PAYG employee? Take some end of year tax tips

The end of the tax year is rapidly approaching. How best to get your tax return sorted, and crucially, to ensure you don’t pay more tax than you need to?

The first question to answer is whether you do your own return or not. Where a taxpayer lodges their tax return via a tax agent, an extension of time to lodge and pay may be available. This though is only the case if your previous returns are all in order – no time extension will be given if there are outstanding prior year returns.

Ordinarily taxpayers are required to lodge their tax returns by 31 October following the 30 June year end, so PAYG employees should consider whether a lodgement extension is desirable in their particular circumstances. The deferred lodgement due dates available for clients of tax agents are:

  • 31 March 2016 if the taxpayer’s last lodged tax return resulted in a tax liability of $20,000 or more; OR
  • 15 May 2016.

Not only do you gain more time, but crucially professional expertise. Qualified tax agents have experience in dealing with the ATO. They are aware of the audit focus areas each year as outlined in the ATO’s Compliance Program. Tax agents are also aware of any current ATO questionnaires/notices and ATO data matching activity, and the impact that these may have on the taxpayer. All taxpayers should seriously consider whether going it alone is a false economy.

But for those who have reasonably straightforward tax affairs and choose to do their own tax return, what are the main points that you need to be aware of?

Firstly, don’t be late! Missing that 31 October deadline can give rise to late lodgement penalties. The second key item to note is the tax payment due date – 3 weeks after lodgement, i.e. 21 November. Paying your tax liability late is likely to give rise to interest charges being imposed by the ATO.

Most taxpayers lodge their tax return online using the software made available by ATO. It is not mandatory but it can certainly help streamline the process, and if you are expecting a tax refund, lodging online should expedite receiving the refund. The ATO usually issues tax refunds within 12 business days where the tax return is lodged online, or 50 business days where a paper return is lodged.

So, how can PAYG employees maximise the amount they get back in tax? Some key tips:

Make a salary sacrificed contribution into super before year-end if you still have time. Note it needs to be on a prospective basis so if the last payroll for the year is yet to run, there may still be scope to salary sacrifice future salary for the 2015 year. Trap: taxpayers need to ensure to observe the superannuation concessional contributions cap (currently $30,000 p.a. for persons under 49 years of age on 30 June 2014 or $35,000 for persons aged 49 years or over on 30 June 2014).

Make a payment of interest in advance in relation to your investment portfolio. You need to ensure you don’t breach pre-payment rules, so payment of interest before 30 June 2015 would need to be for interest relating to the period prior to 30 June 2016.\

If you have a rental property, claim appropriate capital works and capital allowances (depreciation) deductions. Tip: engage a quantity surveyor to make an assessment and prepare a depreciation report to outline amounts to be claimed in your tax return each year.

Review un-reimbursed work-related expenses to determine the extent to which they are deductible. Ensure that you have retained sufficient substantiation. Work-related expenses have historically been an ATO review focus area, along with rental property expenses.

Ensure you have picked up all donations made during the year to deductible gift recipients. Taxpayers may make donations over the course of the year but often forget to claim them because they forget to keep a record. With increased use of electronic receipting via email, the ability to locate the receipts in the digital world has become easier.

Ensure you have adequate private hospital insurance coverage with an Australian registered health fund so that you are not liable for the Medicare Levy Surcharge. Having “extras” or “ancillary” cover only will not be sufficient. At present, the MLS will apply where a taxpayer’s “income for surcharge purposes” is above $90,000 (singles) or $180,000 (families).

Maintain records of all unreimbursed work related expenses, and at year-end review them to determine if a deduction is available. For example, if an employee uses their vehicle for work related purposes then, at a minimum, they should record the kilometres travelled for work-related purposes. It is important to note here that home to work travel is considered to be private travel and not work-related travel.

Good luck!

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