The end of the financial year is coming, and so too is that one thing everybody dreads doing – their tax return. Even though your tax return can be lodged up to 31 October 2020, you may need to act now to implement some of the tax reduction and wealth building strategies outlined in this newsletter. Make sure to pay attention to the items that require action in early June to meet the 30 June 2020 deadline as they may involve giving your HR or payroll department enough notice to take action.
When reviewing and preparing your income tax position for the 2019/2020 financial year, we suggest you take into consideration the following three points:
1. Claim all deductible items
There are numerous expenses you can declare on your tax return that will reduce the amount of tax you pay. The most common tax deductions are work related expenses and charitable donations. Work related expenses are purchases made in the process of earning your assessable income. You can claim up to $500 of work related expenses without needing a receipt (unless a single expense exceeds $300). However, we advise that you keep proof of all purchases where possible.
Note that due to COVID-19, you are able to claim certain home office related expenses can be claimed (check with your account for specific advice around this).
2. Offset capital losses against your capital gains
You can also deduct any of your capital losses against your capital gains to reduce the amount of tax payable. For most people, a capital gain will occur when they sell shares or property. If at sale, these assets are worth less than when they were purchased, you can reduce any other capital gains for that financial year by offsetting the amount of the loss.
3. Review your investments
End of financial year is a good time to review how your investments are going and evaluate if they are performing to expectations, especially if you have recorded a capital loss in the current financial year. In some cases, it may be appropriate to sell off an under-performing asset and realise a capital loss to potentially reduce the amount of capital gains tax you pay om any other realised capital gains. You can then use the money from that sale to invest in a new asset that is likely to grow in the future.
Tip: Electronic Tax Returns
When it comes time to lodge your tax return you may be able to do it online using the government’s myTax online portal. To do this, you will need to:
- - go onto the ATO website and create a myGov account.
- - link your myGov account to the ATO.
- - Access myTax portal.
Personal income tax rates
The personal income tax rates which apply from 1 July 2020 are as follows:
|Taxable Income||Tax on this Income1|
|$0 - $18,200||Nil|
|$18,201 - $37,000||19%|
|$37,001 - $90,000||32.5%|
|$90,001 - $180,000||37.0%|
|$180,001 and over||45.0%|
1 Excluding Medicare Levy of 2%.
In this section we look at a range of things you can do before 30 June 2020 to get the most benefit from superannuation and maximise your retirement wealth.
Salary Sacrifice into super and you could save tax
Salary sacrifice forms part of your concessional contributions (which also include your employer’s 9.50% compulsory SG contributions, any further contributions made by your employer and any contributions made by your employer to a superannuation insurance policy). If it is too late for you to make a salary sacrifice contribution via your employer’s payroll before 30 June 2020, you can still make a tax effective contribution via a personal deductible super contribution. This involves contributing money from your after-tax dollars (e.g. savings) and then claiming a tax deduction for the contributed amount on your FY19/20 Tax Return. Note these contributions are all subjet to the Concessional Contributions Cap (see below).
Extra super contributions via salary sacrifice can have tax advantages (up to certain limits). Although any salary sacrifice contributions are “preserved” (i.e. remain within super), the contribution tax rate of 15% compares very favourably to most people’s marginal tax rate (note if taxable income is over $250,000 a higher 30% rate applies to concessional superannuation contributions). Since 1 July 2018, you can also carry forward any unu