Whether you’re a business owner, a working individual or just someone who’s looking to get the best return they possibly can when it comes to tax time, the end of financial year can be pretty confusing.
We’ve taken a look at what’s it all about, and how you can use the end of financial year period to your advantage when it comes to budgeting and savings.
“Death, taxes and childbirth! There’s never any convenient time for any of them.”
– Gone With the Wind by Margaret Mitchell
Even if you’re not a fan of Gone with the Wind, this quote will ring true for a lot of us. While death and childbirth are a bit harder to manage, it can often seem like taxation is the most confusing member of this trio. Don’t worry though, as armed with the right information, you can make sure that tax time is as painless as possible.
For those that haven’t had to file a tax return in the past, a lot of the language surrounding tax time can be somewhat confusing. What even is a financial year, anyway?
Put simply, a financial year is the period which the Australian Taxation Office (ATO) uses to calculate how much tax you owe, or conversely, how much is owed to you.
In Australia, our financial year begins on the 1st of July, and ends on the 30th of June the following year – for example, the 2018 financial year ends on the 30th of June 2019. As the name suggests, the ‘end of financial year’ (or EOFY) refers to the period leading up to June 30th. After June 30th, individuals have four months to lodge a tax return privately for the previous financial year.
Anyone who has paid tax in Australia in the preceding financial year should submit a tax return. The ATO uses the information your tax return provides to determine whether or not you have paid the correct amount of tax for the year. This calculation is based on your income, as well as any tax deductions to which you are entitled. For a lot of people, this is a very important part of their financial calendar – especially if you are a small business owner, or an employee of a business which withholds tax for you using pay-as-you-go (PAYG).
Check out these tax tips to help when preparing for end of financial year.
During ‘tax time’ and the lead-up to EOFY, it is important to get your tax documents in order. Taking the time to organise your tax deductions is a great way to minimise the tax you pay, and may result in you receiving a repayment amount from the ATO!
If all of this sounds a bit daunting, fear not! At its core, preparing for tax time can be broken down into a few easy steps – and if even this is too much for you, there are a number of great registered tax agents who can simplify the process even further (for a tax-deductible fee, of course).
Don’t wait until the end of the financial year to start saving your receipts. Over the course of a financial year, any expenses that you incur that can be shown to be work-related can be deducted from your tax bill. Even expenses that are only partially work related, such as your home internet, can be partially claimed.
Deductible items might include:
For a much more in-depth explanation of what you can and can’t deduct, check out this great article.
In order to claim deductions of greater than $300, it is obligatory for you to provide a tax invoice, to show the cost and date of the purchase. Even for items with a value of less than $300, it is advisable to retain tax invoices, both for your own record keeping and in case you need to justify your deductions to the ATO.
At the bare minimum, you will need to have a tax file number and a group certificate from your employer in order to lodge a successful tax return. In addition, it is valuable to have a copy of your previous year’s tax return, as well as details relating to any investments or shares which you own. This information will be particularly useful if you choose to submit your tax return with the help of a registered tax agent.
For many, the first thing they think of when they hear ‘end of financial year’ is ‘SALE!’ This is because retailers and businesses are aware that this period is a great time to make all those important purchases for work or your business.
It is possible to make deductions of up to $30,000 for work-related expenses, so this might be a great time to invest in that new laptop, new workwear or even a work related course!
By bringing your expenses forward, you can maximise your deductions for the financial year, take advantage of EOFY sales, and potentially reduce the amount of tax that you are saddled with. Win win, right?!
However, be careful that you don’t start buying things that aren’t necessary, as this could negatively impact your savings goals.
There are three options available to Australian taxpayers when it comes to lodging their tax returns: online through myTax, lodging a paper form, or using a registered tax agent.
Thankfully, the days of paper tax returns are drawing to a close. Unless you absolutely have to, the ATO recommends using myTax, or a registered tax agent. myTax is a simple, step by step online tool to quickly and accurately lodge your tax return. If your deductions are limited and you don’t have a lot of information to submit, myTax is the easiest and cheapest way to claim your tax refund.
Simply follow the prompts, input your data, and the program will do the rest. If your employer has already submitted their taxation information, then myTax will auto-fill some sections of the form for you.
On the other hand if you’re a tax deduction fanatic with folders full of receipts, it might be advisable to enlist the aid of a registered tax agent. Tax agents can provide you with useful advice on minimising your tax, and help you to maximise the value of your tax refund.
Now you’ve done all the hard work, it’s time to sit back and wait for the ATO to send you a tax refund – or a bill.
Unfortunately, sometimes the conclusion the ATO reaches is that you have not paid sufficient tax during the year, which could be caused by a number of reasons. For example, your employer may have given you a raise, but failed to increase your tax level to match the new remuneration. Or you may have a ‘side project’ through which you earned an income, but the right tax was not made. In this case, the ATO will issue you with a notice of how much difference is missing between what you have paid and what you owe, and you will need to pay the ATO this amount. There are generally a number of options for repaying this amount – either as an upfront lump sum, through a payment plan, or you can defer the payment on the basis of hardship if the tax office agrees. The best thing to do if you do receive a notice of payment from the tax office is to reach out to them and agree on a repayment schedule that accommodates your salary and payment schedule.
Minimising your tax bill by maximising your allowable deductions is the most important part of successfully lodging a great tax return. In addition to the more obvious deductibles which we’ve outlined, there are a number of more niche deductions which might be available to you. If you’re lodging a tax return by yourself, without the help of a registered tax agent, it is important to understand the do’s and don’ts of tax deductions.
As a rule of thumb, you can’t claim tax deductions for expenses which are not work-related, unless it’s something like your tax agent’s fee. And even if the expense could potentially be construed as being work-related, it is important that you are able to justify the expense to avoid difficulties with the ATO. For example, your home laptop, if it is not used for work, is not a valid deduction. However, if you use the laptop at work, or do work on your laptop at home, it is possible to claim a partial deduction.
If in doubt, it is probably best not to claim an expense – the ATO is known for being very harsh on the submission of tax returns which they believe to be fraudulent.
In order to avoid any headaches, here is a quick breakdown of some of the items which you can claim as tax deductions.
Over the course of a year, it is possible to rack up a pretty significant amount of tolls, train fares, petrol receipts, and other travel related expenses. Thankfully, these expenses are often valid deductions! The only kicker is that these expenses need to be incurred during the course of your work – commutes to and from work are generally NOT deductible, whereas travel to a client meet IS deductible.
For those of us in messy industries like hospitality, construction or childcare, uniforms and workwear can quickly become very expensive. Work-related clothing must be specifically required by your work in order to be deductible. If the clothing is also suitable as normal casual wear, it is generally not considered to be a valid deduction.
In contrast, items like personal protective equipment, e.g. eye and face protection, work uniforms, chefs jackets or even sunscreen and sunglasses (for those of us who work outdoors) are a great source of tax deductions. In addition, you can claim for the costs involved in keeping these items clean and functioning.
The most important factor here is to keep records – such as receipts or diary entries – which can justify these deductions to the ATO.
For those of us who work from home, in whole or in part, it is possible to claim office expenses such as computers and printers, stationery, and even internet and other running expenses. These expenses can quickly add up, so it is important to keep detailed notes and documentation for when tax time rolls round.
In order to make some types of claims, the home office which you claim for needs to be a dedicated work area, which is demonstrably used during your work. For a full breakdown, head over to the ATO website, or check out this article.
In a lot of industries, it is expected that employees provide some or all of the tools necessary for work. The ATO has several categories of deductions available for these expenses, which can put a hefty dent in your tax bill.
These assets can range from calculators and reference books, to power tools and safety gear. In some cases, even things like cosmetics and handbags are eligible! The kicker here is that the item needs to be directly work-related, and used primarily for work related activities. In the case that the asset in question is used for both personal and work related activities, the deduction will have to be apportioned based on this usage.
For items with a value less than $300, it is not necessary (though it is advisable) to retain a tax invoice.
It would be impossible to go through all the possible deductions available to taxpayers in this limited space, but a good rule of thumb is that if an expense is related to work – and only work – it is probably a valid deduction. The important thing is to be sure so, before you make the claim, refer to the ATO website or talk to a registered tax agent.
In addition, it is vitally important to keep good records in case the ATO ever decides to audit you. Thankfully, the ATO provides an excellent app – myDeductions – which can help to keep all your documentation together in one place. Simply log your expenses in the app as you incur them, and you’ll save a lot of time and hassle when EOFY rolls round!
The end of financial year period can have a serious impact on your long term savings goals – both positive and negative. Depending on the outcome of your tax return, you can either receive a nice bit of extra cash, or be saddled with a painful tax bill. This is why taking the time throughout the year to manage your taxation information is so vital.
If you do find that you are at risk of receiving a tax bill, it is important to try to avoid this. The first step should be to talk to an accountant or registered tax agent. The information they provide is accurate and incredibly helpful. Furthermore, it is totally tax deductible!
In addition, making financial contributions to your super fund can be another way to limit your tax liability. Superannuation is a great long term investment, as long as you’re with the right fund. Extra contributions are tax deductible, which can be the difference between a tax bill and a tax refund.
If you’re really stuck, it is also possible to reduce your taxable income by making charitable contributions (and it makes you feel good too!). Make sure that your elected charities are registered charitable organisations, and above all – get a receipt!
EOFY isn’t all about tax deductions though … it is also the perfect time to reassess your budget, plan for the coming financial year, and to get a tax strategy set up to maximise your deductibles in the future. Saving money is a long-term process, which benefits massively from careful, considered planning. Take the time to do this and you’ll be rewarded handsomely down the track.
For retailers, the EOFY is a very important date in the calendar. Businesses are trying to sell as much stock as possible before the financial year comes to a close, and are willing to slash prices significantly in order to do this.
For consumers, this makes the EOFY one of the best times to make big purchases (a process which can also help increase your tax deductions). Taking advantage of this perfect storm of financial good fortune is vital. So, how do you get the most out of the EOFY sales period?
Put simply, the trick is to consider what items can be deducted, and to shop around for the best deals. Buying big ticket items like cars or tools is a great way to reduce your taxable income. However, it must be noted that looks can be deceiving. Some retailers and salespeople use cunning tactics to make it seem like you’re getting a great deal, when you’re actually not. Take the time to compare items in the market – don’t be fooled by flashy signs and massive ‘EOFY SALE’ stickers!
Once you’ve made the purchases, it is time to deduct them from your tax. Remember that the purchase must be made BEFORE June 30th to be eligible for the current financial year. If you are having difficulty ascertaining whether or not a purchase is a valid deduction, check the ATO website, or talk to your accountant – just make sure to do this prior to spending your hard earned dollars.
EOFY is a key date in any financially savvy individual’s calendar. Take the time to familiarise yourself with these concepts, and you will be assured a healthy savings account and a nice cheque from the ATO.
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