Newsletters

Just like Christmas there are some taxpayers who look forward to the end of the financial year. It is an opportunity to lodge tax returns and get an early Christmas present in the form of a refund cheque. Others may look on this time of the year as just too much like hard work.

 

There are some steps that can be taken to ensure that this time of the year does not result in too much heartache.

 

For individuals, it is time to sort through all those receipts and make sure you claim all the necessary deductions you are entitled too. You are able to claim all expenditure that is directly related to earning your income subject to certain exceptions. It is important that you are able to substantiate any items you are claiming and to keep these receipts for five years. Items that are commonly claimed include:

It is a good idea to make a list all the items you have receipts for before you go to your accountant. They will be able to ensure that all possible deductions are claimed. This will also save you money in accounting fees.

 

If you are going to make any donations, do so before 30 June. In addition, make sure that you pay any invoices due in early July before 30 June to get the deduction in this financial year.

 

If you do not get a large refund, It is because your employer has taken out just the right amount of tax and you do not have many work deductions. This actually means that you are better off as you have not spent money on working. You will only get (on average) thirty cents in the dollar back on any expenses.

 

For taxpayers with businesses, now is the perfect time to ensure that you do some interim financial figures to ensure you know just how your business is performing. For those businesses in start-up phase you must remember to take account of the non-commercial business loss rules which only allow you to offset any losses from your business against other income if you meet one of 4 tests. The easiest test to meet is having gross income greater than $20,000. So if you need to accelerate your earnings prior to June in order to meet that target - now is the time to do so.

 

You should also consider the Simplified Tax System (STS) whereby you can take advantage of accelerated depreciation rates and simplified trading stock rules.

 

Now is the time to make sure any genuinely bad debts are written off, any obsolete stock is treated as such, and any other stock is counted as the lower of cost and net realisable value.

 

If you are operating on a cash basis, make sure you pay as many bills as you can prior to June, and if operating on an accruals basis, that you account for all payments made prior to June.

 

If operating a company – make sure you pay wages to the directors to take them up to, at least, the tax-free threshold.

 

For taxpayers with investments now is the time to take stock of your portfolio. If you have made capital gains, it may be worth selling some shares at a loss to offset against any capital gains. Remember that any investments held for longer than 12 months are eligible for the 50% discount but that capital losses are offset before discounting.

 

For taxpayers with rental properties it is essential to make a summary of all costs. I thoroughly recommend obtaining a depreciation schedule of construction costs which enables a write-off of the cost of construction of the certain property. For residential properties, where construction commenced between 18 July 1985 and 15 September 1987, a deduction of 4% of the construction cost is allowable. For properties where construction commenced on 16 September 1987 and onwards, a deduction of 2.5% of the construction cost is allowable each year. It is often difficult to obtain the actual construction cost so a quantity surveyor is able to estimate the construction cost and give a written report of the capital works deduction and also the depreciation for any items of fixtures and fittings (such as carpet, curtains, blinds, hot water systems etc.) included in your property purchase which are eligible for higher depreciation rates. The cost of the report is an allowable tax deduction in the year paid.

 

Another, often forgotten, cost is borrowing expenses. While these are not deductible outright, they are deductible over 5 years or the term of the loan – whichever is the shorter period. Borrowing costs include loan establishment fees, mortgage protection insurance, legal fees and stamp duty associated with the mortgage, valuation and survey fees.

 

Interest on borrowing associated with the property purchase is often the major expense associated with most investment properties. Interest deductibility depends on the “purpose” of the loan rather than the security. For instance you may offer as security your main residence – but the purpose of the loan was to purchase the investment property. The interest on the loan will be deductible in the year paid. Now is the time to prepay any interest and you should speak to your financial institution as soon as possible. You will then be able to get the full effect of the increased tax deduction as soon as you lodge your tax return.

 

Other costs that are deductible outright include agents commission, advertising, body corporate expenses, cleaning, council rates gardening/lawn mowing, insurance, land tax, sundry legal costs, pest control, stationery/phone/postage, repairs and maintenance and travel to inspect the property.

 

And finally superannuation. Recent changes to superannuation have meant that contributions to superannuation are very attractive. You need to contact your financial advisor who will be best able to assist you with advising just how much superannuation you should be contributing prior to the end of June. Certain taxpayers who have total income less than $28,000 will also be eligible for the governments co-contribution. The co-contribution amount is phased out so that no co-contribution is received when total income is $58,000 or more.

 

Now is the perfect time to make sure you and your financial affairs are in order. A little bit of preparation will go a long way to ensuring that 30 June is a time for celebrating.