Few people know that the idea behind MoneyDad came from a friend of mine, when telling them about some great ideas to pay less tax said “you would be TaxDad!”. The idea was solid, but given that I’m not actually a tax guy, it was a little limiting. Being the MoneyDad seems to suit me much better. But in respect of that first idea, I’m going to do a three part series on top tips on how to pay less tax. Keep in mind that three is a fair estimate, it could be more, it could be less – but I’m sure it will be more than one.
Let me start talking about tax with this one warning – you don’t mess with the ATO. There are rules, you just don’t break them. The ATO have some of the most powerful computer systems in the country and access to more data than you can imagine. Just recently, it was announced that Air BnB are handing over all their rental data to the ATO so that they can match rental data to tax returns to see who has been. If you do it, own it, spend it or earn it, chances are the ATO are going to know about it.
You don’t need to break the rules to save on tax. There are so many rules in the tax act that if you know how to use and make the most of them (I’ll avoid saying something like exploiting loopholes) then you’re all set.
So let’s look at 3 awesome ideas on how to pay less tax:
- Time your expenses. Given that we have a d-date of 30 June every year, you have the opportunity of if you pay certain expenses in this financial year or next. The list is pretty long, but examples are things like work expenses, insurance (you can pay yearly in advance rather than by the month) or interest on investment loans. What is of particular interest is when you’re having a variation in income levels. If you’re travelling for a year, going on maternity leave for a long period of time or even retiring, you may possibly have the ability to pay for a lot of your tax deductible expenses early when you’re earning an income – that way, you get this years AND next years expenses in this years tax return. Next year, you don’t have a taxable income, so it’s effectively legal double dipping – how cool is that! I remember a client that was heading overseas for two years – we rejigged the timing on all their expenses and ended up getting an additional $45,000 back in their tax returns just before leaving on their trip – the ATO effectively paid for decent part of their trip!
- Use your super. Yeah yeah yeah, we’ve heard it all before. Blah blah super blah. Let’s just look at a maths of it. You earn $100, if you’re paying 39% tax, you take home $61. Put that same $100 into super, and you get to keep $85. That’s an extra $24, or 39%. Just imagine, you go to the bank, put in $61 and the day after, you’re guaranteed to get back $85. Pretty damn good really – even better if you’re on the top tax bracket. Now, I can hear you say:“Sure, that’s great, but super doesn’t make any money, I can’t control it and the government keeps on changing the rules.“. Well, put simply, if you said all those things, you’re pretty wrong. I know that in marketing 101, you don’t tell people that you’re wrong, but when you’re just sticking to the facts, well – I can say anything as long as it’s right. A super fund can invest into any investment asset it wants to – the same shares, funds, properties or other assets (gold, gems, antiques etc). However, because of the tax benefits instead of buying $61 of gold or shares you’re buying $85 worth. This means higher returns, and more capital. I’ll write up another post just about super so you can get further insight there
- This one applies to small business owners. There was a lot of fanfare when it was first announced, however it’s not getting the same attention as it was – however until June 30, 2017 – you can write off the cost of any asset that you buy that costs $20,000 or less. Any plant, any equipment – anything at all that the business needs. Previously, a small business could write off purchase under $1,000. Now, don’t go overboard and start buying things that you don’t need just because you can get a deduction on them, but certainly it does make sense to bring some buying decisions forward as it’s more affordable to invest into your own business up until June 30 2017. The most common home business items may be computers, laptops and other computer equipment. High end printers, scanners or photo equipment are also common. Work vehicles up to $20,000 and for those on the land, small machinery and equipment such as quad bikes and tractor attachments are common.