The end of the financial year on 30th June is a time to focus on finances, plan ahead for tax returns and the next fiscal year. Whether you are an employed individual, unemployed, self-employed, a business owner, or pretty much any other adult Australian, you are required to file a return. Understanding your obligations and all the breaks and deductions you are entitled to means you can keep your finances in the best shape.
It is also important to understand how your credit card can be used as a financial tool as the 30th of June approaches. This guide presents questions, tips and information to consider as you prepare for the new financial year.
Do I need to file a tax return?
Most adult Australians need to file a tax return, although there are exemptions for people in certain circumstances. Generally, you must complete an annual tax return if you are:
- An employed salary or wage earner.
- A pensioner.
- Receiving unemployment benefits.
The ATO website provides information on who must file a return. If you are required to file a return it is essential to think about how to approach your taxation, make sure you are paying exactly what you need to and how to get all the deductions and benefits that you deserve.
1. Purchase and Prepay Deductible Expenses
The end of the fiscal year could be a good time to use your credit card to maximise your tax reductions. Work related purchases you make before June 30th can be included in your return and deducted from your tax bill.
Generally, you can claim on all work-related expenses and business expenses such as equipment and machinery, vehicle and travel expenses, work clothing and laundry costs and anything else related to your income. In some cases you can also claim for self-education expenses, interest and dividend deductions, and tax breaks on gifts and donations.
Other types of payment that you may consider making before June 30th include investing in superannuation and prepaying the interest on loans, which can further reduce your taxable income.
Credit cards can be a useful tool for making these payments and purchases. One strategy is to use a credit card with a low or 0% introductory purchase rate for a promotional period, make the deductible purchases and payments before June 30th so the expenses can be included on your tax return, and repay the credit card balance before the introductory promotion expires. If you do repay within this period, you have made a low interest short-term loan and reduced your taxable income. You may also be able to make use of credit card extras such as rewards schemes and insurance policies to further reduce your overall expenses.
As with any credit card usage, this strategy requires discipline to ensure you don’t overspend and careful budgeting so you know exactly how much you can afford to borrow and repay.
2. Get Your Statements and Records in Order
It is important that you keep accurate financial records, accounting for all your income and expenses. It is also crucial that you file all your receipts, bank and credit card statements. The ATO has different rules for different types of deduction, but generally you must provide written evidence for claiming expenses if the total amount exceeds $300.
Along with helping with your tax return and claiming expenses, keeping all your accounts and bank and credit card statements in good order helps you with managing your money, tracking expenses and budgeting throughout the financial year. If you are managing your expenses by using credit cards, accurate accounting ensures you met minimum monthly payments and helps you get the most out of extra features such as rewards schemes and insurance policies.
3. Look out for ATO Changes
Understanding your tax obligations, what you need to include on your return, and knowing all your deductions entitlements are essential aspects of managing your finances. It is also important to follow changes the ATO makes regarding tax rules and regulations since paying the correct amount of tax is a legal requirement. Knowledge of the latest developments also allows you to enjoy any available reductions in your taxes.
Currently, the tax-free threshold is $6,000. However, due to recent reforms, from 1st July 2012, the tax-free threshold rises to $18,200 and the Low Income Tax Offset reduces to $300 as part of the Australian Government’s Clean Energy Future package.
4. Get Advice
Getting the right advice can really take the headache out of managing your finances and taxes throughout the financial year. Paying for the services of a professional accountant ensures your books are in order and provides greater protection if anything goes wrong in the future.
An accountant should be able to help with general financial management but also offer advice on managing your credit and loans, reducing your taxable income through superannuation investments, deferring income tax by receiving payments after 30th June, claiming for medical expenses, incoming splitting and participation in tax schemes.
5. Get Your Tax Return and Payment it On Time
Finally, it is essential that you complete and return your tax return on time and pay any additional tax by the required due date; failure to either of these could result in penalties. In most cases tax returns are due on 31st October each year. Once your return is lodged, the ATO carries out an assessment and then sends a notice detailing any additional tax you are required to pay, or, even better, a notice of a refund along with a cheque or direct payment into your bank account.