As the end of the financial year approaches, Australians are gearing up to file their tax returns for 2024. While the process of taxation may seem overwhelming, understanding key strategies for maximising tax returns can be of significant financial benefit.
One critical approach to maximising tax refunds is to ensure accurate tracking and claiming of tax deductions. It is critical to avoid false or exaggerated statements while filing your tax return. Only legitimate expenses should be claimed to avoid potential issues with the Australian Taxation Office (ATO), which could lead to fines or even more severe penalties.
How to Get the Largest Possible Tax Refund:
1. Know Your Tax Brackets
Having a clear understanding of your tax bracket and corresponding rates can be effective in budgeting and tax planning.
Taxable income encompasses various sources of earnings, including salary from employment, government benefits, investment returns, and profits generated from business activities.
Not all incomes are treated equally under the tax law. Certain forms of income, such as government subsidies and benefits, may be exempt from taxation, providing individuals with additional financial resources that are not subject to taxation.
On 25 January 2024, the government announced changes to Individual income tax rates and thresholds from 1 July 2024. The proposed tax cuts are as follows:
- reduce the 19 percent tax rate to 16 percent
- reduce the 32.5 percent tax rate to 30 percent
- increase the threshold above which the 37 percent tax rate applies from $120,000 to $135,000
- increase the threshold above which the 45 percent tax rate applies from $180,000 to $190,000
2. Claim Your Work-from-Home Expenses
Whether you’re a full-time remote worker or work in a hybrid setting, knowing what you can claim and how to do it is essential. Your expenses can include:
- Utility Costs: You can claim some of your heating, cooling, and lighting expenditures.
- Internet and Phone Bills: Use of your phone or internet for work might deduct some of these expenditures. If you use your utilities or internet for both work and personal use, you’ll need to apportion the expenses based on how much is used for work.
- Depreciation of Equipment: Home office computers, desks, and chairs might be depreciated.
- Office supplies: Stationery and computer consumables, such as printer ink and paper.
There are two methods for calculating these expenses: the Fixed Rate Method and the Actual Cost Method.
1. Fixed Rate Method
The Fixed Rate Method simplifies work-from-home expense calculations by offering a standard rate of 67 cents per hour. With this method, you can claim a set rate for every hour you work from home, covering additional running expenses.
To use this method effectively, keep precise records of the hours worked through diaries or timesheets. It’s crucial to keep receipts of expenses such as electricity, gas, cleaning supplies, and depreciation of office furniture.
To qualify for tax returns using this method, these expenses must be incurred for work-related activities without employer reimbursement. You cannot claim additional deductions under this method, but you can separately calculate and claim the work-related use of equipment like computers and office furniture.
2. Actual Cost Method
Under the Actual Cost Method, you can claim deductions for the cost of each expense or the decline in value of items used to work from home during the financial year. This method covers a wide range of work-related costs, including travel, home office expenses, equipment purchases, and professional development.
Remember that if you spend more than $300 on work-related equipment or tools, you will not be able to claim the entire amount right away. For these items, you can claim the deduction over a number of years, taking into account the asset’s life and the number of days you owned and used it for work during the year.
3. Keep your Medical Expenses Record
Keeping a thorough record of your medical expenses can lead to significant cost savings during tax time. While your health insurance plan may not cover certain necessary medical expenses, you can still potentially benefit from a tax credit for these costs.
It’s essential to keep detailed records, documents, and invoices of all medical expenses, like doctor’s bills, attendant care fees, and the cost of ambulance services. Even expenses related to prescription medications, medical equipment, and specific home modifications undertaken for medical purposes could potentially qualify for tax benefits.
4. Claim Your Donations
To claim a tax deduction for your charitable donations, ensure that the charity you donated to is registered as a deductible gift recipient (DGR) with the Australian Taxation Office (ATO).
Maintain thorough records of your donations, including receipts or bank statements, as these will be necessary to support your claim if requested by the ATO.
5. Contribute to Your Super
By making personal superannuation contributions from your after-tax income, you can potentially claim these contributions as a tax deduction.
An effective approach is salary sacrificing into your super. Salary sacrifice involves arranging with your employer to contribute a portion of your pre-tax income directly to your super fund.
These contributions are taxed at a concessional rate of 15%, which is often more advantageous than your marginal tax rate. If your spouse earns a low or no income, contributing to their super fund can also result in tax benefits. You may qualify for a tax offset of up to $540 annually by making contributions to your spouse’s super fund.
6. Claim Study Costs
You are potentially eligible to claim expenses related to self-education and study if they are directly relevant to your current occupation.
It’s important that the course or study program you undertake has a clear connection to your current job responsibilities rather than being used to obtain a new job. If you meet the eligibility criteria, you might be able to include items such as course fees, necessary stationery, and essential textbooks as part of your tax return claim.
Things to Remember When Filing Your Tax Return
1. Know What You Can Claim
Prepare your documents carefully, including payslips, receipts for work expenses, bank statements, and logbook entries. Maintain a spreadsheet to track expenses for easier management. Common deductions may include:
- Using your car for work (excluding driving to and from work)
- Travel expenses for work away from home, including meals and accommodation.
- Costs of tools and equipment, deductible immediately for items under $300 and over several years for items over $300. You can also claim tools for a tradesperson, a laptop for an office worker, or even a handbag or briefcase used to carry work papers.
2. Provide Accurate Information
When preparing your tax return, it is essential to be honest with your deductions and declarations. Only claim expenses that you can prove with correct documentation such as invoices or receipts. This will ensure that your deductions are legitimate and can be verified if questioned by the ATO.
Declare all earnings, including investment property gains, foreign income, or cryptocurrency trading profits. Each of these income sources have specific reporting requirements and must be fully disclosed to avoid any discrepancies. The ATO cross-checks data from various sources, so accuracy is crucial to avoid an audit, which can lead to potential penalties or charges.
3. Don’t Rely on Pre-Filed ATO Details
You can automatically import much of your income data from the ATO’s system, but you should not rely on its accuracy or completeness. Many third party institutions, such as banks, do not share your information with the ATO until later in the year, so if you file early, your pre-filled data may be incomplete.
In case you fail to report income and the ATO raises a question, you are the legally responsible party, even if you relied on information provided directly by the ATO.
When filling out tax forms, update them from original documents rather than using pre-filled data as this reduces the risk of missing income if you are filing early.
4. Consult a Tax Agent
If you have complex financial situations or are unsure about which deductions and credits you are eligible for, consulting a tax agent is a wise decision.
Make sure the tax agent is registered with the Tax Practitioners Board (TPB). Registered tax agents hold the necessary qualifications and follow professional guidelines while filing your tax return. Schedule consultations with a few tax professionals to discuss your requirements and evaluate their expertise.
Once your tax return has been prepared, carefully review it with your tax professional and double-check that all information is correct before signing.
