We encourage you to seek advice from a registered tax practitioner before acting on any of this information.
End of Financial Year (EOFY) isn’t really a time most people relish, but it does offer an excellent opportunity to review your finances and possibly free up funds for the more important things in life.
Given the financial impact COVID-19 has had on a great number of individuals and their families, many Australians may be placing an even bigger focus on making the most of their tax return this year, in the hope of benefitting from a tax refund. If you’re sitting in a similar boat, or looking for ways to make your money work smarter, it is worth looking at ways to maximise any tax offsets, deductions and super contributions before the end of the financial year arrives on 30 June.
1. Offsetting capital losses
Given that tax matters relating to investments are inherently complex, having a professional correctly review your investments can prove invaluable. For example, it may be appropriate to consider offsetting the loss you’re carrying on any assets against a profit made on the sale of other assets, on which capital gains tax is now payable. In other words, you can recoup your losses and not have to pay tax on a subsequent gain.
You are not restricted by the type of assets that can be used in the offsetting process. For instance, gains made from investing in property can be offset by losses on shares and vice versa. Before deciding to sell underperforming assets, you should always take into consideration the quality of the stock and future expectations. Advice from a professional can also help in making this decision! You can get in touch with us to discuss strategies around your investments.
2. A time for giving
The great thing about EOFY is that it often brings charitable donations to the forefront of our minds. There’s no limit to how much you can donate and claim back, just as long as you have the receipts to prove it.
Any donation over $2 can be claimed, provided you have the receipt and the donation is to a Deductible Gift Recipient (luckily most major charities are DGRs). If you’re unsure whether the charity you are wanting to make a donation to is a DGR, you can check via the ATO’s ABN lookup. Keep in mind that you can’t claim for donations that give you some form of benefit, such as raffle tickets or fundraising dinners.
3. Working out what you can and can’t claim
If you own a business, there are many different expenses you could potentially claim a tax deduction on. The number of items for which an individual can claim may not be quite as extensive, but we’ve compiled some common tax deductible items which may be relevant and beneficial to you:
The ATO has announced special arrangements this year due to COVID-19 to make it easier for people to claim deductions for working from home. The new arrangement will allow people to claim a rate of 80 cents per hour for all of their running expenses between 1 March 2020 and 30 June 2020, rather than needing to calculate costs for specific running expenses. If you intend to make a claim under this tax shortcut method, you need to ensure you’ve kept a record of your hours worked and include a ‘COVID-hourly rate’ in your income tax return.
The typical methods for claiming on work-related expenses are also still available to individuals. This includes the fixed-rate method which enables workers to claim 52 cents per hour on work-related running costs (e.g. air conditioning, lighting, cleaning and the wear of office furniture), plus calculating specific costs for phone, internet, stationery and decline in value of equipment. The other option individuals have is the actual cost method, which enables workers to claim the work-related portion of all work-related expenses, which must be recorded and calculated by them. For more information about the new shortcut method, as well as existing methods to calculate your deduction, you can visit the ATO’s website here.
Income Protection Insurance
The ATO generally allows you to claim the costs of your income protection premiums for policies taken out separate to your Superannuation. If you have a combined policy (e.g. Life and Income Protection Insurance), you are permitted to claim a tax deduction for the portion of premiums paid for the Income Protection Insurance only, and potentially reduce the up-front cost of protecting your income.
Personal after-tax super contributions
If you’ve made any non-concessional (after-tax) contributions during the year to a complying superannuation fund or a retirement savings account, you may be able to claim a deduction for these contributions.
Before you can claim a deduction for your personal super contributions, you should check whether you meet all of the ATO’s eligibility criteria. If you have satisfied all of these requirements, you must give your super fund a notice of intent form and have received an acknowledgment from your fund prior to lodging your tax return.
Profits or returns you make on your investments usually become part of your income for tax purposes. Consequently, you may be able to claim a deduction for expenses incurred in earning interest, dividend or other investment income (e.g. account-keeping fees for an account held for investment purposes). For more information about these tax deductions, you can visit the ATO’s website.
With all of the financial stress brought on by COVID-19, maximising tax effectiveness is just one way you can relieve some of the financial burden you may be currently experiencing. With a little bit of planning, forethought, and help from a professional, you could give your tax return a huge boost this EOFY.
For more help getting your finances in order, get in touch with one of our experienced financial advisers on 1300 850 757 or email GBW@ajg.com.au.
Any tax advice provided within is general advice only and you should consult with a tax professional before any decisions are made.
The information and any advice in this article does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. When considering whether to acquire a financial product, before making any decision, you should obtain the relevant product disclosure statement.
This article may contain material provided by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. To the maximum extent permitted by law: no guarantee, representation or warranty is given that the information or advice in this document is complete, accurate, up-to-date or fit for any purpose.