Donate - If you are going to donate to charity, now is the time. Any donations you make to deductible gift recipients can be deducted this year. Remember, if you received something in return for the money, like goods purchased at a charity auction, you may not be able to claim a deduction for the full payment. There are special rules dealing with this situation that need to be taken into account.
Work related deductions – you can claim a deduction for business expenses you have incurred that have not been paid by your employer. But be careful, you need to be certain that what you are claiming is a legitimate business expense and able to be claimed. For example, you cannot claim the cost of dry cleaning the clothes you wear to work unless it is protective clothing, a uniform required by the business, or occupation specific clothing (like the checked pants some chefs wear).
To be legitimate, the expense must be for something you need to do your job. Items like laptop bags have been in the news lately because some handbags can be used to carry laptops. This does not mean that your Gucci bag is suddenly deductible. It is really up to you to justify the deduction that you are claiming, keeping records of the actual usage of the item can help with this.
Home office expenses – if you work from home as part of your employment, you may be able to claim items such as phone expenses, running costs for your home, and equipment. Just bear in mind that expenses need to be in proportion to your use of the home for work purposes. If your home is a place of business and you are entitled to claim a deduction for interest expenses or rent, then this will generally impact on your ability to claim the full main residence exemption from CGT when you sell the home.
Earning extra cash from AirBNB style services - The tax treatment of what you earn by renting all or part of your house through AirBNB and similar services is the same as any other residential rental property arrangement. You must include the rental income in your income tax return, but you can also claim tax deductions for expenses associated to the rental, such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, and insurance. Expense claims need to be in proportion to the rental, that is, how much of the house is used and for how long. Also, beware that this type of activity can restrict your ability to claim the CGT main residence exemption when you sell the property if it is or has been your home.
Uber – If you drive for Uber or a similar service, the income you earn needs to be declared on your income tax return. Plus, you need to be registered for GST. You can claim expenses for your car that relate to transporting passengers (relative to the kilometres travelled with passengers).
Danger zones – Expense claims that are high on the Australian Taxation Office (ATO) hit list include:
Travel expenses – Problems arise when people make claims for expenses that they did not actually incur. Typically, this happens when someone receives an allowance for travel but does not spend it (they might stay with family or friends instead). While the ATO publishes some reasonable rates each year for food and accommodation expenses, these only provide limited relief from the full record keeping rules. You cannot claim a deduction for the ATO reasonable rate amount if you spent less than this on food and accommodation.
You can no longer claim – If you are a property investor, you can generally no longer claim the cost of travelling to and from your investment property.
Who gets a tax cut from 1 July?
1 July 2018 is the start date for the seven year income tax plan announced in the recent 2018-19 Federal Budget. The seven year plan benefits low and middle income earners in the first few years before expanding out to a broader restructure of the tax rates and brackets for everyone.
From 2018-19, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000. Dovetailing into the tax bracket change is the introduction of the Low and Middle Income Tax Offset for those with taxable incomes up to $125,333. The offset is a non-refundable tax offset that you receive when you lodge your income tax return.
If your annual taxable income is $80,000 in 2018-19, then the personal income tax changes provide an annual tax reduction of $530 per year. If your annual taxable income is $120,000, then the changes give you an annual reduction of $215.
The legislation enabling the personal income tax cuts and the new tax offset is not yet law and currently before the Senate.
Assuming the legislation comes into effect, further changes are planned from 1 July 2022 culminating in the removal of the 37% tax bracket from 1 July 2024. The changes will allow you to earn more before facing a higher tax bracket.
If you would like to discuss your options further, feel free to book a consultation.