Tax tips for employees

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Do you know what tax deductions and offsets you may be eligible for? The following tips may help you legitimately reduce your tax liability in your 2015-16 return.

Claim work-related deductions

Claiming all your work-related deduction entitlements may save considerable tax. Typical work-related expenses include employment-related telephone, mobile phone, internet usage, computer repairs, union fees and professional subscriptions.

Note that for the first time ever the ATO is checking these claims in real time.  Claim only what you are legally entitled to claim and ensure that you have all necessary receipts or credit card statements to back-up your claims.

Claim 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. Typical home office costs include heating, cooling, lighting costs, and even depreciation of your office equipment.

To claim the deduction you must have typically kept a diary for at least four weeks of the hours you worked at home. For more information on home office expenses see www.ato.gov.au or your CPA Australia-registered tax agent.

Claim 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. If you obtain new qualifications in a different field through study, the expenses incurred are not tax deductible.

Typical self-education expenses include, course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers, tablets and printers.

However, any 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

Immediate deductions can be claimed for assets that cost under $300 to the extent the asset is used for an income producing purpose. Such assets may include tools for tradespeople, calculators, briefcases, computer equipment and technical books purchased by an employee, or minor items of plant purchased by a landlord.

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Assets costing $300 or more that are used for an income producing purpose can be written off over a period of time as a tax deduction. The amount of the tax deduction is typically determined by the asset’s value, its effective life and the extent to which you use it for income producing purposes.

Maximise motor vehicle deductions

If you use your motor vehicle for work-related travel, there are now only two choices for how you can claim work related travel. If your annual claim for kilometres travelled does not exceed 5,000 kilometres, you can claim a deduction for your vehicle expenses on a cents per kilometre basis. The allowable rate for such claims changes annually so you need to obtain this year's rate from the ATO or your CPA Australia-registered tax agent. Such claims must be based on reasonable estimates.

If your business travel exceeds 5,000 kilometres, you must use the log book method to claim a deduction for your total car-running expenses. 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.

Rental property deductions

Owners of rental properties that are being rented out or are ready and available for rent 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
  • 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 structural improvements, like re-modelling a bathroom).  It’s worth noting that the ATO has indicated it is closely examining these claims again this year.

You can contact your CPA Australia-registered tax agent to clarify if your expenditure is repairs and maintenance and can be claimed immediately or improvements, which can be claimed over time.

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.

Taxpayers should check their eligibility for tax offsets which include, amongst others, the low-income tax offset, senior Australians and pensioners offset and the offset for superannuation contributions on behalf of a low-income spouse.

Proposed changes to tax thresholds

The government has proposed to increase the threshold at which the 37 per cent tax rate begins from $80,000 to $87,000. For those earning above $80,000 this typically may present an opportunity to delay earning income to the following year and bringing forward expenses to the current year, however it is uncertain whether this proposed increase will become law therefore we suggest that taxpayers be circumspect.

Be circumspect on superannuation

The proposed changes to superannuation announced in the Budget and the calling of the election make it difficult to provide tips on what people should do with their super. Given the uncertainty at the time of writing, it may be prudent to wait until further detail is released on the proposed changes.

However, if your circumstances permit you may wish to consider making the maximum allowed concessional contribution before concessional contributions cap kick in. The concessional contributions cap for the 2015-16 financial year is $30,000 if you're under 50 and $35,000 if you're aged 50 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.

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.

Self-employed 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 2015-16 tax year. However, 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.

However, please be aware that government is proposing a $500,000 lifetime non-concessional contributions cap, effective from 1 July 2007.

Consider the superannuation co-contribution

An individual likely to earn less than $50,454 in the 2015-16 tax year should consider making after-tax contributions to their superannuation to qualify for the superannuation co-contribution if their circumstances permit. 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 $35,454. The maximum then gradually reduces for every dollar of total income over $35,454 reducing to nil at $50,454.

Consolidate your super

For most employees 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 you only have to keep track of one fund.

Consider consolidating 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 your lost super check out SuperSeeker on the ATO website at www.ato.gov.au

Seek independent advice on end of year tax effective investment products

The end of the financial year often sees the emergence of tax effective investment products. If you are considering such an investment, seek independent advice before making a decision, particularly from your CPA Australia-registered tax agent.

Read next: Tax tips for students


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