How I got my biggest tax refund ever!
4 min reading time
"I'm not evading tax in any way shape or form. Of course I'm minimising my tax. If anybody in this country doesn't minimise their tax they want their head read…” Kerry Packer.
Now, not getting tax back at the end of the year isn’t a bad thing. It meant you may have underpaid the 'tax man' throughout the year, so now the Australian Tax Office (ATO) is requiring you to pay your fair share. But if you paid tax during the year, and you have not yet claimed your tax deductions, this may be when you can get a tax refund.
This is what happened to me. When I recently did a tax return, my tax deductions resulted in me achieving my biggest tax refund so far. My accountants Daniel and Hairul from NumberGroup also helped by providing tax deduction advice. So, in the spirit of the New Financial Year, I’d like to share with you how we did it and some tips on what you may like to look for.
What is a tax deduction?
First, let’s clarify some tax jargon. A tax deduction is an expense that has a direct relationship to an income generating activity. Such activities generally include work related expenses, some education expenses and investing. See the ATO website for more information. These expenses reduce your 'assessable income' so the tax you pay is then based on your 'taxable income'.
Assessable income − allowable deductions = taxable income
For example, if your 'assessable income' was $150,000 and you accumulated $20,000 in tax deductions, your 'taxable income' is $130,000. These $20,000 tax deductions could save you nearly $8,000 in tax!
Forgone are the days of relying on loose receipts, spreadsheets and memories
My first tip is to stay clear of relying on your memory, spreadsheets and loose receipts in that shoe box to keep track of your tax-deductible expenses during the year.
I record all tax deductions as they occur during the year using software that links up to my personal and business bank accounts. As the expense occurred, my software 'tags' it and I attached a photo of the receipt to the relevant expense. When I started using this software, the amount of tax deductions that I claimed increased, because I didn't forget about it or lose the receipt. It also makes my accountant's job more efficient and keeps a record of the transaction for compliance purposes.
You can use software such as Xero, but I prefer Myprosperity for personal finances. My money coaching and financial planning clients receive an upgraded version of Myprosperity for free. You can use it too for only $33 per month (click here for more details on what this software can do for you). Yes, the $33 per month may be a tax deduction if it is used to record your tax-deductible expenses and receipts!
So [drum roll please] this is what I looked out for when accumulating my tax deductions…
1. My handbag as I use it to carry my business laptop. I love my tax-deductible Oroton tote!
2. I had a depreciation report for my investment property and claimed on property expenses. Talk to your accountant about tax deductions versus capital expenses.
3. Interest repayments on share and property loans—but not the principal repayments.
4. Stamp duty for investment properties bought in the ACT.
5. Income protection premiums (if not held via superannuation).
6. Financial advice fees relating to ongoing investment advice regarding a specific investment which produces assessable income.
7. Tax deductible superannuation contributions—provided the superannuation fund had accepted a Notice of Intent to Claim form before submitting your income tax return.
a. If you are a contributing member of a defined benefit scheme such as the Public Sector Superannuation scheme or UniSuper, be wary of the notional employer contributions. See your financial planner or call your superannuation fund for more information.
8. For those who work and study at home (and have a dedicated home office), some home office furniture, and a percentage of the utility, phone and internet bills could be claimed. As I was renting, I was able to claim part of my rent too.
a. If you live in your own home, see your accountant before claiming these expenses due to possible Capital Gains Tax issues.
9. Tickets and travel costs to some business and networking events. Claiming food and entertainment expenses are questionable.
10. Some car expenses, as I travel to client meetings (when it is not convenient for them to meet at the office). A logbook may be required, as the ATO is cracking down on this.
As you know your personal situation best, it is up to you to keep track of what you 'think' is deductible throughout the year— including its receipt.
Then, when you see your accountant, they will advise on whether you’re eligible to claim the tax‑deduction.
My profession is as a Financial Planner, so my deductions relate to my business and personal financial situation. Therefore, it’s important to seek advice from your accountant about what is relevant to you. For example, I can claim my handbag as a tax deduction, but this may be not relevant to you and your professional situation. Some other professionals can claim SPF makeup and watches!
Your next steps:
1. Start using software to collate all tax-deductible expenses throughout the year. As it’s July, now is a great time to set it up. Click here to start with Myprosperity.
2. Seek financial planning advice if you are a high-income earner, that is keen to invest tax effectively.
3. See an accountant for tax and business advice. Feel free to see your own accountant or reach out to Hairul, Angus and Daniel at Numbergroup in Kingston www.numbergroup.com.au
Gianna Thomson and Thomson Wealth Pty Ltd ACN 626 920 161 trading as Gianna Thomson are authorised representatives of Fitzpatricks Private Wealth Pty Ltd, ABN 33 093 667 595, AFSL 247 429. This is general information only and does not consider your personal circumstances, needs and objectives. It is important you seek advice from a professional financial adviser prior to making any decisions.