Tax Planning is for Individuals also…not just for business

Tax planning supports individuals in making prudent financial decisions and avoiding unnecessary expenses such as credit card bills or loans. It offers the ability to take true control of one’s financial position.

Reviewing your existing tax status with your accountant may be extremely beneficial in particular if you have a salary of $80,000 per year or more, own an investment property or have a family trust established.

Individual tax planning usually involves utilising easily accessible tax deductions to lower your taxable income.

Strategies available for Individuals

1. Recognising your tax bracket

A tax bracket is a range of income that is subject to a certain tax rate. As an individual’s income increases, their tax payable also gradually rises. This is known as the marginal tax system in Australia. Knowing your tax bracket might allow you to correctly estimate your tax payable.

The current income tax brackets for Australian residents are outlined below. Please note that an additional 2% Medicare levy applies on top.

2. Assessing work related deductions

Tax deductions allows you to lower your overall taxable income by offsetting it with any justified out-of-pocket expenses incurred throughout the financial year.

Enough deductions can be claimed to lower the taxable income, resulting in a larger tax refund if the following tax deduction criteria are met:

The cost is directly related to your job or source of income.
Your employer/company has not refunded or reimbursed you for the expense.
There is a relevant bank statement or receipt to be shown as proof.
You are the one who bought it.

This checklist might help in assessing whether the work related expense can be used as tax deductions or not.

3. Additional potential deductions

Allowable deductions allow taxpayers to deduct an amount from their total taxable income. Listed below are potential deductions that might significantly reduce your tax debt:

* Contributions to superannuation — you may be able to claim a tax deduction for any personal super contributions you make from your after-tax income, such as payments paid straight from your bank account to your super fund, if you meet the eligibility requirements set by the ATO.

* Interest expense — only interest expenses spent to generate revenue are tax deductible. If the loans are used to buy shares and other similar assets from which you receive assessable interest income or dividend income, then the interest paid for such loans can be used as a tax deduction.
In the case where the loan was both used for personal and income-generating purposes, interest must be split between them.

* Income Protection Insurance Premium — premiums paid for insurance against loss of job income are also tax deductible. Deductions can only be used for premiums paid to protect your income.

* Working from Home — there are two methods to choose from in order to calculate work from home expenses: the revised fixed rate method and the actual cost method.
According to PCG 2023/1, in order to claim home office expenses on the revised fixed rate (67 cents per hour method), every hour you work from home every year must be recorded in a diary. Keep in mind that any entry error found in this diary might disqualify you from claiming the tax deductions. Electricity, home and mobile phones, internet, stationery, and printing supplies are all included in the 67 cents per hour.
Meanwhile, the actual cost method calculates the tax claims using the actual additional expenses incurred during the time you worked from home. These expenses include depreciation of assets used for work-related purposes, energy expenses, home and mobile phone expenses, data and internet expenses, stationery, and cleaning expenses for your home office.

* Occupation specific deductions — click on these links to make sure you are claiming all the deductions that are specific to your occupation according to ATO.

Why consult with us?

For year-end planning, having a consultation with Star Advisers can:

Assess to see whether you’re paying more tax than necessary;
Prepare yourself in advance for any tax debt;
Plan and manage your cash flow effectively; and
Grow your wealth over time by reinvesting tax savings in areas with a higher return on investment.

If you wish to know more about our individual tax planning service, book an appointment with us now!

Click here to book an appointment