven J Enticott is a senior partner of www.ciatax.com.au accountants and author of the new book How to deal with Financial Distraction, now available at good book stores and online at www.financialdistraction.com.au
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