22 Feb 2011

Tax Time Saving Tips

Now is the time to start planning for the end of the financial year. This article looks at some lesser known tax and savings tips to get you thinking!

Some general savings tips

1 Offset accounts save interest on your mortgage. Interest on your home loan is a non-taxable item. However, as the interest on your loan is calculated daily, the savings by using an offset account can be substantial.

2 Make extra repayments on your mortgage. Simply by changing your repayments from monthly to fortnightly can save you thousands in interest repayments over the life of your loan.

Tax tips for individuals

1 As already mentioned, offset accounts can save you thousands. However, if you use an offset account against an investment loan to save interest, do not complicate the account with private transactions as you could be in danger of losing the interest deductions for the investment.

2 Salary sacrificing some of your pay into superannuation attracts lower tax rates, resulting in higher available investment funds on retirement. These funds can then be drawn down (tax free) to pay out your mortgage on retirement.

3 In the case of divorce or separation, providing one partner remains in the residence (as it is considered to be the primary residence for both partners), capital gains tax main residence exemption may be claimed.

4 Consider harbouring family assets in a family discretionary trust. This can help protect your family’s assets from tax and other creditor seizures. Under certain circumstances, and provided you have an independent appointer, the assets contained in the trust may be protected from seizure by a trustee in bankruptcy.

Tips for businesses

1 When an employer acquires an item to give to an employee (this particularly applies to computers, subscriptions, conference costs and briefcases) and that item is exempt from fringe benefits tax, the employer is still entitled to claim the input tax credit (with no GST payable) for that purchase if the employee salary sacrifices. If the employee had bought the item themselves, it would have cost them an additional 10%.

2 Before paying suppliers, it is the employer’s responsibility to check that the supplier has a registered ABN, otherwise the employer is obliged to withhold a large proportion as PAYG tax.

3 ‘Black hole expenses’ for:

  • establishing a business,
  • converting equity,
  • raising equity,
  • liquidation and
  • documentation costs (including registration) may be claimed either outright or over a five year period.

4 The entrepreneurs tax offset (ETO) is a tax offset equal to 25% of the income tax payable on your business income if you have an aggregated turnover of $50,000 or less. If your aggregated turnover is more than $50,000, the ETO is phased out so that the tax offset stops once your turnover reaches $75,000.

You may be eligible to receive the ETO if your aggregated turnover is less than $75,000 and you are a sole trader conducting sole trader businesses, a partner in a partnership or a beneficiary of a trust.

The ETO can only reduce your tax payable. You cannot refund any unused tax offset, defer it to reduce your tax in a later income year or transfer it to another taxpayer to reduce their tax.

5 Extensions of time may be obtained for paying tax where there are insufficient funds for the full payment to be made. However the general interest charge will still apply except in exceptional circumstances.

6 Deductions are allowed for gifts or prizes to customers or employees of the business.

However, gifts or prizes valued at less than $300 for employees could attract fringe benefits tax.

This information is general in nature. It is important that you seek advice specific to your individual circumstances. Please contact the office for assistance with finding a specialised adviser to help with your tax needs.

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