11 top tax tips for individuals

author-avatar By on June 25, 2021
11 top tax tips for individuals

Many of us dread tax time but there are a number of things you can do to maximise your refund and make life easier.

Thanks to the low and middle-income tax offset (LMITO, or more affectionately, the ‘Lamington') which has been extended for another year, many Australians are likely to get a bumper tax return this year. For people earning between $45,001 and $90,000, the tax cuts are worth $1,080 a year while for those earning $90,001 to $120,000, it’s worth $1,080 minus three cents for every dollar over $90,000.

Meanwhile, the permanent lift in the upper thresholds of the 19% (from $37,000 to $45,000) and 32.5% (from $90,000 to $120,000) income tax rates will generate tax savings of up to $2,430 for some.

Even though you’re likely to get a bigger tax refund this year, there are ways you can prepare to potentially increase it further. We talked to the experts on their top tax tips this tax season.

11 top tax tips for individuals


Claim deductions for home office costs

Wherever you live in Australia, it’s more than likely you’ve been forced to work from home at some point in the last financial year thanks to the pandemic.

Author of 101 Ways to Save Money on Your Tax - Legally! Dr Adrian Raftery, aka ‘Mr Taxman’, said many people weren’t aware they could claim a deduction for costs incurred in running a home office, even if it wasn't strictly used for work.

“At an absolute minimum keep a diary of your time that you work from home,” Dr Raftery told Savings.com.au.

“Whilst you can use the ATO’s shortcut method of 80 cents per hour it will probably be significantly less than actual deductions for the work-related portion of home telephone, internet, stationery, printers, computer equipment and consumables together with the 52 cents per hour claim for electricity, gas and depreciation of home-based furniture under the fixed costs method.

“This is one claim that will skyrocket in 2020/21.”


Keep a car logbook

The pandemic has seen cobwebs grow on many cars with people confined to their own homes.

Consequently, Mark Chapman, Director of Tax Communications at H&R Block, said the ATO would be closely watching car claims this year, so it was vital records are correct and complete.

“If you use the log-book method, now is the time to check that your log-book is up to date and that you have all the receipts, invoices and records of journeys which you will need to calculate and substantiate your claim,” Mr Chapman told Savings.com.au.

“If you use the cents per kilometre method, you will still need a record of all work-related journeys during the year.”


Take advantage of the ‘super co-contribution'

How good is free money! Dr Raftery said it was astounding how few people took advantage of free cash from the government through the superannuation co-contribution.

“If your income is under $39,837 and you contribute $1,000 post-tax into super the government will match it 50 cents in the dollar,” he said.

“Whilst this incentive gradually phases out above this figure at $54,837, it’s free money!

“Also, if you earn less than $37,000 then your spouse can put up to $3,000 into your super fund and they will receive an 18% rebate ($540) on tax via the spouse super contribution rebate.”


Offset capital gains against capital losses

It’s been a largely bumper year for investors, with the ASX hitting record highs in the past twelve months and the housing market growing at a record-breaking pace.

Mr Chapman urged investors to review their portfolios to see if there were any capital losses that could be offset against a capital gain.

“If you’ve disposed of shares or any other form of investment and you know you’ve made a capital gain, take a look at your investment portfolio and consider disposing of any assets which you own which you know are sitting at a loss,” he said.

“Be careful though if you sell shares sitting at a loss and then buy them back in the new tax year. The ATO takes a hard line against so-called “wash sales”.

“The ATO regards the purchase and the sale as effectively the same asset and have issued a Tax Ruling which states they can apply the anti-avoidance provisions to cancel any tax benefits and apply penalties.”


Salary sacrifice into your super

A large number of Aussies withdrew money from their superannuation in the past financial year to support themselves through COVID.

But Dr Raftery said depositing extra money into your super through salary sacrificing was one of the best legitimate ways to minimise your income tax bill.

“You can contribute up to $25,000 per year into super (which includes the compulsory 9.5% employer contributions) which is only taxed at 15% instead of your marginal tax rate (as high as 45%).

“PAYG employees can make a lump-sum contribution at the end of the financial year to take them up to the $25,000 cap and claim as a tax deduction.

“For those that don’t have excess cash lying about there are not many pay packets left to do it this tax year, so keep in mind to start putting extra away when 1 July arrives.”


Claim for your mobile phone usage

COVID has only accelerated the shift in how we use our phones, with Zoom, Microsoft Teams, and Outlook commonplace on people’s mobiles so they can work on the go.

Mr Chapman said if you used your personal phone for work, you can claim a deduction for the business-related use.

“Make sure you have your phone bills collected together and have kept a log of your business/personal use over a four-week period. That percentage can then be applied to the whole year.”


Bring forward next year’s expenses

No one wants to earn less money but a major life event may mean your income is less next year.

Dr Raftery recommended bringing forward expenses from the next financial year into this year if you expect your income to be lower.

“If you are expecting that you will have a lower income next year - due to factors such as maternity leave, redundancy, a smaller or no bonus or perhaps cutbacks to overtime - then why not try to bring forward your deductions into this tax year.

“Stocking up your home office with stationery, laptops and printers or prepaying subscriptions and interest for up to 12 months in advance are just some of the simple ways to reduce your income before 30 June.”


Keep your receipts

Trying to keep track of all of your receipts can be a nightmare, but Dr Raftery said without them, the ATO may punish you.

“With the need to get back as much as you can whilst things are financially tough during COVID-19, not to mention the ATO continuing ramping up audit activity yet again it is important to keep your receipts,” Dr Raftery said.

“The ATO motto is no receipt = no deduction so you could be costing dollars by not keeping those dockets. The ATO has a great app called MyDeductions which is an easy way to keep your receipts for year-end.”


Split super balances between spouses

Superannuation is a hot topic of late, largely due to the super guarantee rate rising from 9.5% to 10% on 1 July 2021, and progressively increasing to 12% by July 2025.

Dr Raftery said the changes had seen financial planners working like crazy to maximise tax benefits for individuals, with many recommending splitting super balances between spouses.

“$1.6 million is the magical figure to have superannuation tax-free in retirement so it is crucial that couples maximise their $3.2M combined tax-free balance and not have one spouse over the $1.6M threshold with one well under.

“A simple strategy would be to have the higher-balance spouse withdraw up to $300,000 in super and re-contribute into the lower-balance spouse’s super under the three-year rolled forward rule for non-concessional contributions. Important to see a financial planning expert here.”


Splurge on a business handbag

Treat yourself! If your handbag or man bag is looking a bit worse for wear, Mr Chapman said splurging on a new one was tax-deductible.

“If you use a bag for work, to carry papers or a laptop perhaps, you can claim a tax deduction for the cost. That could include a briefcase, a backpack or a handbag, whichever suits your needs.”


Talk to an expert

Both Dr Raftery and Mr Chapman urged Aussies to consult an accountant this tax season, with the former noting they could help you to avoid mistakes and maximise your refund.

“Avoid paying too much in tax or leaving yourself to a visit from the taxman,” Dr Raftery said.

“Great accountants are like surveyors, they know where the boundaries are. You can generally delay the lodgement of your return to May next year and their fees are tax-deductible.”


Photo by Andrew Neel on Unsplash

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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