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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

Detective Work

It goes without saying that everyone wants to pay as little tax as they are legally required. The trouble is there are so many obscure tax deductions and offsets available to various sections of the community that it’s easy to overlook a legitimate claim.

Sometimes the potential financial benefit of a deduction hardly seems worth the time and paperwork involved in pursuing it. With interest rates and the cost of living rising, however, the more you can claw back from the tax system and whack into a high interest savings account or your mortgage the better.

Bank Fees

In fact, Michael Dirkis of the Taxation Institute of Australia suggests your bank accounts are a good place to start looking for a tax deduction. Dirkis says you can claim a tax deduction for those irritating bank fees provided the account is earning interest (which of course you must declare as income) and there is some tie to your income.

For example, if your income goes into a transaction account paying interest, and you move some of your savings into a separate high-yield account, you can claim the fees on both accounts. It may seem like small beer but the fees on an everyday transaction account can easily exceed $100 a year, so if you have a few accounts the tax deduction is worth pursuing. If in doubt, ask your accountant which bank fees you can and can’t claim.

Charitable Donations

It may be better to give than to receive but at tax time it is possible to give and receive a tax deduction in return for your generosity. Gifts of $2 or more to charities or, in tax-speak, deductible gift recipients are fully tax deductible.

Do make sure you get an official receipt for your donation. It may not seem worth asking the Red Cross volunteer collector for a receipt for $5 but small frequent donations add up. If you receive a badge or some other token but no receipt, Dirkis says you should keep the badge or make a diary entry to substantiate your claim.

The chief executive of Taxpayers Australia, Tony Greco, says there are no upper limit on the amount of donations you can claim a deduction for – but you can’t use a large donation to create a tax loss. You can claim a full deduction for gifts of money, shares valued at $5000 or less and bought at least 12 months before the gift was made, and property bought in the 12 months before donation.

However, if you donate money and receive goods or services in return, you can’t claim a tax deduction. For example, you can’t claim for money spent on raffles, art unions, chocolate drives or fund-raising dinners. The Tax Office also won’t accept claims for payments to a school building fund made as an alternative to an increase in school fees but optional donations to a school building fund are deductible. Dirkis says schools usually provide a receipt outlining your donation.

Franking Credits

You own a few Telstra shares and receive franked dividends but you can’t claim the imputation credits because you don’t earn enough to lodge a tax return. Right? Wrong, Greco says. He says a lot of people don’t lodge tax returns because their income falls below the $6000 tax-free threshold but they can still claim their imputation credits.

If you are in this position, you need to get your hands on an “application for the refund of franking credits for individuals”, either by downloading one from the Tax Office site (www.ato.gov.au) or phoning the online publications order service on 1300 720 092 and asking them to send the form in the mail.

“For every $70 of dividend income, there’s $30 [of imputation credits] going begging,” Greco says.

Entrepreneurs’ Tax Offset

The entrepreneurs’ tax offset is a little-known perk introduced in July 2005 for small businesses or sole traders with annual turnover of $75,000 or less. You can claim a tax offset of up to 25 per cent of the income tax attributable to the income you receive from the business. What’s more, you can claim the tax offset even if you earn significant income outside your business – but not for long.

The offset is aimed at giving a leg-up to fledgling businesses though Greco says it is currently of most value to people with salary or investment income who start a small business on the side. This is because the offset is worked out using their marginal tax rate. The more you earn outside the business, the more you can claim.

The Government announced in the budget that it will close this loophole next financial year, when it will apply an income test. Individuals with adjusted taxable income of more than $75,000, and families with income of more than $120,000, will not be eligible for the entrepreneurs’ tax offset, even if their business turnover is less than $75,000.

The maximum discount of 25 per cent applies to turnover of $50,000 or less, with the discounted amount tapering off to nil on turnovers above $75,000. The calculations are tricky so, if you think you might be eligible, ask your accountant to do the sums.

The Tax Office gives the example of a sole trader who runs a small business from home with a turnover of $28,000 and net income of $18,000. She also has a part-time job with a salary of $27,000. She is entitled to an entrepreneurs’ tax offset of $936.

Mature Age Worker Tax Offset

The mature age worker tax offset is another recently introduced benefit that Greco says people may not be aware of yet. If you are over 55 at the end of the tax year and still working, the Government wants to give you a little something as a token of their appreciation, in the hope that you’ll keep on working for as long as possible and delay receiving the old age pension.

If you are eligible, you will receive 5 cents in the dollar for every dollar earned up to a maximum tax offset of $500. The amount begins to taper off at a rate of 5 cents in the dollar on income above $53,000, and reduced to nil once your income reaches $63,000.

The Tax Office will work out how much you are owed once you have lodged your tax return. The mature age worker tax offset is not to be confused with the senior Australians tax offset and the pensioner offset. In fact, some lucky people may be eligible for more than one of these.

By Barbara Drury, The Sydney Morning Herald
May 28, 2008

 


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