If you’re looking for ways to maximize your tax return you’ve come to the right place. In this article, we’ll go through 10 ways you can maximise your tax return!
I guarantee you’ll learn something new!
Please note that that this article is general advice only and not personal financial advice. You should always speak to a professional for personal finance or tax advice :)
🤔 How taxes work
Although tax seems very complicated, it actually isn’t.
Let’s break it down.
- Things that help you produce an income are generally tax deductible.
- Things that don’t help you produce an income generally aren’t tax deductible
Still confused?
Here’s an example
🎙️ Queenie is a content creator and she creates content for a living. She bought a microphone to create better content. The microphone is related to her job and will help her produce an income. This means the microphone could be tax deductible.
👟 A personal trainer decided to buy the exact microphone as Queenie. Buying a microphone will not help the personal trainer produce an income. It’s also not related to their job. Therefore, the microphone may not be tax deductible.
I hope the examples helped you understand taxes a little bit better!
Obviously this is a very general and simplistic way to look at taxes. There are exclusions and special conditions that apply.
*cough* *cough* That’s why it’s SO important to get your own personalized tax advice!
➖ Claim tax deductions
One way you can maximise your tax return is by claiming your tax deductions.
We talk about a single year flying by, but its also a really long time. Especially when you have to remember all the thing you purchased and whether they are tax deductible.
But I’ve got REALLY good news 🤗
What if I told you, you don’t have to remember?
Queenie created a tool called Billroo. Billroo helps you keep track of your tax deductible items. When you buy an item, you can tag it as tax deductible. This can be sent off to your tax accountant during tax season.
I don’t know about you, but that’s like REALLY cool.
You should really give Billroo a try! Its a game changer 😝
🤑 Write off work expenses under $300
Did you know you can claim an immediate tax reduction for work purchases under $300? They just need to meet four criteria’s:
- Cost less than $300
- Used more than 50% of the time to produce an income.
- Not part of the set costing more than $300
- Not part of a group of identical or substantially identical items
Are you still confused?
Here’s an example.
👜 So you buy a handbag for work for $300. This handbag is solely used for work. It fits your laptop and all your work items. Because of this, you can claim an immediate tax reduction 🥳 Just make sure you bought the handbag in the year that you’re planning on claiming it.
Because of the tax reduction, you’ll get the hand bag at a discounted price. If your marginal tax rate is 32.5%, that’s a tax saving of $97.50. That means you’re effectively getting a $300 handbag for $202.50 because of the tax saving (money win 🛍️)!
But let’s say instead of that handbag costing $300, it costs $500. Since it’s over the $300 threshold, you won’t be able to claim an immediate tax deduction. Instead you’ll have to depreciate that $500 purchase over a few years so the tax saving is dragged out.
🏠 First home super saver
If you’re saving for your first home, read this extra carefully!
This scheme is something not too many people take advantage of!
So let’s say you earn $80,000 per year. You salary sacrificed $12,000 per year with the first home super saver scheme. After 5 years, you would have saved $50,732 with a first home super saver scheme (FHSSS) instead of $37,134 with a high interest savings account. This means with a FHSSS, you would have saved $13,000 more than if you had saved in a high interest savings account! Insane 🤯.
So you might be wondering, how does that even work.
Well you essentially get to save on tax because super is only taxed at 15%. Whilst on the other hand, most of our marginal tax rates are above 30%. When you withdraw these extra salary sacrifice contributions, you get a tax offset of 30% 🥳
Just remember that limits do apply to this scheme. Firstly, you can only withdraw your extra salary sacrificed contributions. You can’t withdraw any of your mandatory employer contributions. Other than that, you can’t say this isn’t a really cool scheme!
The government has so many other first home buyer schemes! We have a FREE ebook that goes through every single one!
💸 Salary sacrificing
Salary sacrificing is an agreement between you and your employer. You agree to receive less income before tax in exchange for other benefits.
Before, you get to excited, salary sacrifice is really dependent on where you work and the kinds of benefits that you’re allowed to sacrifice.
You can salary sacrifice things such as superannuation and cars. But depending on where you work you may be able to salary package or salary sacrifice a few other things! This could be your rent, mortgage payment, insurances and travel expenses etc.
Keep in mind your employer may need to pay an extra tax called fringe benefits tax to provide these benefits to you. Unfortunately, you may need to reimburse your employer slightly for these extra benefits. It’s important to weigh up your options and see what works for you!
🚑 Consider private health insurance
Are you single and earn above $97,000.
Do you have a family and the total household income is above $194,000.
You should consider private health insurance.
Here’s why.
All Australian taxpayers pay a Medicare Levy of 2%. However if you’re a high income earner, the Medicare Levy surcharge is an extra tax.
Sounds unfair 🤔? Let me explain.
In Australia we’re lucky to have a good public healthcare system. Although its better than other countries, its not perfect. Currently the public healthcare system is facing so much pressure. To ease this, the government hopes to push more high income earners into the private healthcare system. As a high income earner, the governments not going to forced to get private health insurance. Its really up to you. Weigh up the costs and see if its work paying the extra tax.
📊 Capital gains tax discount
If you’re an investor, this one’s for you!
If you hold an asset for longer than a year, you can qualify for a 50% capital gains tax discount.
I know its insane 🤯
📈So let’s say for example you purchase some shares or ETFs. 16 months later you decided to sell them. You make a $10,000 profit and no capital losses. Because you held on to your investments for longer than a year, you’re eligible for a 50% capital gains tax discount. When tax season comes around, you can declare a capital gain of $5,000 instead of $10,000.
If this doesn’t motivate you to become a long-term investor, I don’t know what will!
📈 Claim interest on investment loans
If you’re reading this… make sure you claim interest on your investment loans.
If you take on a loan to purchase an investment property or invest in shares (or any investment at that), it is generally tax deductible.
If the loan wasn’t used as investment e.g. purchasing a residental home, than the interest is generally not tax deductible. Don’t bother trying to claim something is an investment when it isn’t. The ATO is always watching 👀.
Before you continue reading, just know that there are ways you can make the home that you live in tax deductible through a strategy called debt recycling.
💳 Debt recycling
So, what exactly is debt recycling?
Here’s an example.
- 🏠 You have a $500,000 mortgage and $100,000 in cash.
- 💵 You can use that $100,000 to repay your mortgage.
- 🏠 This will leave you with a $400,000 mortgage and $100,000 worth of equity.
- 📈 You can then choose to withdraw that $100,000 worth of equity and use it to invest in shares.
The $100,00 that you’ve used to invest in shares is now tax deductible. However, the $400,000 mortgage that you have on your home loan isn’t tax deductible (obviously).
Here’s a picture if its still really confusing
In an article by the ATO, this is what they had to say about debt recycling.
If you’re using the redraw amount to produce assessable income, the interest portion of the loan is deductible. If you use any amount for personal use, you never apportion the loan.
In other words: “we’re always watching 👀”
If your mortgage interest rate is 6% and your marginal tax rate is 32.5%, that’s a tax saving of $1,950. You can then use this tax savings to repay your mortgage. You can use the dividends that you receive on your $100,000 share portfolio to repay your home loan faster 🥳.
Remember this is just an example. Before you put this example into practice, you should get advice from a tax accountant and/or financial adviser 💼.
🚘 Electric vehicle
If you’re a business owner or an employee with a novated lease, its time to get an electric vehicle (EV).
EV’s have a fringe benefits tax exemption 🥳
Don’t know what that means? Here’s an example (who doesn’t love a cheeky example 🫢).
When your employer gives you a regular car, you generally need to log the times the car is used for work and personal affairs. Based on these numbers, you generally need to reimburse your employer. This is because they have to pay fringe benefits tax.
Since EVS are exempt from fringe benefits tax, you can claim 100% of the time used as work affairs. You or your employer won’t need to pay fringe benefits tax (woohoo 🥳)
There are terms, conditions and exclusions that apply to this scheme – so do your due diligence!
👩🎓 Course and study
Thinking of enrolling or currently studying a course?
You can claim a tax deduction on courses that’ll help you increase your income in your current role.
You can’t claim a deduction on courses that are unrelated to your current role.
You also can’t claim a deduction on courses that’ll help you change careers e.g nurse to doctor.
🔢 Tax Advice
As we’ve said time and time again in this article, you should always get tax advice from professionals.
We’re not going to lie. Accountants and financial advisors are pricey 🤑
But, get this, you can claim a tax deduction for your tax accountants fees. And the crazy thing is, there’s no limit on how much you can claim!
Let’s say you spend $5,000 for tax advice, you can claim the whole amount. You can even claim the travel cost of going to see your tax accountant. The debit or credit card fees you incur when paying your tax accountant. And any other expenses related to tax advice.
If you have any journals or software that helps you manage your taxes, you could claim a deduction on those as well. So if you end up using Billroo, you can claim the monthly subscription costs 👀
If you decide to hire a financial planner or advisor you could claim a tax deduction on those fees as well!
🥳 Bonus: Tax cuts
From July 1st 2024 all taxpayers are getting a tax cut!
Here are the new tax rates and thresholds from July 1st 2024.
Things that help you produce an income are generally tax deductible. Things that don’t help you produce an income generally aren’t tax deductible
All Australian taxpayers pay a Medicare Levy of 2%. However if you’re a high income earner, the Medicare Levy surcharge is an extra tax.
Salary sacrificing is an agreement between you and your employer. You agree to receive less income before tax in exchange for other benefits.
If you hold an asset for longer than a year, you can qualify for a 50% capital gains tax discount.
