Whether you're a Pay As You Go (PAYG) employee or a small business owner, you'll want to make the most of your tax return.
With the end of the financial year just around the corner, now is the perfect time to think about your tax and what you can do to give your tax refund a much needed boost.
To ensure you see the greatest return at the end of this financial year, we've highlighted the five top tax tips for both small business owners and PAYG employees.
Top 5 for PAYG
Know what you can claim
As a PAYG employee, you're entitled to claim deductions for a range of expenses, most of which directly relate to your income. Some of the expenses you may be able to claim include: vehicle and travel expenses, clothing and dry-cleaning expenses, charitable gifts and donations, home office expenses and self-education expenses, to name but a few. Of course, to claim these work related expenses you must have spent the money on yourself without being reimbursed by your employer. In addition, the expenses must be related to your job and you must have the record to prove it. By knowing exactly what you can and cannot claim, you will be able to give your tax refund a well-deserved boost.
Keep your receipts
Just as it is important to know exactly what you can and cannot claim as a PAYG employee, it's important for you to keep a record (receipts) of the various purchases/expenses you plan to claim. Without the correct receipts, you will not be able to claim the expense, so make sure you have a good filing system in place.
Get your insurance in order
Before the financial year comes to a close, you need to make sure you have adequate private hospital insurance cover in place. Singles who earn over $90,000 a year without private hospital insurance will be charged a Medicare Levy Surcharge. Depending on how much you earn, the Medicare Levy Surcharge could cost you thousands of dollars each year.
Rental property claims
If you've a rental property, you can claim appropriate capital works and capital allowances (depreciation) deductions. Your accountant can identify exactly what you can and cannot claim as a property investor. A quantity surveyor can then help you prepare a depreciation report that outlines the amounts you can claim in your tax return every year.
Salary sacrificed super contributions
Heading into the new financial year, you should contemplate the value of making salary sacrificed super contributions. Salary sacrificed super contributions offer a simple way to save on tax and build wealth. It involves having part of your before-tax salary paid into your super rather than taking the money as cash in hand. These contributions are taxed at 15%, which is likely to be below your marginal tax rate (which could be as high as 46.5%), so more of your money goes towards growing your super rather than paying the tax office.
Top 5 for SMEs
Maximise asset write-off
In the 2015 federal Budget, the government announced a $20,000 asset write off incentive for small business owners. In a nutshell, businesses with an annual turnover of less than $2 million are entitled to immediately write off depreciating assets that cost less than $20,000 each, as long as those assets are bought before 30 June 2017. If you are yet to take advantage of this business incentive, speak to your broker today about your asset and equipment finance needs.
Take advantage of all deductions
Aside from taking advantage of the $20,000 asset write off, it's important for small business owners to make use of all the other tax deductions at their disposal. While your accountant is the best person to speak to find out what you can and cannot claim, some of the more common tax deductions you should take advantage of include office maintenance and repairs, home office expenses, vehicle and other travel expenses and office running costs such as gas, electricity, wages and utilities.
Understand all Government changes
On 1 July 2016, the Australian Government decided to cut the company tax rate for small and medium sized businesses to 27.5%. At present, companies with an annual turnover of less than $10 million qualify for the lower company tax rate. A lower tax rate ultimately means more cash in your back pocket throughout the course of the year, so make sure you take advantage of the saving.
Write down the debts
While no small business owner wants to be in a position where they cannot recoup outstanding debts, it's an unfortunate incident that can happen from time to time. Thankfully, if you have to write off a debt, a tax deduction is available for the amount of debt written-off. At the end of the financial year, take the time to go through your debtors list and see if there are any who can't or won't pay. From there, you should document the debt as well as the effort you went to in order to recover the money. All bad debts have to be written off before 30 June. You must ensure that the bad debts have been included in your business' assessable income.
Speak to a professional
It may seem like a no-brainer to some, but using a professional to complete your tax return can make a huge difference to you, your business and your bottom line. Not only will a professional accountant know exactly what you can and cannot claim, but they'll ensure that your return is submitted on time. Lodging your tax return on time is the best way to avoid incurring any penalties.
By following these tips, you should be able to maximise your tax refund – regardless of whether you're a small business owner or a PAYG employee.