Tax refunds can feel like Christmas in springtime. With a sudden boost to your bank account, you can look forward to going on a shopping spree, paying down your debt or squirrelling the refund away in savings.
Many Australians lose hundreds of dollars each year simply because they forget work-related deductions or receipts for items they can claim back.
Do you compare your tax refund to your friends and family and wonder, "How can I get a better tax refund"?
Fortunately, there are lots of ways most Australians can improve their tax refund. Millions of dollars are left in the hands of the ATO every year, lost by taxpayers who simply didn't make the most of their tax return.
Proper tracking and claiming of tax deductions is the biggest strategy for getting the best tax refund. Along the way—and this is serious—you should not add fictional or inflated claims to your tax return. The ATO has new technology that can find inaccuracies in your tax return, and they are better at this than you could even imagine. But that's okay—we should all pay our share in Australia, and we can still get nice, fat tax refunds by doing it right.
Doing taxes is agreeably a "taxing" chore. But a little time spent now to look over your finances can go a long way in helping save money and reap the benefits of deductions sooner.
The Australian Taxation Office has billions of dollars in their kitty to hand back to taxpayers. All you need to do to improve your refund is to think a little creatively. The ATO is equipped to detect an undeclare wage, bank interest, share dividend or any other income. Unfortunately, it has no way of informing you about a forgotten deduction for work-related expenses, investment costs or other items.
Does your preparation for tax day start with a trip to the liquor store, or perhaps a one-way ticket to Costa Rica? Taxes are unpleasant, but drinking or fleeing the country is not the answer. Tackle your taxes head-on with solid preparation, and the experience may turn out to be more pleasant than you thought it would be. Here are a few tips to help you with your tax preparation and increase your chances of getting the biggest refund you deserve.
One of the easiest ways to boost your tax return is by taking advantage of the deductions you're able to claim. Here's our top five tax tips to help you get more money back at tax time.
Claim as many work-related expenses as you can
Many expenses that you accumulate through your chosen career path can be claimed in your tax return. However, many cannot, and incorrectly claiming these may result in a penalty from the ATO. Some are more obvious than others, like an apprentice's tools or travel expenses (as explained above). However, did you know that journalists may be eligible to claim their pay-TV costs? So long as these are incurred in the course of performing their work (for example, a sports journalist that needs to have access to the sports channels), they can be claimed as deductions. There are thousands of things you may be eligible to claim as work-related expenses.
Here's a few examples that you might be eligible for:
- Tools and work-specific clothing. The item is needed to perform your job, e.g. tools that merchants use, equipment that hairdressers use, special shoes such as steel cap boots.
- Safety items. Item's needed for self-protection or safety when doing your job, e.g. sunscreen and sunglasses if you are required to work outside
- Laptops and mobile phones. If these are used for work purposes, you're able to claim it on tax (if you have a laptop that you use for work and personal use, you're only entitled to claim the portion that you use for work).
- Courses and conferences. Self-education expenses, such as courses and certificates, need to be directly related to your profession and will help you get a promotion or a pay rise.
Claim tax deductions for working at home
If you work from home full time, part-time or only on the odd occasion, you're eligible to claim this as a tax deduction. For example, if you're running a business from home (full-time or part-time) that requires you to use computers, phones and other electronic devices, you could be eligible to claim deductions on certain costs. This even included the cost of your home internet and electricity bills!
Working from home tax deductions can include the following:
- Cleaning costs. The expenses incurred by cleaning office space at home.
- Office furniture. Purchase and repair costs for office furniture and fittings required to do your job.
- Your phone bill. Landline and mobile phone calls related to work matters (you should get an itemised phone bill and highlight the work-related calls)
- Your home internet bill. You can claim a portion of your monthly internet bill, in line with how often you use it for work purposes.
- Electricity bills. You can also claim a portion of your home electricity bills, in line with how often you work from home.
- Amazingly, you can also claim a portion of your occupancy expenses, like rent, mortgage, and home insurance, so long as you operate your business solely from your home and have a dedicated space for business activities. It's important you claim to work from home expenses correctly, to avoid a penalty from the ATO. You'll need to show evidence and your calculations to justify how much you're claiming. A tax agent can do this for you to ensure you're claiming correctly.
Use a tax agent (they'll help maximise your return, and their fee is tax-deductible!)
For a lot of people, using a tax agent to lodge your tax return is the easiest way to ensure you're claiming everything that you're eligible for. Here's how tax agents can help you this tax time:
- Claim the tax agent fee as a tax deduction. You might be surprised to learn that the cost of using a tax agent is completely tax-deductible.
- Claim more deductions. Tax agents know the ins and outs of the tax system so they'll be able to help you claim everything you're entitled to, even things you might not be aware that you're entitled to claim.
- Claim correctly. If you don't claim your deductions correctly, you could be hit with a fine from the ATO. Tax agents will help make sure you've claimed everything correctly so you can have peace of mind after you lodge your return.
- Help with calculations. Claiming things like home office expenses and car use can be really tricky and time-consuming. You'll often need to create a logbook or show your working for figuring out how much you can claim. Tax agents are professionals at this so that they can save you a lot of time and stress.
- Offer tax tips. Tax agents can also offer you extra tax tips and tips for organising your finances in general.
Claim All The Deductions You Can
Tax deductions are the single easiest and the most prevalent way to get a higher tax refund is to claim a deduction for every expense that is work-related and that your employer has not already reimbursed you for, you are legally entitled to. These expenses include:
- Vehicle and travel expenses – including travel between work and home
- Clothing, laundry and dry-cleaning expenses
- Mobile phone, internet and home phone expense
- Overtime meals
- Self-education expenses
- Tools, equipment and other equipment
- Other work-related deductions
Save Your Receipts
At tax time, we spend hours tracking down receipts for purchases made over the last 12 months. This is not only a waste of time but also a probable loss of hundreds or even thousands of dollars in a tax refund. So, grab folders, label them and save every relevant receipt.
Whenever you make a work-related expense, keep your receipt and put it in your tax folder.
If you work from home, even only occasionally, save invoices of the phone, power, water, internet and office supplies. And be sure to keep a diary about how much time you spend working at home.
- Invested in a property? Keep the receipts of your payments.
- Donated to a charity? Put the receipts into a folder.
- Driving for a work meeting? Write down your dates and mileage in a logbook or diary, just don't include to-and-from home.
If you aren't sure whether an expense is deductible or not, save that too! Your tax consultant should be able to advise you.
Make Charitable Donations
Lower your tax bill and assist a good cause at the same time! A donation of $20 to a charity or $10 on a book might not seem like much at a time, but each of such small purchases across 12 months can add up to hundreds of dollars. You can claim a deduction for anything over $2. Just be sure to save the receipt!
Prepay Your Bills
While it's more convenient to pay your bills weekly or monthly, it's better if you can pay some bills like union fees and professional subscriptions in a lump sum. Since you claim a tax deduction this year for expenses which wholly or partly relate to next year, it will not only help you reclaim these expenses earlier, but you will also receive a higher refund in the current year.
Put Money Into A Super Fund
This is especially beneficial for couples where one member is either not working or earns less than $40,000, inclusive of super contributions and fringe benefits, can use super contributions to reduce the tax paid by the other partner.
The partner having a higher income can contribute up to $3000 to the non-working partner's super fund and claim a tax offset of 18 per cent, which equates to $540.
Those working on low wages can also put extra money into their super, and for each $1 contributed to super, the government will contribute 50 cents. Anyone earning up to $52,000 can benefit if they put extra money into super.
Sell Off The Loss-Running Investments
If you have earned from investments or have sold some shares, you'll have to pay some tax on them. The best way to minimise the tax amount is by getting rid of any assets that are sitting at a loss. The "capital loss" can be offset against the "capital gain". But be careful if you plan to sell shares sitting at a loss and then buy them back in the new tax year as the ATO had issued a tax ruling to cancel any tax benefits in such situations and apply appropriate penalties.
Review Your Health Insurance
Health insurance companies have announced price hikes from April 1, 2018, as well as changes to the services that are covered under the policies. So, if you haven't already, it's time to check what illnesses and services you're covered for, whether it's worth being covered at all or whether you should change insurers. If you are to claim the private health insurance premium as a tax offset when you lodge your tax return, it makes sense to make it worthy.
Snare the same amount again
The average Aussie can treat the typical refund as a free-kick to chunk off a fair amount of the mean credit card debt, which moneysmart.gov.au says is $4090.
At an average mozo-calculated interest rate of 17.21 per cent, repaying $2564 will save $7109 versus making only minimum monthly repayments of 2 or 2.5 per cent of your balance – and get you out of debt more than 20 years sooner.
Except I'm going to assume Money readers know that minimum repayments are set so "helpfully" low to trap cardholders in debt as long as possible and see them repay a fortune.
Even those who today manage to tip $300 a month onto their card, however, stand to save $2713 in interest (and 10 months) by instead using their refund to ditch the debt.
Boost your 'refund' by $500
A quick, clever trick this one if you earn below $51,021, whack $1000 of your refund straight into super, and you'll snare a bonus up to $500 from the government.
This is under the co-contribution scheme, so the money goes directly into your super fund, and you can get at it when you reach preservation age between 55 and 60.
Don't forget there's still more than $1500 of your refund to build on today, too.
Lift it by 50 per cent
You did well with the credit card strategy above but throw your $2564 refund against a mortgage and, due to its sheer size, you take that to a new level.
Stop letting the tax office use your money for most of a year before you get it back.
On the average big bank advertised rate of 5.23 per cent for the average $370,500 Aussie mortgage – with apologies for ruining the mornings of Sydney-siders and Melbourne-sites – you'll save $6348 in interest (a $3784 net saving).
At which point more than $2000 extra each month – your repayments – becomes yours!
There is also a beautiful thing when you use the money to repay any debt; because you only "effectively' earn returns, they're not just risk-free but also tax-free (you're saving money).
Double your moolah
Stash $2564 cash into an online account, and you'll earn 3 per cent a year, but you'll have to be a rate tart.
At those paltry rates, without adding another cent, you'll double your money in 23 years (and hopefully rates will increase over the period).
But find an investment that will deliver a total annual return of 8 per cent (bearing in mind investments come with the risk of losing money), and you'll double your money in just under nine years.
Get protected, which is priceless
Were you slugged with a penalty for not having health insurance last year (the Medicare Levy Surcharge)? Then consider buying some – early in the tax year, so you get covered for the cost.
Do this by age 31, or you'll pay more as well.
Get smart with ATO
Finally, get smart this year by which I mean stop letting the tax office use your money for most of a year before you get it back. Provided you receive a similar level of tax refund every year, fill out what's called a PAYG withholding variation form today.
This splits your tax refund across every pay packet, from the very next one, rather than waiting a year to get what's yours. How does a bonus $214 a month sound?
Complex tax situations are best left to the professionals. You may be able to do your taxes adequately. Still, a competent tax professional may be able to find you enough refunds to pay for their services and then some — and even if they cannot, you can enjoy greater peace of mind by not having to struggle through the tax forms yourself.
Research a tax professional carefully, and do not just choose one based on advertising (certainly not on promises of the highest refunds). Check their certifications, experience, and online reviews of their services. Note that lawyers and accountants may be qualified to sign tax returns without having any experience in doing so.