Generally, if you do not have written evidence for your expenditure,
the deduction is not allowed – do not pay more tax than you have to!
You are required to keep your tax records for 5 years from the date you
lodge your tax return. Your tax records must consist of a receipt or
diary entry showing the date of purchase, the supplier's name, the original
cost of the item, and a description of the item. Note that you may claim up
to $300 of work related deductions without a receipt.
Often clients forget to maintain records of their property,
shares, options and trading transactions. Certain costs on the
acquisition and sale of these assets can be added to the cost base and
therefore reduce the capital gain on sale. Try and hold on to these
investments for at least 12 months to take advantage of the capital gains
discount available. Records you need to keep of each acquisition include:
- Type of transaction (Buy or Sell)
- Date of transaction
- Number of shares bought or sold
- Price per share on buy or sell transaction
- Brokerage / stamp duty / vendor duty charged on buy / sell transaction
- Transaction costs on buy or sell
Did you know that you can claim depreciation on items of equipment used for
employment or business purposes? You will need to keep accurate records of
all items of equipment purchased or sold for income tax purposes. Appropriate
records would include:
- Date of purchase
- Purchase price
- Description of the item
- Approximate business use or work use percentage
You should review your depreciation rate and whether the prime cost or
diminishing value method of calculating depreciation is more appropriate
(you will generally get a higher depreciation amount under diminishing value
in the first few years of the asset’s life) or whether you should self-assess
the effective life of the asset or write it off at year end.
Make sure you keep accurate records of your work related travel expenses,
especially where the travel is for 6 consecutive nights or more. You must
record in a travel diary:
- Nature of activity
- Date and time and
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Review debtors and consider bad debt write offs before year-end.
Some income can be deferred until the next tax period - interest,
dividend and rent is not assessed until actually received.
Review value of Trading Stock – can elect cost, market value or
replacement value and consider scrapping obsolete stock.
Review Capital Gains Tax position - should you sell an asset to
offset a realised capital loss against a realised gain? Note 50%
CGT discount applies to trusts and partners of a partnership provided
asset held for more than 12 months. There are also small business
capital gain concessions – this may mean that you only pay tax on
25% of your gain!
Scrap or dispose of obsolete depreciable items. $1000 write off still
available for small business taxpayers
(i.e. turnover < $1m and cash basis of accounting used) who have
elected to be taxed under the Simplified Taxation System (STS).
Salary and wages, statutory prepayments such as land tax and prepayments
< $1,000 can be claimed as an immediate deduction. For small business
taxpayers under the STS, an immediate deduction is available for expenses
paid in advance provided the service ends before the next income year.
Consider whether donations to charities can be made before year-end.
Consider if consumables be purchased in advance.
Ensure all superannuation to employees paid at year and that the amount
of bonuses can be accurately calculated and authorised by management at
year end (i.e. are not discretionary or based on % of profit).
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If you are starting a small business, you may qualify for
a tax rebate. If your turnover is less than $75,000 per annum, the
entrepreneur tax offset is a 25 percent rebate.
There are many ways of reducing your tax bill but the strategies that will
work will depend on your personal tax profile. Here are just some tax tips
you may want to think about. To find a tax strategy that works for you,
please [contact us].
More tax tips... [contact us]
Individual tax rates for the new year are likely to
decrease as a result of the recent Federal Budget. Therefore, by
delaying assessable income or bringing forward allowable deductions, a
permanent advantage can be obtained as income will be taxed at a lower
rate going forward. There are certain ways of reducing your assessable
income. One way is to derive capital gains rather than income gains.
Capital gains are generally only taxed at half your marginal rate
provided certain conditions are met. Additionally, one way of bringing
forward your deductions is to prepay lease, interest and insurance premiums etc.
These expenses can be claimed in the current income year provided the
service period is < 12 months and the service will be completed in the
next income year.
Further, if you have prior year losses or capital losses, you should
consider taking advantage of them in the current year as the actual
benefit of the losses will decrease with the reduction in individual
tax rates in the future.
Consider salary sacrificing arrangements with your employer.
In a salary sacrifice arrangement, the employment benefit is purchased
with pre-tax dollars. You may salary sacrifice a range of items including
superannuation (up to the age based limit) or a mobile phone or computer
(not subject to Fringe Benefits Tax). Motor Vehicles are subject to
Fringe Benefits Tax, but the amount is reduced,depending on kilometres travelled.
Consider debt funding your income producing investments.
You should always obtain financial advice before undertaking
If you carry on all or part of your employment activities from home, then some portion of the home expenses can be deducted. Where you set up your home as a place of business, deductions can be claimed on the following items of expenditure - interest, rent, insurance, council rates, heating, lighting, depreciation, insurance, repairs, cleaning, pest control,
maintenance and telephone calls.
Consider the government’s superannuation co-contribution scheme. The government will match your superannuation contributions on a dollar for dollar basis
provided you meet certain criteria.
Consider transferring your income producing assets to your low
income spouse or employ your non-working spouse as an employee of
Consider setting up a discretionary trust or partnership where income
from the trust or partnership can be distributed to/split between
certain beneficiaries/partners at the trustee/partner’s discretion.
Before entering into any of the above strategies, it is necessary to
obtain professional advice specific to your individual circumstances.
You should also consider the practical commercial implications
(such as stamp duty and regulatory requirements) of entering into any
strategy. A strategy should only be entered into if it makes commercial
sense and not only for tax purposes.