Claiming your tax deductions

There are different types of deductions which individuals can claim to reduce their taxable income.

Work-related expenses

In order to claim work-related tax deductions, the expenses must have to meet three criteria. Firstly, all the expenses have to be paid by the individual, without being reimbursed by the employer. Secondly, they must be directly related to earning your income. Finally, there must be a record of the expenses (i.e. a receipt).

There are various different expenses which can fall under this category.

• Vehicle and travel expenses: Commuting between different locations but not usual travel between home and work
• Clothing, laundry and dry-cleaning expenses: Cost of work uniform which is distinct and unique (i.e. has a specific logo)
• Self-education expenses: Any courses or study associated with employees current role, such as textbooks
• Tools and other equipment: If you purchase tools or equipment, then a deduction for some or all the cost could be claimed

Investment expenses

The cost of earning interest, dividends or other investment income can also be claimed. This can include:

• Interest charged on money borrowed to invest
• Investment property ex[enses
• Investing magazines and subscriptions
• Money you paid for investment advice

Home office expenses

A portion of the costs associated with installing your home office can be deducted. The process is now much easier due to COVID-19. It allows people to claim 80 cents per hour for all running expenses. Additionally, people living in the same house can claim this individually, there is no need for a dedicated office.

Other deductions

There are also other deductions available. These include:

• Union fees
• The cost of managing your tax affairs
• Income protection insurance (If not through super)
• Personal super contributions
• Gifts and donations to organisations that are endorsed by the ATO as deductible gift recipients

Using your tax return wisely

Getting your tax refund back is exciting, but as tempting as it is to splurge, consider other ways you can put that money to good use. It is easy to get caught treating your return as extra money when you shouldn’t see it any differently than your regular paycheck. Give the money a purpose by thinking about your personal financial situation and determining your needs.

Emergency fund:
An emergency fund can make all the difference if a difficult financial situation comes up, acting as a backup in the case of an emergency such as losing your job or medical costs. Building an emergency fund with enough money to cover at least three months worth of expenses is a good starting point. Make sure the money is added to a high-interest savings account to utilise compound interest. If you are contributing regularly to this fund, adding money from your tax return can boost it above schedule.

Make debt repayments:
With a bit more money at your disposal, now is the time to make repayments on debts you may have. Start with the higher interest debts and work down, your interest repayments will drop when you lower your outstanding balance. These debts can be things like credit cards, personal loans, outstanding bills or mortgage repayments.

Budget 2018: living stronger

The Government is focused on encouraging older Australians to better grow and secure their personal retirement funds.

Retirees exempt from work test
An exemption from the work test will be established to allow retired Australians aged between 65-74 who have total super balances below $300,000 in their first year that they do not meet the work test criteria, to make voluntary payments into their superannuation funds.

Retirement income strategy
Superannuation trustees will now be required to produce a retirement income strategy for their superannuation fund members. This is due to new amendments to the Superannuation Industry (Supervision) Act 1993.

The Government is also set to revise the Corporations Act 2001 to ensure providers of retirement income products will supply standardised and simplified reporting to assist with more informed decision making.

Pension Work Bonus
Increase in funding to the Pension Work Bonus will mean that pensioners can now receive up to $300 per fortnight before their pension payments are affected. The Bonus will also cover self-employed individuals, who will be entitled to receive up to $7,800 per year without reducing their pension payments.

Funding for older workers program
Additional funding will be provided over four years to form the Skills Checkpoint for Older Workers program, starting from 2018-19. This measure will focus on supporting employees aged 45 to 70 to remain working for longer.

Improved skills for mature age Australians
Funding will be provided over the next five years to help mature age individuals to remain up to date with changing and new skills needed to remain relevant in their workplace.

Thinking about your cash flow

If the three most important things in real estate are “location, location, location,” the first three rules of business are “cash, cash, cash.” It is necessary to be profitable, but “profit” is a number that shows up on your accounts at the end of the year; cash is the money you have in the bank. In a small business, it is cash that determines whether you can pay your bills.

Businesses can’t get money in unless they get their invoices out. However, many business people delay sending out their bills. This may be because they feel uncomfortable asking someone for money, afraid of being challenged on how much they’ve billed, or just too busy working to bill for it. The longer you wait to send out your invoices, the greater the chance you won’t get paid.

No matter what business you’re in, you’re going to have a lag between outgo and income. If you’re a consultant, you have to pay for your phone, stationery, marketing materials, and rent before you get your first client. Once you’ve got them, you’re not going to see complete payment for at least 30-60 days after you finish a project. Things are much worse if you’re a manufacturer. You’ve got to pay for raw materials and equipment many months before you’ll see final payment.

Draw up a cash flow projection. Even if you don’t write up a budget or income statement, it is a good idea to sketch out when you expect money to come in and when you need money to go out. In your projection, be sure to include:

• Cash receipts, including income from sales and income from financingCash disbursements, including all expenses (cost of goods, operating expenses, loan payments, income tax payments, etc.)

• Net cash flow — opening cash balance plus receipts, minus disbursements

• Ending cash balance

Utilise your small team for success

Small teams provide many benefits to both employees and employers. In comparison to larger teams, small teams are shown to have higher levels of productivity and effective communication. However, a vital component to the success of these teams relates to the support and coordination provided by management. Ways to maximise your small team’s efforts can include:

Cross-functional communication
If your employees understand how the other functions of your business work and how their work will directly impact all aspects of the business, it can provide them with more responsibility. It allows for all staff to work towards a common goal. The key is to provide staff with holistic training and education that fosters greater understanding.

Delegate with descriptive job roles
Delegation can provide employees with guidance on what needs to be achieved to reach the end goal. It can provide clear direction for staff while employers can oversee budget and timing schedules. It also allows the employer to focus on other opportunities such as business growth.

Break down large goals into small, achievable tasks
It is important to keep in mind the overall strategic goals when completing daily tasks. The daily tasks set should directly correspond with the larger goals. Reframe the way your employees can view large goals by sticking to the SMART principle that includes specific, measurable, achievable, realistic and timely objectives.

Budget 2013:Medicare Levy increase affects small business

The increase in the Medicare levy from 1.5 per cent to 2 per cent, will effectively bring the top marginal tax rate to 47 per cent. This will not only impact on individual taxpayers but will have a flow on effect to small businesses. A number of tax laws that businesses regularly comply with apply the top marginal income rate as a penalty rate of tax.

As a result, the following common tax items will be subject to tax of 47 per cent, up from the previous 46.5 per cent:

–          Fringe Benefits Tax (FBT)

–          TFN and ABN Withholding Tax

–          Family Trust Distributions Tax

–          Trusts, where Section 99A applies to retained income

–          Excess non-concessional contributions to super (with tax on excess concessional contributions to increase to 32%)

Budget 2013: Personal income tax rates

The 2013 Federal Budget, released on Tuesday contained a number of significant taxation changes that will impact on individual taxpayers.

Personal Income Tax Rates

Although individual income tax rates have remained unchanged, changes that were due to apply from 1 July 2015 have been deferred. Initially, the tax free threshold was set to increase from $18,200 to $19,400. The current legislated rates applicable for the 2013/14 income year are set to remain in place until 2017/18.

Tax rates for non-residents

For the 2013/14 income year, non residents will pay a flat rate of 32.5 per cent on all taxable income up to $80,000. For taxable income exceeding $80,000, the marginal tax rate for non-residents are the same as those for resident individuals. Proposed legislation to remove the capital gains tax discount for non-residents seems to be on schedule to be introduced in the final few weeks of Parliament.  Finally, non-residents will be subject to a non-final withholding tax of 10 per cent of the proceeds from the sale of certain taxable Australian property with effect from 1 July 2016.

Budget 2013: Monthly PAYG instalments

In an unexpected announcement, the Government has now made it a requirement for all large entities in the PAYG instalment system to make monthly PAYG income tax instalments. The monthly PAYG instalment system will therefore be extended to include trusts, superannuation funds, sole traders and large investors.

The system will be phased in between 1 January 2014 and 1 January 2017 and will come into force as follows:

-Corporate tax Entity with a turnover over $1 billion: 1 January 2014

-Corporate tax entity with turnover over $100 million: 1 January 2015

– Corporate tax entity with a turnover over $20 million and other PAYG entities with a turnover over $1 billion: 1 January 2016

– Other PAYG entities with a turnover $20 billion: 1 January 2017.

Budget 2013: Fair work receives funding to tackle workplace bullying

The Fair Work Commission has been given $21.4 million over the next four years to fund legal remedies for victims of workplace bullying.

A recent report by the Productivity Commission has highlighted the significant impact of bullying in the workplace, which could cost an estimated $36 billion in productivity each year.

The Fair Work Commission is set to begin hearing bullying complaints from 1 July 2013- although the accompanying Fair Work Amendment legislation is yet to pass through Parliament.

Following the proposed legislation, the Fair Work Commission will have the power to intervene in bullying cases where the complaint could not be resolved between the parties involved.

Small businesses will be updated by business groups in regards to the bullying requirements in the lead up to 1 July.

Budget 2013: Changes to franking credit benefits

Various measures have been introduced by the Government to close the loophole that enables sophisticated investors to engage in double claiming from franking credits.

Under the proposed changes that are due to come into effect from 1 July 2013, the Government will ensure that when an investor sells shares ‘ex-dividend’, and then immediately buys equivalent shares which still carry the dividend entitlement (known as ‘cum-dividend’ shares), the investor will only be able to claim one set of franking credits.  The investor will not be able to claim franking credits otherwise available in respect of one of the two dividend entitlements.

The proposed changes will focus on tightening the 45 day ‘holding period rules’, and on the basis of these changes will not affect small investors with annual franking credit entitlements that do not exceed $5,000.