Do you know the tax deductions and offsets for which you might be eligible as a self-preparer? The following tax tips – work-related expenses, rental property deductions, cryptocurrencies and more – may help you to legitimately reduce your tax liability in your 2017-18 return.
Claim work-related deductions
Claiming all work-related deduction entitlements may save considerable income tax. Typical work-related expenses include employment-related mobile phone, internet usage, computer repairs, union fees and professional subscriptions that the employee paid themselves and for which they were not reimbursed.
Essentially, for an expense to qualify:
- you must have spent the money yourself
- it must be directly related to earning your income
- it must not have been reimbursed
- you must have the relevant records to prove it.
It is prudent to also be aware that that the Australian Taxation Office (ATO) has received a large boost in funding in this year’s Federal Budget
that will enable it to have a stronger focus on ensuring taxpayers claim only the work-related expenses to which they are entitled.
Some of this additional funding will go to improving the checking of claims in real time, additional audits and also prosecutions.
Claim home office expenses
When part of your home has been set aside primarily or exclusively for the purpose of work, a home office deduction may be allowable. Typical home office costs include heating, cooling, lighting and even office equipment depreciation.
To claim the deduction, you must have kept a diary of the hours you worked at home for at least four weeks.
For more information on home office expenses go to the ATO website or talk to 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 current occupational skills or is likely to increase 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.
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.
Immediate deductions can be claimed for assets that cost under $300 to the extent the asset is used to generate income. 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.
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 deduction is generally 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 two choices of how you can claim.
If the annual travel claim does not exceed 5000 kilometres, you can claim a deduction for your vehicle expenses on the cents-per-kilometre basis. The allowable rate for such claims changes annually, so it is important you obtain this year's rate from the ATO or your CPA Australia registered tax agent.
You do not need written evidence to show how many kilometres you have travelled, but the ATO and therefore your tax agent may ask you to show how you worked out your business kilometres.
If your business travel exceeds 5000 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.
Claim 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
- repairs and maintenance
- agent's commission
- pest control
- leases (preparation, registration and stamp duty)
- advertising for tenants
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 is important to remember that landlords are no longer allowed travel deductions relating to inspecting, maintaining, or collecting rent for a residential rental property.
Further, deductions for the depreciation of plant and equipment for residential real estate properties are limited to outlays actually incurred by investors in residential real estate properties.
For example, for properties acquired from 9 May 2017, landlords can no longer depreciate assets that were in the property at the time of purchase, however should they purchase a new asset, they can depreciate that asset.
Plant and equipment forming part of residential investment properties as of 9 May 2017 will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.
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.
Monthly tax update 2018 (webinars): offering the most current and comprehensive overview of the month’s tax changes and how they affect you, your organisation and your clients
Seek advice on residential property and non-residents
The government has proposed that the Australian home of a non-resident for tax purposes, including Australian expatriates will no longer have access to the capital gains tax main residence exemption on disposal.
As proposed, non-residents who acquired properties by or before 9 May 2017 have until 30 June 2019 to dispose of the property to still access the main residence exemption. The measure applies in full for properties acquired after 9 May 2017.
It should be noted that the change is retrospective in that it applies to homes acquired from 20 September 1985. Further, it does not matter whether the taxpayer was a resident or non-resident at the time of purchase – the only fact for consideration is that the owner is a non-resident at the time of disposal.
For example, an Australian resident bought a home in 1986. In 2016, the Australian resident takes up an opportunity to work overseas and becomes a non-resident. In 2020, the person decides to sell their Australian home.
As they were a non-resident at the time of disposal, the capital gain on the property for the entire period from purchase in 1986 to disposal in 2020 is taxable. This could result in an unexpected tax bill in the many hundreds of thousands of dollars if not more. The measure will, if passed, also have an impact on beneficiaries should the owner of an Australian home die as a non-resident.
If you are an Australian resident living overseas or thinking of moving overseas, you should contact your CPA Australia registered tax agent for advice on this proposed measure.
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.
Think about your gains or losses from cryptocurrencies
If you are or have been involved in acquiring or disposing of cryptocurrencies, you need to be aware of the income tax consequences. These vary depending on the nature of your circumstances.
One example of cryptocurrency is Bitcoin. The ATO view is that Bitcoin is neither money nor Australian or foreign currency. Rather, it is property and is an asset for capital gains tax (CGT) purposes.
Other cryptocurrencies that have the same characteristics as Bitcoin will also be assets for CGT purposes and will be treated similarly for tax purposes. However, if you are carrying on a business trading cryptocurrencies the income will be ordinary income.
A person involved in cryptocurrency transactions needs to keep appropriate records for income tax purposes.
If you are involved in cryptocurrencies, you should contact your CPA Australia registered tax agent for advice.
Watch your superannuation contribution limits
You may wish to consider maximising your concessional or non-concessional contributions before the end of the financial year but keep in mind the contribution caps were reduced from 1 July 2017.
The concessional contribution cap for the 2017-18 financial year is only $25,000. 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.
Similarly, the annual non-concessional (post-tax) contributions cap is only $100,000 and the three year bring-forward provision is $300,000. Individuals with a balance of $1.6 million or more are no longer eligible to make non-concessional contributions.
High-income earners are also reminded 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 $250,000.
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.
Claim a tax deduction for your superannuation contributions
Claiming a tax deduction for personal superannuation contributions is no longer restricted to the self-employed. The rules changed on 1 July 2017 and anyone under the age of 75 will be able to claim contributions made from their after-tax income to a complying superannuation fund as fully tax deductible in the 2017-18 tax year.
Such a deduction cannot increase or create a tax loss to be carried forward. If you’re aged 65 or over you will have to satisfy the work test to contribute and if you’re under 18 at 30 June you can only claim the deduction if you earned income as an employee or business owner.
To claim the deduction, you will first need to lodge a Notice of intent to claim a deduction form with your superannuation fund by the earlier of the day you lodge your tax return or the end of the following income year. Any contributions you claim a deduction on will count towards your concessional contribution cap.
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 $51,813 in the 2017-18 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 $36,813. The maximum then gradually reduces for every dollar of total income over $36,813 reducing to nil at $51,813.
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 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.
In particular, if you have insurance cover in a fund, check that you can transfer or replace it in the new fund so you don’t end up losing the benefit altogether. 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 the ATO website.
Seek independent advice on investment products promoted as being tax-effective
The end of the financial year often sees the promotion of investment products that may claim to be tax effective. If you are considering such an investment, seek independent advice before making a decision, particularly from your CPA Australia registered tax agent.
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