Posted by Marshall Brentnall on 19 June 2015
The financial year end is almost upon us and if you haven’t got your tax in order you could be up for a pretty penny, according to financial advisor, Marshall Brentnall of Evalesco Financial Services.
Tax time. Every year, we promise to get around to sorting our receipts, filling out our log-books and filing our statements for the tax man, but often we put it off to the last minute.
According to Marshall Brentnall, being time poor or putting off the required tax time tasks can give you more than a few headaches. It can also cost you a considerable sum, which could be the result of failing to take advantage of tax incentives.
"The penalty for not being organised at tax time is that you'll pay too much to the Australian Taxation Office,” explains Brentnall.
“By simply doing a little bit of work towards tax time throughout the year and improving your personal financial behaviour, you'll reach 30 June feeling much more relaxed, and have more money stay in your pocket."
According to Brentnall, all employees should invest the time to research a budgeting tool for tax. This is especially relevant if the employee owns an investment property or shares, which affect how much you earn in a tax year. "We use a budget planning tool called MoneySoft, and the Australian Securities and Investment Commission's MoneySmart tool is also a great one for those who are not tax-savvy or want a low cost solution," says Brentnall.
For those currently unprepared for the coming End of Financial Year (EOFY), Brentnall says employees often find themselves making mistakes in four primary areas involving tax:
One of the best ways employees can minimise the amount of tax they pay, according to Brentnall, is to legitimately defer the receipt of income or bonuses until after 30 June. What this means is that you will pay tax on it next year, not this year.
He does however encourage that you seek advice from payroll and your accountant over whether this strategy is right for you.
Another way employees can minimise the amount of tax they pay, according to Brentnall, is to elect to place some pre-tax income into a super fund – also known as Salary Sacrificing.
“In Australia, salary sacrificing your before-tax salary means that you will only be taxed at a concessional 15 per cent tax rate, compared to the nominally larger tax rate of your income tax bracket,” says Brentnall. “This can be a very tax-effective strategy if you earn more than $37,000 a year.”
Brentnall adds that employees can also make after-tax super contributions. “Simply deposit your personal after-tax money into your super. These are called non-concessional super contributions. This is different from salary sacrificing, which happens before your income is taxed.”
When it comes to managing your expenses, Brentnall says the strategy here is to legitimately bring forward expenses you know you'll have to make into this financial year.
“For employees with an investment property, you could pre-pay a year's worth of interest in June this year and at the same time lock in a very effective fixed rate,” says Brentnall.
“In addition, property investors often overlook the inclusion of a depreciation schedule. These can cost around $500 (tax deductible) but can also save you thousands a year.”
Brentnall says married couples in order to minimise the amount of tax they pay should ensure that high interest savings accounts are in the name of the lowest income earning. This is particularly relevant for couples where there’s a non-working spouse.
“If you’ve earned a high income this financial year, putting some of that cash in the name of your non-working spouse can help position you into a lower tax bracket come EOFY.”
“This means that you will be paying less tax to the dollar than you might have been had you invested these monies in your own account.”
Finally, Brentnall says by far the most effective strategy leading up to 30 June is to create a plan for the coming 12 months.
“Building a budget and a process for managing your tax will help you better prepare for all the financial hurdles that could come your way,” says Brentnall.
“Those that are prepared for EOFY tend to benefit the most.”
For more information on filing a tax return and monitoring your taxable income. Visit the Australian Government’s MoneySmart website.
Marshall Brentnall is a Director of Evalesco Financial Services, an award winning financial planning firm located in Sydney's CBD. With more than 15 years experience in the financial services industry, Marshall is committed to ensuring that his clients are making smart money decisions and taking steps to increase the likelihood of achieving their financial goals.