The end of the financial year is an opportunity to optimize your financial strategy, take advantage of tax deductions, and set yourself up for the new financial year.
Whether you’re looking to maximise tax benefits, rebalance your investment portfolio, or to simply ensure you’re ticking all the right boxes, smart end of financial year (EOFY) planning can make a big difference.
So, to finish the financial year on a high note, start by mapping out your finances and investment portfolio and collect all the relevant documents.
You will need your bank statements, superannuation fund statement, self-managed super fund (SMSF) paperwork if relevant, a record of any capital gains or losses from the sale of assets such as shares or property, details of share dividends including dividends earned through a reinvestment plan, and records of any other investments or income received.
Looking for deductions
On the other side of the ledger, there are limits on deductions for most categories of expenses but it’s a useful exercise to gather the evidence of all costs associated with employment and income-producing investments—whether or not they’re tax deductible.
What are the rules?
Tax rules can be complicated and are always changing, so it’s best to consult the ATO or your Accountant/Tax Agent for the most up-to-date advice. However, there are three simple rules to know when considering a tax deduction:
- You must have spent the money yourself.
- It must be directly related to your income or business.
- You must have a record to prove it.
For the most part at least, what can you claim?
- Certain work-related costs, including: Work uniforms and equipment: bought a snazzy uniform? Invested in tools or equipment that you need for work – whether that be part of your uniform, mobile phone or laptop bag, these expenses might be claimable. Yes – your $300 work bag is deductible, as long as you only use it for work.
- Work travel: That stale airport muffin is at least tax deductible when you travel for work. Parking fees and toll fees for a work trip may also be eligible to claim.
- Studying and memberships: If you’re hitting the books or doing a training course or workshop to boost your career, or if you are part of membership, agency or union related to your work, some of those costs could be deductible.
- Donations over $2 to approved not-for-profits
- Working from home essentials: WFH? The ATO has two methods where you can claim expenses like electricity, internet and stationary: Fixed Rate Method (an amount (70 cents) per work hour for additional running expenses) or Actual Cost Method (the actual expenses you incur as a result of working from home). These methods are subject to change by the ATO. You can only claim the portion where you incur expenses for work purposes (as opposed to private use).
- Costs of managing your tax affairs: If you’re paying fees to get financial advice, these might be eligible for a deduction. You can also claim certain cost associated with preparing and lodging your tax return and activity statements.
- Eligible investment property expenses
- Income protection insurance premiums (if premiums are paid outside of super)
- Expenses linked to a financial investment (such as attending a seminar directly related to the investment)
- Cost of account keeping fees on bank accounts used only for investment
The ATO is keeping a close eye on work-related expenses and working from home deductions this year, saying there must be “a close connection to your income earning activities, and you should be prepared to back it up with records like a receipt or invoice”.
Get ahead with early payments
One way of maximizing deductions in this financial year is by paying early deductible expenses due next year such as insurance premiums, subscriptions, or business rent if applicable. But remember to check first to see which expenses may be eligible to prepay.
Small businesses also have access to an instant asset write-off for the business portion of assets under $20,000, that were purchased and used in this financial year. The instant asset write-off allows eligble businesses to immediately deduct 100% of the cost of eligible assets up to $20,000, rather than calculating the depreciation over four years, which can be a game changer for cash flow and allow you to deduct expensive items for your business, like machinery, computers, furniture and more.
The $20,000 limit is per asset, so you can claim multiple assets up to $20,000 each, and it’s also valid for second-hand assets. However, there are eligibility rules (available to businesses with an annual turnover of less than $10 million) and limitations to what you can claim, so check with the ATO or your registered Accountant/Tax Agent.
Source article: AMP
