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Tax-time deductions – how to maximise your refund

The end of financial year is fast approaching and getting organised early (before 30 June) is key to getting the best refund possible. By understanding what you can claim back on your 2021 tax return, you can significantly boost your refund. But where do you start?

The end of financial year is fast approaching and getting organised early (before 30 June) is key to getting the best refund possible. 

By understanding what you can claim back on your 2021 tax return, you can significantly boost your refund. But where do you start?

This article provides a list of common items that you can consider claiming this financial year.

1. Your car and travel costs

If you use your own car for work purposes (this does include your commute to/from work) you may be able to claim some $$$’s back.

If you’re self-employed, you may be able to claim some additional expenses on your vehicle, including interest on car loans, your car insurance premiums, registration fees and depreciation (that’s the reduction in value/ wear-and-tear of your car).

According to the ATO, you can claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee – for example, to:

  • Carry bulky tools or equipment that your employer requires you to use for work and there is no secure storage available at work
  • Attend work-related conferences or meetings away from your normal workplace
  • Deliver items or collect supplies
  • Travel between two separate places of employment, but not if one of the places is your home (you can use this when you have a second job)
  • Travel from your normal workplace to an alternative workplace (that isn’t a regular workplace) and back to your normal workplace or directly home
  • Travel from your normal workplace or your home to an alternative workplace that is not a regular workplace – for example, a client’s premises.

2. Bring forward buying deductible items

A clever end of financial year strategy is purchasing last-minute work expenses in the month of June, to claim immediately as tax deductions in July (if you lodge your tax straight away).

While it makes sense financially, your spending should be approached with caution. Don’t fall into the trap of spending money that you don’t necessarily need to, especially if these expenses are not budgeted for. However, this strategy can be effective if you’re planning on making tax-deductible purchases in July or August. By fast forwarding these purchases to May or June, you can claim instantly.

The most important thing to remember is that there is no point in spending money to get a tax deduction unless it’s going to result in something useful for you.

Don’t forget to keep any receipts for work-related expenses such as uniforms, training courses and learning materials, as these may be tax-deductible.

3. Prepay interest on investment loans

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.

4. Donations

“We make a living by what we get, but we make a life by what we give” –Winston Churchill

If you made a donation to a charity equating to $2 or more, you may be entitled to claim a deduction, providing the donation was voluntary.

If you haven’t made any donations this financial year, June is a great time to make them, as you can claim back the following month.

Make sure you keep the donation receipt/s as proof, and file them away.

5. Working from home expenses

If COVID-19 saw you working from home and you continued to do so as the pandemic eased, you may be able to claim a deduction for these expenses. These may include additional running expenses in the home that wouldn’t have occurred if you were in the office, for example electricity, phone expenses, internet expenses and the decline in value of equipment or furniture.

If your employer is giving you money to cover work from home expenses, you can’t double dip and claim them yourself. It’s best to have your accountant or tax agent advise you on what charges can be claimed, however the below items generally can’t be added (sorry ladies):

  • Coffee, tea, milk and bickies your employer may provide you at work
  • The decline in value of items provided by your employer – for     example, a laptop or phone
  • Any item your employer pays for or repays you for the expense
  • Occupancy expenses such as rent, mortgage interest, water and     rates.

The ATO also allows you, instead of the method above, to claim using a “Shortcut Method”. This is equivalent to $0.80per work hour for the 2021 year. This amount covers all working from home expenses. When using this method, you must keep a record of how you calculated the number of hours you are claiming.

6.Top up your super

To reduce your overall taxable income, consider making a voluntary superannuation contribution.

The advantage of this strategy is that superannuation contributions are taxed at between 15% to 30% compared to typical personal income tax rates of between 34.5% and 47%.

It’s important to note, that once you’ve invested money into super, it’s difficult to withdraw these funds before retirement age of 60. So, make sure it’s money you don’t need in the near future, and you’ve researched the pro’s and con’s of putting money into super.

7. Insurance premiums– claim and pre-pay

Possibly your greatest financial asset is your ability to earn an income. That’s right, you little cash-cow.

Income Protection insurance generally replaces up to 75% of your salary/ business income if you are unable to work due to sickness or an accident.

The insurance premium is normally tax-deductible, plus you get the benefit of protecting your, and your family’s lifestyle, if you can’t work due to sickness or an accident.

It’s a small price to pay for peace of mind. Like rental property interest, income protection premiums can also be pre-paid for 12 months to increase your deductions. This is another option to consider if you have the spare cash.

IMPORTANT INFORMATION

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this article, you should assess your own circumstances or seek advice from your accountant or financial adviser.

 

Warmest,

Karen Eley is a financial coach with more than 20 years’ experience as a financial adviser. Through her business, Women Talking Finance, she helps women to be confident and knowledgeable about all things finance. Karen translates complex financial concepts into simple digestible ideas.

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