Try these top tax tips to maximise deductions

This was originally published in the Australian on 3 Jun 2022. Click here to access the original.

Top accountants give some insight on the less well-known tax planning tips.

With less than a month to go in the financial year, it is worth considering what last-minute actions can be undertaken to reduce any upcoming personal tax liability.

Most of us are aware of the common tax deductibility strategies such as prepaying interest on investment property debt. But what of the tips that are not so well known? Here, several of Australia’s leading tax accountants have some insight.

Take catch-up super contributions. These have been in place since the 2018-19 financial year and if no pre-tax super contribution has been made over that period until now, the maximum catch-up contribution that can be made this financial year is $102,500, which makes for a very large tax deduction.

Timothy Ricardo, director of Bishop Collins Chartered Accountants, says: “Catch-up contributions have become a major consideration in tax planning for capital gains, due to the effect of marginal rates. Large capital gains for lumpy assets like property present a problem for investors as they often result in a single large tax payable in a year.

“After applying the 50 per cent discount on the gain, which is available after holding an asset for 12 months, you can then apply super contributions to reduce your taxable income from the gain and bring down the tax to a lower threshold.”

You can check within the ATO section of myGov with regard to your available catch-up contribution balance, also noting that you must have a total superannuation balance of less than $500,000 to be eligible.

James Trainor, tax partner at BDO in Australia, says a key deductibility area in the upcoming tax season will be working from home costs.

“Employees who have been working from home during the Covid pandemic are able to claim a tax deduction for work-related expenses using several different methods,” he says.

“While the shortcut method – an all-inclusive rate per hour spent working from home – is simplest, the actual method which requires more detailed expense records may provide a larger tax deduction.”

With the easing of Covid restrictions and workers starting to come back to the office and undertake business travel, Gavin Bateman, director and tax agent at Dolman Bateman accountants in Sydney, says: “It is important to keep all receipts of expenses incurred during business trips and not just airfares and accommodation as other things such as car hire and meals for overnight stays may be claimable. Best practice is to keep a travel diary so your accountant can apportion business versus personal expenses.”

For local workers, although motor vehicle usage generally cannot be claimed from your residence to your place of work, if you use your vehicle while at work you can claim, Mr Bateman says. “Note how many kilometres were travelled or keep a logbook for 12 weeks,” he says.

Shifting to stocks and capital gains, history indicates that June is one of the worst months on average for the Australian sharemarket, with an average historical return of around -0.5 per cent. In contrast, July is historically one of the best months on the sharemarket, with an average historical return of over 2 per cent. This phenomenon may be coincidence or it may be due to end-of-year tax planning and strategic selling of investments.

Mr Ricardo notes the benefit of a portfolio review at this time of year. “If you happen to be sitting on large taxable capital gains within a tax year, it may be worth reviewing your portfolio to consider cutting your losses on other investments that you are planning on selling within the same financial year.

“But remember, a tax benefit can’t be the purpose of sale. Taxpayers must be careful to avoid a wash-sale, where you dispose of an asset to crystallise a loss and then repurchase the same (or substantially the same) asset shortly after.”

The ATO has a number of examples in TR 2008/1 which they would call a wash-sale. If in doubt, speak to your accountant or financial adviser, he adds.

For people who work in companies that issue stock options, Mr Trainor suggests reviewing when stock options are exercised. “An employee who has acquired stock options via an employee share scheme is typically taxed when they exercise their stock options. However, if the resulting shares are sold within 30 days of exercise, the taxing point is instead the date of sale.

“Thus an employee who exercises stock options in late June 2022 could defer paying the tax by choosing to sell those shares shortly after July 1, 2022, rather than immediately (but within 30 days of exercise). This gives the employee an extra 12 months to pay their tax liability.”

At a more strategic level, Star & Associates accountant Luke Star says the best tip is to plan. “Plan ahead of 30 June, which typically involves engagement with a tax professional or financial planning resource to properly model a 30 June outcome or an asset/income scenario,” he says.

“This modelling process will allow you to visualise the projected tax outcome and make any adjustments that could improve this situation.”

Record-keeping is another important tip. Take photos of invoices and maintain an excel spreadsheet of these expenses. Good record-keeping means eligible tax deductions aren’t missed and the year-end process is seamless, more efficient and cost-effective.

Lastly, if you are too successful at employing legitimate deduction strategies to reduce your taxable income, the ATO may come knocking to review and verify your tax return. It is not just your level of tax deductions that may arouse interest, Star says.

“Extensive funding and resources have been funnelled into the ATO audit section directed at data analytics. Data matching now extends to the land titles offices, state revenue, insurance data and now social media platforms,” he warns.