* Updated for EOFY 2023 *
The end of the financial year (EOFY) is an important time, not just for small businesses, but also the individuals.
Putting the hard work in each financial year can help you get your personal and professional life organised so that you get to kick start the new financial year set up right and working smarter all year long.
Here are some essential reminders for your EOFY tax returns as individuals. Now’s the time to review what strategies you can use to minimise tax before 30 June 2023.
1. Bring Forward Deductions
Expenses relating to investment activities can be prepaid before 30 June 2023. You can prepay up to 12 months of interest before 30 June on a loan for a property or share investment and claim a tax deduction this financial year.
Also, other expenses in relation to your investments can be prepaid before 30 June, including rental property repairs, memberships, subscriptions, and journals.
2. Defer Investment Income & Capital Gains
If practical and possible, arrange for the receipt of investment income and the contract date for the sale of capital gains assets to occur after 30 June 2023. The Contract Date, not the Settlement Date is generally the key date for working out when a sale or purchase has occurred.
Sidenote: Ownership of Investments
A longer-term tax planning strategy needs to be considered if there is to be any change of ownership. This is due to capital gains tax and stamp duty obligations. Please contact us if you are seeking advice with regard to a change of ownership well ahead of time.
For example, investments may be owned in a family trust structure which has the key advantage of providing flexibility in distributing income on an annual basis, including up to $416 per year to be distributed to children or grandchildren tax-free.
3. Motor Vehicle Claims
If you frequently use your own vehicle for work-related travel, a logbook may increase your motor vehicle deductions. Ensure that you keep an accurate and complete Motor Vehicle Logbook for at least 12 weeks.
The start date for the 12-week period must be on or before 30 June 2023. Make a record of your odometer reading as of 30 June 2023 and keep all receipts/invoices.
In addition to maintaining a logbook ensure you keep written evidence of all motor vehicle expenses such as insurance, services, license, and registration paid during the financial year.
No logbook? That’s ok – An alternative is to simply claim up to 5,000 kilometres using the cents per km method.
IMPORTANT: in most cases, home-to-work travel is not included as work-related.
A donation to a Deductible Gift Recipient (DGR) may be a great way to reduce your taxable income while contributing to a good cause. If you intend to make a donation prior to 30 June 2023, ensure that the donation is made to a DGR and that you maintain the receipt.
A list of DGRs is available on the ATO’s website.
5. Insurance Premiums
Possibly your greatest personal asset is your ability to earn an income.
Income protection insurance generally replaces up to 75% of your salary if you are unable to work due to sickness or an accident.
If your income protection policy is owned by you personally it is an income tax deduction in your individual tax return. It may be wise to talk to your financial advisor about your income protection policy being in your personal name in addition to or instead of your superannuation fund to obtain a more favourable personal tax deduction.
In addition, to increase your deduction it may be beneficial to pay your policy annually prior to year-end instead of monthly.
6. Managing Capital Gains / Losses
Tax is normally payable on any capital gains. If you have any non-performing investments you might want to consider selling them before 30 June 2023 to crystallise a capital loss and reduce or even eliminate any potential capital gains tax liability.
Unused capital losses can be carried forward to offset future capital gains.
Also, note that individuals have access to the 50% capital gain concession if they hold an asset for more than 12 months.
7. Property Depreciation
If you have an investment property, a Property Depreciation report (prepared by a Quantity Surveyor) will allow you to claim depreciation and capital works deductions on capital items within the property and on the property itself. The cost of this report is generally recouped several times over by the tax savings in the first year of property ownership.
8. Superannuation Contributions
Just before the financial year end is a great time to do a financial check of your funds and if you have any excess cash it might be worthwhile investing in your retirement and topping up your superannuation fund.
Deductible Super Cap of $27,500: Any concessional contributions made into your superannuation fund up to the cap of $27,000 is an income tax deduction against your assessable income.
The tax-deductible super contribution limit is for all individuals under the age of 75. Individuals need to pass a work test if over 67 years of age.
Spouse Super Contributions: You can also make super contributions on behalf of your spouse (married or de facto) provided you meet eligibility criteria and your super fund allows it. This is known as contribution splitting.
This not only helps to boost your spouse’s retirement savings, but it can also help you save tax if your spouse has limited income. You may be eligible for a tax offset of up to $540 on super contributions of up to $3,000 that you make on behalf of your spouse if your spouse’s income is $37,000 p.a. or less (reducing for income above this threshold and completely phases out at $40,000 p.a.)
Government Co-Contribution to Your Super: If you are on a lower income and earn at least 10% of your income from employment or carrying on a business and make a “non-concessional contribution” to super, you may be eligible for a Government co-contribution of up to $500.
- the maximum co-contribution is available if you contribute $1,000 and earn $42,016 or less.
- If you earn between $42,016 and $57,016, or contribute less than $1,000, a lower amount may be received
Carried Forward Contribution: Carry-forward contributions aren’t new. However, there are new rules that allow super fund members to use any of their unused concessional contributions cap on a rolling basis for five years. This means that if you don’t use the full amount of your concessional contributions cap ($25,000 from 2019 to 2020, and $27,500 for 2023, to 2023) you may qualify to carry forward the unused amount and take advantage of it up to five years later.
Note that any amount not used after five years expires. And these carry-forward rules only relate to concessional contributions into super, not non-concessional contributions, as they have different caps.
Financial planning is best done with tax optimisation in mind. In that regard, if you’re considering any superannuation contributions, please contact us to discuss your options.
8. Salary Sacrifice to Super
If your income is $45,000 or more p.a, salary sacrifice can be a great way to boost your superannuation and pay less tax. By putting pre-tax salary into super rather than having it taxed as normal income at your marginal rate, you may save tax. This can be especially beneficial for employees nearing their retirement age.
9. Division 293 tax on superannuation contributions
Individuals with an adjusted taxable income over $250,000 will be subject to an additional 15% tax on their taxable superannuation contributions. Where you are required to pay this additional tax makes super contributions within the cap a tax-effective strategy. With super contributions taxed at a maximum of 30% and investment earnings in super taxed at a maximum of 15%, both these tax points are more favourable compared to the highest marginal tax rate of 47% (including Medicare levy).
10. Home Office Expenses
If you have been working from home, you may have expenses you can claim a tax deduction for.
The ATO allows you to claim using a “Revised Fixed Rate Method” an amount of $0.67 per work hour for the 2023 year. This amount covers most expenses from working.
From 1 July 2022 to 28 February 2023 you must keep a record which is representative of the hours you have worked from home.
From 1 March 2023 to 30 June 2023 you must record the TOTAL number of hours your have worked from home and provide evidence that you paid for each of the expenses incurred.
For more about this ATO update, check out our article here
You can also claim expenses using an “Actual Cost” method – so please ensure you keep all invoices and receipts during the entire year to be able to prove the claims.
Get in touch if you have any questions or would like us to handle this all for you.