Five must-know tips to master your tax return and keep more of your hard-earned cash

It’s that time of year again. As we approach the end of the financial year, people who expect a tax refund will be straight onto lodging their returns.

In the face of high cost-of-living pressures, households will want to maximise their refunds and ensure they capture all their legitimate tax deductions.

For some people, this will mean rummaging through the third drawer down, or searching their car for anything that resembles a receipt that may qualify as a tax deduction.

While this may work for some, here are some useful tips to help people make wise tax decisions at this important time of the year.

Tip 1: Understand the changes to the tax thresholds

The stage 3 tax cuts — originally proposed by ScoMo and watered down by Albo — come into effect next financial year, meaning that most people will be paying less tax on the same amount of income next financial year.

It is important to understand these changes, as it may assist in determining if you bring forward or delay deductions — such as interest on investment loans being repaid in advance — or income between this financial year and next.

To work this out, look at your taxable income and the rate you are paying, then compare the difference between the two financial years.

For example, someone earning $130,000 this financial year will be paying tax at 37 per cent for amounts over $120,000, while next year the tax rate drops to 30 per cent for amounts over $45,000 — a 7 per cent difference.

If you had the option of bringing forward or delaying a tax deduction — of say, $5000 — you may decide to bring that deduction into this year as you would receive 7 per cent, or $350, more in savings from claiming this year. Plus, you get the cash in your hand now.

Alternatively, if you were to realise a gain of $5000 in this financial year or next, you would be better off delaying that gain into next year as your tax rate would be less, again saving you $350 in taxes.

Tip 2: Understanding vehicle and work from home expenses

If you frequently use your own motor vehicle for work-related travel, a logbook may increase your deductions. As a logbook must be kept for 12 consecutive weeks, it’s too late this financial year, but is worth considering for next year.

For working from home expenses, the Australian Taxation Office has revised the fixed rate method that was introduced during COVID-19. It is important to note what expenses are captured within the ATO’s fixed rate to ensure you don’t “double dip” on deductions.

While the fixed rate method may be simpler to apply, you may find that claiming a deduction based upon actual expenditure provides a better outcome.

You now are required to keep records of the expenses incurred and guidance should be sought from your tax adviser.

Tip 3: Managing capital gains

If you have a capital gain event during the year, evaluate any other assets that you hold that are in a loss position and consider if it is appropriate time to sell these to reduce your capital gains tax exposures.

Tip 4: Superannuation contributions

Now is a great time to review your superannuation contributions. The concessional contribution limit for this year is $27,500 which includes any superannuation guarantee, salary sacrifice or personal concessional contributions.

You may be able to bring forward unused concessional contribution limits to make even larger contributions if your super balance is under $500,000. People who make extra contributions to their superannuation within these limits may qualify for a tax deduction.

It is important that this is done correctly and relevant forms lodged with your superannuation fund, so seek advice from a financial adviser or tax professional.

Tip 5: Donations

Times are tough with many seeking support from charities and alike. If you are able to assist, you could consider making a tax-deductible donation to a registered charity to help those less fortunate, while also reducing your tax position.

Managing your income and deductions then lodging your tax returns effectively can be complex.

Seeking advice from a registered tax agent can provide comfort in the knowledge that you have ticked all the boxes. And don’t forget that tax agent costs should be a final deduction for the year!

Robert Zammit is an RSM Australia partner and director, finance services