tax deductions Archives

Spending a Dollar to Save 30 Cents: The Risk of Tax-Driven Investment Decisions

8 April, 202523 April, 2025 Updated on23 April, 2025 Investing, Tax

Australians love a good tax deduction. It’s almost ingrained in us—if there’s a way to pay less tax, we’re all ears. But what happens when tax savings become the main driver behind an investment decision? As I’ve seen time and time again, people are sold on property investment strategies that prioritise negative gearing and tax outcomes over the quality of the investment itself. While these strategies may sound appealing on paper, they often result in financial stress, high debt levels, and poor long-term outcomes. When Tax Savings Become the Selling Point Many Australians are encouraged to invest in residential property purely because it can be negatively geared. The promise? You’ll reduce your taxable income by offsetting property losses against your earnings. But here’s the catch: negative gearing means you’re losing money every year. You’re essentially spending a dollar to save 30 cents. That’s not a winning formula—it’s a financial drain disguised as a tax-saving opportunity. I’ve seen clients earning well over $200,000 annually still struggle with cash flow because they’ve overcommitted to negatively geared properties. Why? Because they were sold on the idea of tax savings without fully considering the broader impact on their financial health. Conflicted Advice: Know Who’s Selling to You The property market is filled with salespeople whose advice is driven by commission. They’re not concerned with your long-term goals or financial well-being—they’re focused on closing the deal. Here’s the truth: These are not unbiased sources of advice. If the recommendation is coming from someone with something to sell, it’s worth asking: Whose best interest is this advice really serving? The Debt Dilemma: Stress and Strain Another troubling trend is the normalisation of taking on large amounts of debt to fund tax-driven property investments. When property prices rise rapidly—as they have for decades in Australia—buyers feel pressured to stretch their budgets to secure a piece of the market. But debt levels have now reached a point where even high-income earners are starting to feel the pinch. High debt tied to negatively geared properties creates: Quality First, Tax Second This isn’t a new problem. Twenty years ago, Australians were lured into tax-driven investments like blue gum plantations. The promise of hefty tax deductions was enough to convince many to invest, but poor investment fundamentals ultimately led to financial losses. A good investment should stand on its own merits and fit within your overall financial strategy. Tax benefits should always be a bonus, not the driving force. The Value of Balanced Advice When you’re considering any investment, it’s essential to seek advice from someone who can provide a balanced perspective and not incentivised to sell one strategy over another. A financial adviser, for example, will consider: By working with someone who isn’t tied to a single product or strategy, you’ll gain a clearer understanding of your options and make decisions that truly align with your goals. Final Thoughts: Buyer Beware If you’re considering an investment property where the selling point is how much tax you’ll save, take a step back. Ask yourself: Tax savings are great, but they should never come at the cost of quality, sustainability, or peace of mind. Remember, a good investment is one that works for you—not just for your tax return. The information provided in this article is general in nature only and does not constitute personal financial advice. 

2024-25 Federal Budget Recap

15 May, 202415 May, 2024 Centrelink, Economy, Superannuation, Tax

In his 2024 Federal Budget speech, treasurer, Jim Chalmers, announced that ‘The number one priority of this government and this Budget is helping Australians with the cost of living’. But what exactly does that mean? Let’s take a closer look at what the 2024 Budget proposes – An average tax cut of $1,888 in 2024-25 The budget proposes significant tax relief for ALL Australian taxpayers to alleviate cost-of-living pressures, including reduced tax rates, adjustments to the income thresholds, and increased low-income thresholds for the Medicare levy. This measure aims to boost disposable income and encourage economic activity by allowing Australians to retain more of their earnings. $300 back in the pocket for ALL Australian Households To combat rising energy costs, the government has allocated $3.5 billion for a one-time $300 energy bill rebate for all Australian households, designed to directly reduce headline inflation by about 0.5 percentage points in 2024-25 without adding to broader inflationary pressures. This initiative also extends to one million small businesses, receiving a $325 rebate. Superannuation contributions on paid parental leave The 2024 budget integrates enhancements to parental leave and childcare into comprehensive support for families. It includes a $1.1 billion investment to extend superannuation contributions to government-funded Paid Parental Leave, improving financial security for new parents. Additionally, the budget boosts childcare support, aiming to make childcare more affordable through increased subsidies, reducing the financial burden on families and supporting parents’ return to work. These measures are part of a broader effort to provide more robust support for families and promote gender equality. $3 billion in student debt… wiped In an effort to alleviate the burden of education costs, the budget proposes a change to the way the government calculates HELP debt indexation, erasing $3 billion in student debt for over 3 million Australians. An investment in education for Australians The budget commits to reforming tertiary education and increasing vocational training funding, aligning skills training with market needs. Specifically, it allocates $88.8 million to provide 20,000 new fee-free TAFE places, including pre-apprenticeship programs relevant to the construction industry. Additionally, the government is introducing Commonwealth Prac Payments to support students undertaking mandatory placements, offering $319.50 per week to more than 73,000 eligible students, which includes those in fields like nursing and social work. This investment is part of a broader effort to align skills training with labor market demands and support sectors critical to economic growth. Supporting small businesses To aid small businesses, the 2024 budget extends the $20,000 instant asset write-off for an additional year, enabling continued investment in necessary business equipment. This extension is designed to enhance the cash flow of small enterprises and encourage further economic activity among local businesses. Additionally, the budget includes investments to support the mental and financial well-being of small business owners, recognising the unique challenges they face and bolstering the resources available to them for sustainable operation. Access to affordable medicines The budget allocates up to $3 billion to reduce the maximum PBS co-payments. This includes a one-year freeze on the maximum patient co-payment for everyone with a Medicare card and a five-year freeze for pensioners and other concession cardholders, ensuring that no pensioner or concession card holder will pay more than $7.70 for PBS-listed medications until 2030. … And an increase to health funding The budget allocates $888.1 million to expand mental health services. This includes funding for new and existing programs that provide critical support for individuals facing mental health challenges. An additional $2.2 billion is directed towards improving the aged care system, and investments are made in strengthening Medicare with a focus on urgent care clinics, reducing hospital admissions, and supporting regional and remote health services. This expansion aims to provide wider access to necessary health services, significantly improving health outcomes and making healthcare more affordable and accessible to more Australians. A 10% increase to Commonwealth Rent Assistance In response to the housing affordability crisis, the budget increases Commonwealth Rent Assistance by 10%, benefiting nearly 1 million households. This follows a 15% increase from the previous year, marking a substantial boost to aid renters, especially given the rising rental market costs. Housing affordability The government is investing $6.2 billion in new housing initiatives to tackle affordability and accessibility. This funding supports the construction of more homes, including affordable and social housing options, addressing critical housing shortages and supporting community infrastructure development. The 2024-25 Federal Budget is strategically focused on alleviating financial pressure through targeted support measures. By understanding and applying these benefits, Australian households can better navigate the challenges of rising living costs. For tailored advice on how to adjust your financial plan in light of the new budget measures, consider consulting with a financial adviser or accountant. They can help you understand the specific impacts on your personal finances and strategise accordingly. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Get ready for June 30 now!

7 May, 202428 May, 2024 Updated on28 May, 2024 Superannuation, Tax

When it comes to getting the most (money) from your annual tax return, there is usually a lot to think about, so we’ve identified a few options that could open the door to some opportunities to save on tax. The key here is to plan ahead. Deductions — lower your tax liability If you have some spare cash available, paying for certain expenses before June 30 could mean you get your tax break back from the ATO earlier. Expenses paid in July could leave you waiting more than 12 months for the return. A popular expense in this category is prepaying interest on an investment loan, but be careful because not all expenses qualify for a tax deduction in advance. This year the ATO is focusing on work-related expenses. If you are planning to claim expenses for things like a home office, mobile phone, tools and equipment, etc, make sure you claim only eligible expenses and have the paperwork to substantiate them. You can claim the premiums you have paid for your income protection insurance as a tax deduction. Note that you can only claim the portion of the premium that covers you for loss of income, not for any benefits of a capital nature. Premiums for other personal insurance cover such as life, critical care or trauma cannot be claimed. You also can’t claim deductions for premiums that are paid from your superannuation contributions if your policy is held in your fund. Super contributions — don’t waste the limits June 30 is not just about deductions for expenses. It’s also a good time to review your superannuation contributions to date and take advantage of the annual caps. The annual limit for these types of tax-deductible contributions is $27,500 per annum, regardless of age. If you’re an employee, this limit covers both employer super guarantee and salary sacrifice contributions. How much has your fund received in contributions so far this year? Do you need to review and adjust your current arrangements? Anyone under 65 (whether working or retired) can contribute $110,000 each year to super as after-tax or non-concessional contributions. You can also contribute $330,000 in a single year by bringing forward the limit for the following two years. But – when it comes to super there’s usually a ‘but’ – check your total super balance to ensure any extra contributions do not exceed the general balance transfer cap which is currently $1.9 million. And one final point on super contributions – the total contributed is based on how much is received by your fund, not when you sent it to the fund. Another reason why planning ahead is crucial. These are just a few ways to manage how your money is taxed. Depending on your circumstances, other options may be available. Your licensed adviser can work with you to help you achieve what is best for you this financial year. But please don’t leave it too late. The information provided in this article is general in nature only and does not constitute personal financial advice. 

4 simple techniques to reduce your tax

22 June, 202216 June, 2022 Updated on16 June, 2022 Tax

Here is a list of tips to help you minimise the amount of tax you pay this end of financial year: 1. Keep records Even if you use an accountant to prepare your tax return, you are responsible for the information you provide and for keeping your tax records for a minimum of five years. So, to ensure that you don’t have to pay any more tax than you are obliged to: Keep receipts of all your tax-deductible expenditure. If you are audited by the tax office, you will need to be able to prove the expenses were incurred. Keep track of all your medical expenses. If net medical expenses relating to disability aids, attendant care or aged care exceed the threshold for the year, you may be eligible for a tax offset that takes the form of a credit against tax payable. Keep detailed records of income and capital gains. Required details include date the investment was purchased, how much was paid, when it was sold and how much was received. 2. Claim all available tax deductions You may be able to claim a tax deduction for many of your expenses. These include: donations to registered charities or non-profit organisations; self-education expenses; premiums on income protection insurance; work-related expenses. You should bear in mind that the range of permissible work-related expenses varies widely from occupation to occupation. Refer to the Australian Tax Office (ATO) website www.ato.gov.au for full details. 3. Contribute to superannuation Contributions to superannuation can reduce the level of tax you would otherwise have to pay on your investments because super is taxed at a maximum of 15%. In addition, some people are eligible to claim a tax deduction for contributions made to super. The rules surrounding superannuation tax deductibility provisions and contribution limits are complex, so it pays to seek advice from your financial planner. 4. Manage capital gains When you sell an investment for a profit, you are considered to have made a capital gain. For non-professional investors, capital gains will be included on your annual income tax return. Assets acquired before 20 September 1985 are exempt from Capital Gains Tax (CGT) considerations. When you sell an asset for less than you initially paid for it, you make a capital loss. When your total capital losses for the year outweigh your total capital gains, you will finish up with a net capital loss for the year. If you have a potential CGT liability, there are some strategies that you could consider to reduce the amount you need to pay: a. Keep an investment for at least 12 months Investors are entitled to claim a 50% discount on capital gains made on assets held for longer than a year. So, by holding on to the investment for more than 12 months you will halve the CGT payable. b. Use carry-forward tax losses to reduce CGT Capital losses incurred in previous tax years that have not already been offset against capital gains may be carried forward in future tax years and can mitigate the effect of any CGT liability. Check your past income tax returns or ask your accountant to determine whether this is an option for you. Remember that this information is not personal tax advice. Always consult a professional adviser to help you determine the best strategies for your personal circumstances. The information provided in this article is general in nature only and does not constitute personal financial advice.

Working from home? How to boost your next tax return

13 May, 20216 May, 2021 Updated on6 May, 2021 Tax

With the range of technology and software available today, it’s become easier than ever to work from home. Employees can efficiently complete calls using teleconferencing software, many collaboration tools are now cloud-based, and work devices, including laptops and tablets, are light and portable. If you’ve been working from home, you’ve likely also set up a dedicated work area, and you’re using your own electricity and resources to power your workday. But which of these items can you claim in your next tax return to ensure you maximise your return? How many Australians work from home? Working remotely has become more common as companies began providing the technology to enable employees to work from anywhere. Research from Roy Morgan found that in early-2020, at the height of the COVID-19 pandemic shut down, 32 per cent of Australian workers were working from home. This equates to over 4.3 million people. It’s easier for employees in certain industries to work from home, such as finance and insurance, public administration and defence, and communications. In contrast, more “hands-on” industries such as retail, manufacturing, transport and storage and agriculture still require staff to be present in-store. Tax deductions available if you work from home Home office expenses you may be able to claim include: – electricity; – cleaning costs for your dedicated work area; – phone and internet expenses; – computer consumables – such as printer paper and ink cartridges; – stationery; and – home office equipment – including computers, printers, phones, furniture, and furnishings. The Australian Taxation Office (ATO) provides a complete list of the available deductions and how to calculate each on its website. How to calculate your home office expenses There are three methods employees can use to calculate their home office expenses: – Shortcut method: 80 cents per work hour – only available from 1 March 2020 to 30 June 2021 – Fixed-rate method: 52 cents per work hour – Actual cost method Be careful with home office expenses If you include home office expenses in your next tax return, ensure you calculate and apply your deductions correctly. For example, you can claim the full cost of home office equipment up to $300, but you need to claim the decline in value (depreciation) for any items that cost over $300. Regardless of the method you use to calculate your expenses, you will need to have records. You’ll need to keep receipts for any purchases you’ve made and a record of relevant utilities and bills. You’ll also need to keep a timesheet, roster or diary that shows the hours you’ve worked from home. If you can, keep your relevant records and receipts aside and updated throughout the year to save yourself a significant administrative workload at tax time. Have a professional prepare your tax return to maximise your refund With the range of deductions that may be available to you, plus the different calculation methods for home office expenses, having a registered tax professional prepare your tax return can be worth the investment. Quite often, your maximised refund will more than cover the cost of having a professional prepare your return. If you’re unsure about the home office deductions you’re entitled to, contact an accountant or qualified financial professional for advice. The information provided in this article is general in nature only and does not constitute personal financial advice.

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