Tax reduction tips and tricks

We’re told the two inescapable things in life are death and taxes. We can’t really help you out with death, but taxes needn’t be quite so scary. You do have to pay tax, but there are ways to minimise your liability.
Just remember when you’re developing your tax plan, one of the keys to tax minimisation is to not pursue strategies solely for their tax benefits, but to think about them in the broader context of your overall investment strategy.

Superannuation

There are a number of superannuation strategies you could look at, including personal deductible contributions, government co-contributions and undeducted contributions.

  • Undeducted Contributions are when you put money towards your super from post-tax income - no more tax is taken when you contribute to it, and it’s tax free when you take it out. Any earnings on this over time will only be liable for 15 per cent tax.
  • The Co-Contribution Scheme means every time you pay a dollar of undeducted contributions towards your super, the government pays $1.50.

Both schemes are limited to $1500, and you must be earning less than $28,000 pa for the $1500 - co contribution drops by 5c for each dollar over the threshold.

Other Strategies

Aside from superannuation there are other strategies you can employ to minimise your tax.

  • Pre-paying expenses to reduce taxable income - You can prepay your interest on an investment loan up to twelve months in advance, then claim the deductions against your salary this year.
  • Using tax-effective investments or gearing strategies to increase your tax deductions. There are a number of options here. One popular method is investing in agricultural schemes - check with ASIC for product rulings.

Claiming back tax for individuals and sole traders

There are some things you might not have expected to be able to claim back. For example, if you needed to pay for a specific work uniform, you could claim for this. You can also claim for travel expenses incurred when travelling between two different jobs on the same day.

According to income tax law, a person operating a business can claim a deduction for the expenses incurred in carrying on this business. In other words, if you needed to buy a new laptop to maintain the smooth running of your business, you should be able to claim it back. The ATO sets out a few basic rules for this. Obviously you must have actually paid or be committed to spending the money - you’ll need some proof such as receipts, and the expense must be related to your business - you’ll need to be able to show why it was essential. A newly installed sauna probably won’t make the grade for a freelance writer.

There is no available and definitive list, but if you do have business expenses, you can claim on a range of things including rent of premises, business travel, advertising and interest on borrowed money.

Get Advice

People pay for professional tax advice for all sorts of reasons. But forking out for it can save you far more than it actually costs, when you take into account the whole array of tips the advisor can give you. On top of that, the fee can be taken from your (often much larger) tax return. You can check to see if an agent is registered at the Tax Agents’ Board.

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