Victoria Devine wants us all to hit our money goals and at this time of the year our attention turns to taxing matters.
As the creator of the popular podcast She's on the Money, and now the book of the same name, Devine wants us to establish the values, habits and confidence that will help us build our long-term wealth.
Unlike other finance books that lack relevance for young women - whose lifestyles, financial challenges and goals are continually shifting - She's on the Money seeks to fill the gap in the most honest, non-judgemental and motivating way possible. Afterpay, HECS-HELP debts, the cost of starting a family ... these are the things concerning young women, and Devine has the answers.
With the new financial year, here are a few tips and some practical advice on how to get the best out of your return.
Taxes are for winners
While you may only think about income tax at tax time, as a tax-paying citizen, it's important to factor it in to every financial decision you make. From buying and selling an investment property, to starting up a side hustle, to investing in the stock market, the tax implications require you to be both educated and savvy.
In Australia, the financial year is counted from July 1 until June 30. All money earned within this period must be declared to the ATO on your annual tax return, which must be lodged by October 31 unless you are using an accountant. Depending on your income and the amount of tax you've paid, you may owe money or you may receive a tax refund. This is determined by income tiers, as well as by how many deductions you were able to claim.
A deduction is an expense you incurred that was directly related to earning your income. For example, the running costs of a home office if you work from home, or a laundering service for your uniform. By deducting this amount, your taxable income is reduced, which means you end up paying less tax.
Tax deductions you may be eligible to claim:
- a work-related expense that you paid for yourself and were not reimbursed for. (If this is over $300, you must have written evidence other than a receipt to support your claim.)
- vehicle and travel expenses
- clothing, laundry and dry-cleaning expenses for your uniform
- home-office expenses
- tools, equipment and software
- investment property expenses, including loan interest
- ATO interest
- charitable gifts and donations
- cost of lodging your tax return
- interest, dividend and other investment income deductions
- personal superannuation contributions
- un-deducted purchase price of a foreign pension or annuity
- union and/or membership fees.
Here are some other surprising things you may be able to claim:
Your handbag: You might be able to claim your handbag to the extent that its use is as a work bag, to carry your laptop, notebooks and anything else you need for work. Sadly, this bag has to be practical and "reasonable" in nature, so you'll have to save up your tax returns for that navy Chanel Boy bag with the silver hardware ... sorry!
Shoes: Work boots are an obvious deduction; however, flight attendants may be allowed to claim a second pair of shoes if they're the same as those designated part of their uniform, but are more comfortable. And no, those Jimmy Choos don't count, even if you're wearing them to work.
Make-up: As long as it contains high SPF and you work outdoors in the sun, you may be able to claim your make-up. If you work indoors and can prove that it's required in your job, you might also be able to claim it.
Mobile phone: If you're using your personal phone to make calls and check emails for work, you might be able to claim the cost of your work calls - but sadly, not the whole bill.
Education: If you're studying subjects related to your current paid employer, those costs are tax deductible after the first $250. You might also be able to claim the cost of travelling to and from the place of your education.
Dogs: People who use their dogs for work in security services or farming might be able to claim an associated tax deduction for things like vet bills, food and bedding.
Income protection insurance: You're entitled to a tax deduction for insurance premiums paid against the loss of income. However, this isn't applicable for life insurance, or for total and permanent disability insurance.
Your home internet: If you're working from home and the connection is in your name, you may likely be able to claim part of your internet expenses as a deduction.
Subscriptions to work-related magazines and journals: If you work in media, this means yes, you might be able to claim your Vogue subscription!
If you're working from home, you can claim a number of different things:
- A portion of your heating, air conditioning and lighting bills for all the time you're using your home office.
- Depreciation of home office assets - You've decked your home office out with a nice desk and comfy chair, so you might be able to claim the write-off.
- Depreciation of your laptop or other office equipment - You may be able to claim a write-off for the decline in value.
- If you're renting, a portion of the rent.
If you're confused about what you can and can't claim, a good tax accountant will be able to tell you, minimising the chance of you being audited later.
Please be mindful that if you claim a deduction, you must maintain records to prove the claim. This includes receipts from the supplier of the goods and/or services that show the name of the supplier, the amount of the expense, the nature of the good/service, the date the expense was paid as well as the date of the document. You must keep this proof for five years from when you lodged the tax return.
You'll also want to hold on to:
- income statements and payment summaries.
- bank statements showing interest earned.
If you currently have money invested, you'll need:
- dividend statements (if you're earning from an investment)
- summaries from managed investment funds
- receipts for asset purchases and sales.
If you currently have investment property(ies), hang on to:
- sales contracts.
- tenant and rental records.
- receipts for repairs and maintenance.
- evidence of depreciation.
While it's tempting to claim as much as possible to bump up your return, it's not smart to be blasé with your claims. There are some hefty fines if you get caught faking it, and with the technology the ATO now uses, it's highly likely that you will get caught. The ATO monitors people who lodge their own tax returns using the ATO's myTax software to make sure that they aren't over claiming. The software compares your claim to people who are similar to you in terms of income, employment, demographic and location, so if your claim is outside of the ordinary parameters, myTax will give you a flashy warning prompting you to reconsider it. If you ignore their advice, you could be in for a pretty serious audit.
If you're found to have claimed something you weren't entitled to, that doesn't just mean you have to repay what you claimed back - you'll also be paying interest of about 9 per cent per annum. On top of that, if the ATO believes you have acted carelessly, you'll be slapped with a penalty of between 25 and 95 per cent of the tax avoided - it's not worth it!
In 2019, 84 per cent of Australian taxpayers anticipated getting an average refund of just over $2300. It's important to understand the ins and outs of what you are entitled to so you don't run into any trouble down the track. It's also important to be proactive about tax, instead of reactive. Once June 30 has come and gone, you need to wait another 12 months before you can claim an expense on tax.
- This is an edited extract from She's on the Money: Take charge of your financial future, by Victoria Devine. Penguin Random House Australia, $32.99.