It’s not too early to start your tax planning prior to 30 June. Often, the month of June brings out the savvy tax saver who is on the hunt to minimise tax. They call their Accountant and ask, ‘I don’t want to pay as much tax this year, what can I do to minimise my tax and get a bigger refund?’
The Accountant has probably already fielded a few of these calls already by the time the Queen’s birthday weekend has rolled around but why wait until then? Let me show you some ways to minimise your tax during the year.
1. Salary Sacrifice an Electronic Portable Device If you use the device predominantly for employment, you can salary sacrifice the full cost of the device through your pay. Examples of devices are as follows:
– Mobile Phone
– Personal digital assistants
– Laptop computers
– Portable printers
There is a limit to one device per FBT year (1 April to 31 March) but if you work for an eligible small business, you can get up to two different items per FBT year.
Salary sacrificing an item won’t necessarily mean a larger tax refund in your end of year tax return but it will reduce your Gross pay, therefore reducing the PAYG withheld from the relevant pay period. An example – if your marginal rate is 34.5% and the item cost $1,000, your Gross Pay will reduce by $1,000, PAYGW will reduce by approximately $345 and you take home pay will reduce by only $655.
For more details, visit the ATO website or contact your Tax Agent.
2. Salary Sacrifice extra into Superannuation.
Generally, as an employee you can salary sacrifice into super and this can start from day one of the financial year.
Salary sacrificing into super is where you can arrange with your employer to contribute pre-tax income into you super account over and above the 10% super guarantee that they are due to pay. Doing this reduces your taxable income, therefore saving tax.
Your Super Fund generally pays 15% tax on these contributions but this arrangement may effectively transfer income that is taxed at 34.5% into a concessionally taxed environment of 15%.
Each year there are limits as to how much you can contribute into super so you need to be careful how much you sacrifice as going over these limits can lead to excess contributions tax imposed by the ATO.
You can also make personal after tax contributions into super during the year. If you do this, you can complete a Notice of Intent to Claim Super Deduction Form at the end of the financial year (subject to concessional contributions cap) and include this deduction in your tax return.
Before you lodge your tax return, you need to receive confirmation from your Superannuation Account that they have accepted your Notice of Intent and have noted that you intend to claim the deduction in your income tax return.
There are differing tax and contribution rules for those that have Constitutionally Protected Funds like SuperSA so regardless of which Superfund you are a member of, it is recommended that you seek professional advice regarding a super contribution strategy.
3. Make regular donations to charitable organisations that are Deductible Gift Recipients (DGRs).
Donations of more than $2 made to DGRs can be claimed as a tax deduction but make sure you keep your receipt!
Often, generous people make donations but forget to file the receipt or never ask for one. Keeping the receipt enables you to claim the donation in your tax return and ensures that you’re legally reducing your taxable income.
Often, you will get an email with the receipt attached if you have donated online. File this in a folder on your computer (or in the cloud) as donations and make sure you have this file ready at tax time.
Is your partner in a higher tax bracket? Make out the donation in their name as that can lead to saving more tax in their tax return… which is better for the family… of course.
4. Use a Tax Agent.
This might not necessarily save you tax during the year but having an ear to listen to your needs could be useful.
Yes, inevitably they will charge for preparing your tax return and maybe for some advice but this could be money well spent as they are there to legally help in reducing your taxable income. AND the fee for their services is usually tax deductible.
An added bonus, if you always lodge your tax return before 31 October and enlist with a Tax Agent prior to 31 October 2022 for your 2022 tax return, you can get an extended lodgement date to either March, May or June 2023. This could be a handy extension if you have a significant tax bill thanks to a massive capital gain you may have had on selling your investment property.
Scott has been a registered tax agent since 2015 and a tax and business account since 2007.