Happy New Financial Year Eve: Time to get Your Tax Sorted!

When it comes to tax time, it can be a dreaded moment for most people, the headache of having to pull out all your receipts and adding up all your deductibles against your income can be pain-staking.

However, it is truly worth your time if you do it correctly and can save you hundreds, if not thousands in tax bills.

If you have a great system already, it is pretty easy at the end of financial year, much like my own system whereby I track deductions and investments monthly, therefore I know what income is coming in and what expenses I am able to use for tax deductions.

Don’t worry if you don’t though, because by reading this blog, you will be well and truly ready to take on the accountant and get the most of that tax refund or save on that tax bill.

The number one thing you need to remember for when doing you tax is…

Anything you pay for, whether employed or self-employed, that contributes to your job or business is tax deductible!!

Which means your phone bill if you use it for work 20% of the time, you can use 20% of your phone bill as a tax deduction. Personal development, whereby you paid for that webinar, or course, you got it, that is tax deductible. Using an investing app to track your investments? Any cost related is tax deductible! (Only if you earn money from said investments.)

Therefore, it pays to track all expenses relating to work or income streams, whether that is car/fuel (needs to be used for work, not just travelling to work) or simply the coffee you bought at that work meeting.

Every little dollar can count towards reducing your income, and hence, reducing your tax bill at the end of the year.

I will go through a simple example a little later.

But what has changed since last Financial Year?

The main changes have been;

• The increase to the HELP-HECs threshold, which you will be able to see the rates for the threshold a little bit later on.

• RAT and PCR Covid tests are tax deductible if needed for work purposes.

• Income Statements have replaced payment summaries, everything will be updated to MyGov by late July (Which means don’t be too early when it comes to your tax, you have up until October to get your tax done, so use that time to get it right.)

• Superannuation tax deductions for personal super contributions (Not new for this financial year, but worth noting.)

As you can see, getting your tax right can be really hard, as rates change and what you can use as a deduction can change as well, therefore it truly pays to be informed on what is going on. Hence having a good accountant or a Tax planner by your side if you have a fairly complex situation is always a great idea.

Next, let’s look at the tax rates for the 21-22FY:

source: www.ato.gov.au/rates/individual-income-tax-rates/

As you can see from the above, the rates are all very different and hard to determine your exact tax bill by the end of year. I find the simplest way to actually see how much your tax will be at the end of financial year is using the tax calculator from the ATO, which have some great tools if you are interested in delving into their site.

Check out the tax calculator here

The only thing you must remember, is that the calculator does not include the 2% Medicare levy, which every Australian resident must pay if lodging their tax returns.

Let’s go through a quick example;

Barry earns $75,000 PAYG

Barry has tax deductions of;

• Personal Development - $2,700

• Petrol/KM - $2,500

• Mobile- $120

• Uniform- $100

• Charity- $500

• Personal Super contributions- $4,000 (Taxed at 15% rather than 32.5% based on the above example)

Barry’s taxable income has now dropped to $68,380, which means rather than his tax bill being $14,842…

It is now $12,690.5 !!

Saving Barry $2,151.50, not bad Barry.

Now, what happens if Barry had formal tertiary education?

Barry’s HEC’s/HELP fees, with his new taxable income, would be a whole bracket less, which means rather paying 4.5% of his fees, he only needs to pay 4%.

Barry has $50,000 of HELP fees, therefore rather than paying $2,250, Barry pays $2,000 instead. Saving him an extra $250.

Can check out the HEC’s/HELP fee rates below based on income:

source: www.ato.gov.au/Rates/HELP-TSL-and-SFSS-repayment-thresholds-and-rates/

There is a lot more that you need to know when it comes to tax, and the example above is only a very basic example, therefore if you have something which is much more complex or you own your own business.

I highly recommend talking to an accountant to get the best saving on your tax bill at the end of financial year.

If you have any further questions, please don’t hesitate to reach out and if you would like an excel tax calculator that adds up private health rebates, medicare levy surcharge, deductions and your final tax bill at the end, so there are no surprises…

Make sure to fill out the form below:

Hope this has helped you with navigating a subject that most people get a headache just by thinking about it from,

Until Next Time,

Take Back Control!