There’s a lot to love about tax time (said no one ever!). We know it’s very easy to find ways to keep putting it off, but in the end there’s no avoiding EOFY. Nobody loves the idea of having to spend hours searching through their inbox, files, and drawers and wherever else they keep their invoices, receipts and other bits of paper needed to complete and lodge a tax return.
But, if you follow these simple tips you may find that EOFY is a lot less stressful than you once thought and you may even learn some helpful habits for next year. After all, it can mean receiving a big fat tax refund at the end of it!
Tip 1: Get organised
Preparing a tax return is much easier when you have all the paperwork on hand. Sort out receipts for tax claims like work related expenses or investment property costs including your home loan statements. Organise statements for savings accounts and other investments, and make sure you have your Pay As You Go (PAYG) Payment Summary or Group Certificate on hand.
If you have an old-school filing system of shoeboxes under your bed bursting with receipts and letters, it might be time to drag yourself into the 21st century and find some programs or apps that can make E.O.F.Y time a whole lot more bearable.
On the simple end of the scale you can get a basic program for your computer (like excel) to help with accounting and record keeping. From there you can delve into the world of mobile apps that let you manage your finances on the go. Instead of keeping stacks of receipts under the bed and having a mini-meltdown come the end of the tax year, you can take a photo of each one and file/store them as you go along.
Tip 2: Start early….duhh
If you prepare your own tax return, you have until 31 October 2017 to lodge your FY17 tax return. But why wait? The sooner you have a tax refund, the sooner you can put the money to another use (trip to Hawaii anyone?).
Getting started now means you’ll be ready to lodge your tax return soon after 30 June 2017.
Tip 3: Get your timing right and don’t miss deadlines!
Did you know that if you have a geared investment loan, you can pre-pay next year’s bank interest and get a tax deduction in the current financial year?
If your capital losses outweigh your gains in a particular year, you can carry the losses forward for an indefinite period and keep offsetting them against your gains – that is until you start making a profit (clever stuff!). There’s just over a month left to sort this out, so take a good look at your property portfolio and chat to your accountant and your finance specialist to work out if this is a step that’s worth taking.
WARNING IMPORTANT: Don’t miss tax deadlines or you may find hefty fines coming your way, for a full list of tax deadlines head to the Australian Taxation Office website.
Refer to Tip #4 on the diabolical impact this could have…….#dontsaywedidintwarnyou
Tip 4: Pay any tax debts pre June 30 or be ready to suffer the consequences…..
For those of you with overdue tax debts, as of 1st July 2017 the Australian Tax Office (ATO) will have the power (like they don’t have enough already!) to fully disclose and issue late payer reports to credit reporting agencies (yep, the dibber-dobbers!).
THIS IS MAJOR.
Not only could this reduce your credit score (and your credit score is like the Holy Grail when applying for finance! But it can also impact your chances of achieving finance approval as well impact your existing finance and supplier arrangements (as in, they could be withdrawn or called in ….eek!*)
The answer…..don’t bury your head in the sand. Get in touch with your accountant ASAP and ask for an up to date A.T.O account statement, so you know exactly where you are at with anything you owe the Tax Office and whether you need to factor in additional costs to your June cash flow budget.
(Oh, and so you know if you have equity in property, we also have access to Lenders where we can consolidate tax debt and make sure that your credit score is protected!)
Tip 5: Claim all of the tax deductions you are allowed to claim
Claim everything you legally can, like it’s going out of fashion!
So if you’ve invested in a property for the first time, or if you’ve purchased a new car for work purposes, make sure you’re clued up on what is and what isn’t tax deductible. Borrowing expenses, among others, can be deducted outright, whereas some deductions are applied over a period of time.
Imagine you have a rental property and you take out a loan to cover the cost of giving it a makeover with the end result increasing your rental income (Bonus!). Well, do you know if you are allowed to deduct the interest you pay on the money you actually borrowed for the makeover?
Claiming right can get pretty complicated. It’s best to chat with your accountant on the do’s and don’ts of interest deductibility. You can also jump on and check the A.T.O website to assess your individual situation and make sure you’re not over – or under – claiming.
Tip 6: Consolidate your Superannuation funds
Could you honestly tell us how many Superannuation funds are out there with your name on them? If you’ve worked for different employers during your career, you may have multiple superannuation accounts, which are being eaten away at by annual management fees with nothing topping them up.
It may sound like hard work, but there are actually websites out there that can help you to seek out, consolidate and protect your superannuation to maximise your returns for the financial years ahead. By bringing those superannuation accounts back together, you could have a much more powerful asset base in your financial future!
Tip 7: Have a smart mortgage structure
It’s important to have your loans structured properly for accounting purposes otherwise you might raise an A.T.O red flag and have to undergo an audit – this is an experience you really want to avoid!
Having both your personal mortgage and investment mortgage with the same financial institution can make it harder to track how much interest you pay on each, so keeping them completely separate may make life easier when it comes to the EOFY.
This is where it’s really important to work with the right finance specialists and accounting professionals who understand your specific situation to best structure your loans the correct way.
Tip 8: Prepay your investment expenses
If you own an investment property (or a few) you may then be able to boost your tax refund this current Financial Year by legitimately claiming the expenses as deductibles in this financial year.
This could be insurance, council rates, body corporate fees and property management costs before June 30th. Some providers also offer incentives (e.g. insurers) by applying discounts when you pay in advance/upfront versus paying by instalments or the actual due date (another added bonus to save some cash).
So, if you have some cash lying around (or equity you can access in a property), you can prepay your normal property expenses for the year ahead (including 12 months loan interest) which will help your cash flow in the coming year.
Nothing like giving your future self a helping hand!
DISCLAIMER: As always, we recommend that you speak with your accountant on whether this strategy would suit your own financial and tax position.
Tip 9: Be aware! Changes to Depreciation Deductions = Bye-Bye Deductions! #budget2017
Starting from May, property investors will only be able to claim depreciation deductions on plant and equipment items if they either;
a) Purchased the asset directly themselves (i.e. added a new dishwasher) or;
b) Bought a brand-spanking new property.
Until now, quantity surveyors were charged with the task of estimating the residual or left over value of the plant and equipment assets when investors purchased an established home. These can be things like blinds, curtains, carpets, ovens, cooktops, dishwashers, hot water systems, light shades, security systems, air conditioners and the like.
Starting from now, the only available claim will be on the construction part of the dwelling. This of course only applies to properties that had started construction after the 16th of September 1987 or properties renovated after 27 February 1992 (only?!%* that is a large proportion of properties!).
So basically, a property built in the 1970s that was renovated in 1998 for $50,000, will receive 2.5% of that value in depreciation each financial year for 40 years from the completion date of the works. Now the 50k of works cannot include those plant and equipment items mentioned above, it must be building works (division 43) only.
This is a massive hit to property investors and what they would have been able to traditionally claim and offset against their taxable incomes (e.g get larger tax refunds!).
If you are concerned about the impact this has to your financial position, it’s important to reach out and make the time to chat it through with your accountant.
Tip 10: Get the right team behind you
Having the right team backing you up can not only have a big impact on your finances, but can also take the stress out of this time of year.
EOFY is a good time to evaluate your choice of accountant, mortgage broker, finance strategist or financial planner and make sure you’re working with the right people.
You can approach it like dating. When you first meet, make sure you ask plenty of questions to get to know what they are all about and assess whether they will be a good match. If you’re unsure, you don’t have to commit to anything. You might want a second date – err, meeting – to check your first impressions and ask more questions.
Make sure your team is suitably qualified and experienced to deal with your needs, particularly if you’re a property investor or have specialist financial requirements.
If you’ve been with someone a while but don’t think it’s working out, you’ll have to have the awkward ‘I think we should see other people’ chat. Another one of those less-than-enjoyable experiences, but at the end of the day this is all about what’s best for you and of course your financial future!
Talk to us – we’re your very ‘unordinary’ finance people.