Tax tips for microbusinesses, employees and individual investors

At the end of the financial year (EOFY), it’s time to take stock and put finances in order for the coming year.

With the end of the financial year (EOFY) just around the corner, it’s time to take stock and put finances in order for the coming year, whether you're a microbusiness, employee or individual investor.

Bring forward income and defer deductions

The effective highest marginal tax rate will increase from 46.5 per cent in the 2013-14 year to an effective rate of 49 per cent in the 2014-15 year given the combined effect of the 0.5 per cent increase in the Medicare levy, and the proposed 2 per cent Temporary Budget Repair Levy which are to apply to individuals deriving taxable income over $180,000 from 1 July 2014.

Tax time is right around the cornerAccordingly, individual taxpayers in the highest tax bracket may wish to consider bringing forward income into the 2013-14 year as it would be taxed at a lower tax rate than that which is proposed to apply in the 2014-15 year.

Conversely, such taxpayers may wish to defer deductions from the 2013-14 year to the following financial year as such amounts will be deducted at the proposed higher effective tax rate of 49 per cent.

Care should be taken to ensure that any action taken does not breach the general anti-avoidance provisions or any specific provisions that could curtail activities such as the prepayment rules.

Accordingly, you may wish to contact your CPA Australia registered tax agent if you are proposing to either defer deductions or bring forward income.

Claim work-related deductions

Claiming all your work-related deduction entitlements may save considerable tax.

In doing so check whether you have all the necessary receipts or credit card statements.

Typical work-related expenses include:
  • employment-related telephone, mobile phone and internet usage
  • computer repairs
  • union fees
  • professional subscriptions.

Home office expenses

When part of your home has been set aside primarily or exclusively for the purpose of doing work, a home office deduction may be allowable.

To claim it you must have typically kept a diary for at least four weeks of the hours you worked at home. This amount is then used to work out your total hours worked for the year and a deduction claimed at a current rate of $0.34 cents per hour.

Self-education expenses

Self-education expenses can be claimed provided the study is directly related to either maintaining or improving your current occupational skills or it is likely to increase your income from your current employment.

By contrast, if the study is designed to enable you to obtain new qualifications in a different field then the expenses incurred are not allowable.

Typical self-education expenses include:
  • course fees
  • textbooks
  • stationary
  • student union fees
  • the depreciation of assets such as computers and printers.

It should be noted that Higher Education Loan Program (HELP) repayments are not deductible.

You must also disallow $250 of self-education expenses which can include non-deductible amounts such as child care costs.

Claim depreciation deductions

Immediate deductions can be claimed for depreciating assets that cost under $300 and are mainly used to earn non-business income to the extent the asset is used for an income-producing purpose.

The deduction is only available to an individual employee or rental property owner to the extent the asset is used mainly to earn salary and wages or rent. Such assets include tools, calculators, briefcases, computer equipment and technical books purchased by an employee, or minor items of plant purchased by a landlord.

Maximise motor vehicle deductions

Where you have used your motor vehicle for work-related travel, and your claim for kilometres travelled for the year does not exceed 5000 kilometres, you can claim a deduction for your car expenses on a cents per kilometre basis to the extent you have used your car for work.

The allowable rate for such claims changes annually so you may need to obtain this year’s rate from the Australian Taxation Office (ATO). Such claims must be based on reasonable estimates.

On the other hand, where your business travel exceeds 5000 kilometres it may be possible to claim one-third of actual car expenses or 12 per cent of the original value of the vehicle without a log book.

Alternatively, if your work-related travel exceeds 5000 kilometres then you may be able to claim a deduction for your total car-running expenses to the extent you have used the car for work. Such claims are only available where you have kept the required log book, odometer readings and receipts.

You can contact your CPA Australia registered tax agent to clarify what constitutes work-related travel, and which of the above methods can be applied to maximise your tax position.

List rental property deductions

Landlords can claim immediate deductions for a range of expenses such as interest on investment loans, land tax, council and water rates, body corporate charges, insurance, repairs and maintenance, agent’s commission, gardening, pest control, leases (preparation, registration and stamp duty), advertising for tenants, and reasonable travel to inspect properties.

Landlords may be entitled to claim annual deductions for the declining value of depreciable assets (such as stoves, carpets and hot-water systems), and capital-works deductions spread over a number of years (for such structural improvements as remodelling a bathroom).

Maximise tax offsets

Tax offsets directly reduce your tax payable and can add up to a sizeable amount. Eligibility for tax offsets generally depends on your income, family circumstances and conditions for particular offsets.

For the 2013-14 year, taxpayers should check their eligibility for tax offsets which include:
  • the dependent spouse offset
  • low-income tax offset
  • mature-age worker offset
  • senior Australians and pensioners offset
  • offset for superannuation contributions on behalf of a low-income spouse.

Take care as access to both the dependent spouse and mature age worker tax offsets are being phased out.

The means-tested tax offset for high net medical expenses is also being phased out. Only taxpayers who claimed the offset for 2012-13 are eligible to claim again for 2013-14 provided they also satisfy the relevant income and net medical expenditure tests.

Maximise your super contributions

Gone are the days when you could wait until the kids had left home and you’d paid off the house to top up your super with additional contributions. Since the introduction of the contribution caps in 2007, you really need to contribute as much as you can each year up to the caps if you have any hope of maximising your super.

The concessional contributions cap for the 2013-14 financial year is $25,000 if you’re under 60 and $35,000 if you’re aged 60 or over. Concessional contributions include any contributions made by your employer, salary-sacrificed amounts and personal contributions claimed as a tax deduction by self-employed or substantially self-employed persons.

If you’re making extra contributions to your super and breach the concessional cap, the excess contributions over the cap will be taxed at your marginal tax rate, although you can have the excess contribution refunded from your super fund.

High-income earners also need to be aware that the contributions tax on concessional contributions is effectively doubled from the normal 15 per cent rate to 30 per cent if their combined income plus concessional contributions exceeds $300,000.

You can also boost your super by making non-concessional, or after-tax, contributions.

While not as tax-effective you are still getting more money into the concessionally taxed super environment. The non-concessional contribution cap is $150,000 for 2013-14 but you could also take advantage of the “bring forward” provision if you’re under 65 and utilise the cap for the next three years to contribute up to $450,000.

If you breach the non-concessional cap, the excess contributions over the cap will be taxed at the top marginal tax rate, although the Government has announced that any excess non-concessional contributions made since 1 July 2013 will be able to be refunded from your super fund.

Importantly, don’t leave it until 30 June to make your contributions as your super fund may not receive the contribution in time and it will count towards next year’s contribution caps, which could result in excess contributions and an unexpected tax bill next year.

Plan ahead

The annual concessional contribution cap will increase to $30,000 from 1 July 2014 if you are under 50 and will be $35,000 if you are aged 50 or over. Similarly, the annual non-concessional contribution cap will increase to $180,000 from 1 July 2014.

If you want to take full advantage of the higher concessional contribution cap next financial year, employees should arrange with their employer to adjust their salary-sacrificed contributions before July.

You should also carefully consider the timing of your non-concessional contributions if you want to take advantage of the bring forward provision. If you triggered the bring-forward provision in 2013-14, you could contribute up to $450,000.

However, if you waited until after 30 June you could contribute the higher amount of $540,000 due to the indexation of the non-concessional contribution cap.

Self-employed? Consider tax effective superannuation contributions

A self-employed person will be able to claim their contributions to a complying superannuation fund as fully tax deductible up to the age of 75 in the 2013-14 tax year.

Such contributions will only be deductible if less than 10 per cent of the total of a person’s assessable income, reportable fringe benefits or reportable employer superannuation contributions is attributable to their employment as an employee.

Such a deduction cannot increase or create a tax loss to be carried forward. Employers can also claim deductions for superannuation contributions made on behalf of their employees.

Consider the superannuation co-contribution

An individual likely to earn less than $48,516 in the 2013-14 tax year should also consider making after-tax contributions to their superannuation to qualify for the superannuation co-contribution. The Government will match after-tax contributions fifty cents for each dollar contributed up to a maximum of $500 for a person earning up to $33,516.

The maximum then gradually reduces for every dollar of total income over $33,516 reducing to nil at $48,516.

Employers – super guarantee increases from 1 July 2014

As an employer you are required to contribute 9.25 per cent of your employees’ salary to the super fund of their choice under the superannuation guarantee (SG). The Government had announced the SG contribution rate would be frozen for two years.

However, this hasn’t been legislated so the SG rate will increase to 9.5 per cent from 1 July 2014 and will likely remain at that level until 30 June 2018.

Also, next time you’re paying your employees’ contributions why don’t you consider making a contribution for yourself? If you’re substantially self-employed you could claim a tax deduction for your personal contributions.

SMSFs and employer contributions

From 1 July 2014 employers with 20 or more employees will be required to pay superannuation contributions electronically. All employers will have to meet this requirement from 1 July 2015.

Superannuation funds, including SMSFs, will need to have processes in place before 1 July 2014 to continue to receive employer contributions from larger employers. Importantly, SMSFs will have to obtain an electronic service address from a SMSF messaging provider and provide it to their contributing employers. The ATO website has all the details.

Consolidate your super

It makes a lot of sense to have your entire super in one place. You’ll reduce the amount of fees you’re paying, only receive one lot of paperwork, and only have to keep track of one fund. Having one fund also means you can take it with you when you change jobs.

Look to consolidate the super funds you do have into one fund. Compare your funds to work out which best suits your needs. Important things to look at are fees and charges, the investment options available and life insurance cover. You can look at past investment performance as well but remember it is no guarantee of how the fund will perform in the future.

Once you’ve chosen the fund you want to keep, contact them and they can help transfer the money from your other super funds.

If you’ve moved around or changed jobs occasionally, your old super fund may have lost track of you and you may miss out on some of your super when you need it.

To find lost super, start with the ATO website. 

This article originally appeared at Officeworks.

October 2021
October 2021

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