It’s easier to save tax in Australia than you might think

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Things about tax in Australia you may not have known

Did you know that in Australia, there are more than 40 different taxes that individuals and businesses must pay? It's true! This blog post will discuss some of the more interesting (and lesser-known) taxes that Australians must pay. You will also learn some tips on how to reduce your tax bill.

So, if you're interested in learning more about Australian taxes, keep reading!

It’s easier to save tax in Australia than you might think

How to lodge a tax return? 

You must timely file your income tax return as a requirement. Unless they are lodging through a licensed tax agency, individuals must file their taxes by October 31 each year. The ATO notes that other entities have separate lodgment deadlines, including businesses, trusts, partnerships, and super funds.

Tip:

Consider appointing a registered tax agent before October 31 if you are having trouble filing your tax return by the due date or if you think you may owe money in taxes.

By enrolling in their tax lodgment programme, you can postpone filing your tax return until March 31 or, in some cases, as late as May 15.

MyTax, the ATO's free income tax return preparation software, allows you to create and deposit your tax return online if you feel comfortable handling your taxes. It is intended for taxpayers with comparatively straightforward tax situations. 

In general, refunds are given out within 12 business days. Typically, the software is accessible from July 1 through May 31 of each fiscal year.

MyTax is available to Australian residents with income from salaries, wages, allowances, dividends, bank interest, and Australian Government payments. In the past year, myTax has been improved to incorporate business and professional goods, rental property, distributions from partnerships and trusts, and capital gains tax. 

The only tax offsets claimed are the senior and pensioner tax offset and the zone and overseas forces tax offset. You can also deduct expenses related to your job, charges associated with interest or dividend income, contributions, and the cost of handling your taxes.

Even while myTax's pre-filling service is quite helpful, don't rely on the data to be entirely accurate. In July and August, the pre-filling report is rarely current because it takes some time for employers, banks, and share registries to submit the ATO the necessary data. 

Managed fund investments also frequently reveal late results (usually October or November). Any income you receive from these sources wouldn't appear on your income tax return if you didn't give your TFN to one of these reporters.

Since it is your responsibility to disclose your taxable income truthfully, cross-check the pre-filling report against your records before submitting it.

How to select a great accountant? 

Being aware of boundaries makes a great accountant similar to a surveyor. They will ensure that you claim all of your allowable income tax deductions but not so many that you risk an audit by the ATO auditors. Why wouldn't you hire a professional to handle your affairs when their fees are also tax deductible?

Taxation is a complicated subject that requires a specialist's attention to guarantee you are maximizing deductions while adhering to the rules.

Some people find paying taxes a hassle and opt to pay a small charge. However, remember that if you pay peanuts, you'll get monkeys, so don't base your choice primarily on cost.

A subpar accountant could end up costing you thousands in the long run by making a questionable claim or failing to see an essential tax-saving opportunity.

Choosing an accountant who is a licensed tax agent and a member of a professional organization is crucial. It at least gives you some assurance that they are knowledgeable and familiar with the yearly changes to the tax rules.

In Australia, three accountancy bodies are recognized by profession:

While having an accountant that is good at communicating is helpful, it is more crucial that they are conveying accurate information to you. Ask your friends for advice because they can speak from personal experience. 

In my opinion, a well-designed website with consistent client newsletters and updates in straightforward English is equally crucial. Choose a person who takes the time to explain things thoroughly rather than someone who treats you like a regular "stupid" customer.

You would save a lot of time by choosing someone close to your place of business or employment, but you would go to any lengths to find a fantastic accountant. 

Most accountants can work with you remotely in today's technologically advanced world. Most accounting software applications, such as MYOB, QuickBooks, or Xero, can be accessed remotely by your accountant if you own a business.

Finally, believe in your gut. Give your funds the attention they demand because they represent a severe issue. Find another accountant if you don't feel comfortable with this one.

Tip:

Always request an estimate before having work done by an accountant, so you are not taken aback when the cost comes. Many client-accountant relationships have failed because of unexpected billing.

How to amend tax returns?

Even after your initial return has been filed and assessed, you can still submit a request to the ATO to alter it if you believe that you have missed out on interest income or a deduction. Generally speaking, the ATO has the authority to alter returns for up to four years following the initial return filing.

You can obtain and complete the ATO form Request for amendment of the income tax return for persons from the ATO website if you need to make changes to your tax return.

You must act quickly to alter your tax return if you make a mistake or need to. You can write the ATO a letter or download the ATO amendment request form.

Amend Tax Returns

What to include in your Amendment request letter? 

Make sure the following information is included in your amendment request letter if you desire to amend your tax return:

  • Your name, postal address, and phone number
  • Your TFN
  • The income tax year to which the modification applies.
  • The explanation for the return's modification
  • The tax return's item number that has to be amended
  • The size of the change
  • A statement that you have the appropriate receipts and other evidence to support your amendment claim and that all the information provided, including any attachments, is true and correct.

Additionally, you must date and sign the letter.

Difficulties you may face while paying your tax

You must pay your taxes as soon as they become due. However, there are situations when you cannot make timely tax and BAS payments.

If you find yourself in this predicament, get in touch with the ATO immediately to explain what is happening. ATO officers will treat you fairly and reasonably and have a great deal of empathy for your predicament.

If you have unpaid taxes and BAS returns that need to be filed, don't put them off because you lack the funds because there are penalties for filing them late.

You'll probably need to give the ATO a list of your genuine financial situation's assets, liabilities, taxable income, and expenses to demonstrate that you are having trouble paying your bills when they become due. Depending on your situation, you might be given more time to pay the ATO.

You must make sure that any upcoming tax returns and activity statements are filed and paid on schedule in addition to making your monthly payments. Your payment arrangement will be deemed to have defaulted if you fail to comply, and the ATO will need an explanation.

If you pay PAYG installments and are having trouble with cash flow, you might want to try changing your PAYG installments on your activity statement and requesting a refund for any payments you made earlier in the fiscal year.

If you own a small business and are having trouble meeting your tax-paying responsibilities, you may be able to ask the ATO for a 12-month GIC-free payment plan. You may also be able to postpone the due dates for your activity statement payments.

The ATO may be able to discharge some or all of your tax debts, depending on your particular situation. You may apply for this concession if paying your tax will put you and your family in "severe hardship" by making it impossible for you to provide for their essential needs (such as food, shelter, clothes, and education).

In this case, taxpayers must fill out an "application for release" form and submit supporting materials demonstrating how paying the tax obligation will put them through extreme hardship.

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Overseas earnings

If you live in Australia, your income is also subject to taxation. You must report any international earnings on your income tax return as assessable income, and any foreign taxes you have already paid may be deducted from your foreign income tax. Non-residents are solely subject to tax on their income earned in Australia.

If you satisfy any of the following requirements, the ATO will regard you as an Australian resident for taxation purposes:

  • You were raised and born in Australia.
  • You have a permanent residence in Australia.
  • You have resided in Australia for at least six months, spent the bulk of that time at the same place of employment, and engaged in the same type of living.
  • Unless your usual home is abroad and you don't intend to stay in Australia permanently, you have lived in Australia for more than half of the fiscal year.

A reduced pension proportional to their Australian working life residence ratio will be paid to retirees who have lived in Australia for fewer than 35 years.

If your employer meets the following criteria, you may be entitled to an exemption from Australian tax on this employment income if you are an Australian resident working abroad for a continuous period of 91 days or longer.

  • It delivers official development aid from Australia.
  • Manages a public fund for disaster aid for citizens of underdeveloped nations.
  • has no Australian income tax to pay
  • There is an authority within the Australian Government that has sent you abroad as a member of a disciplined force.

If you have lived in Australia but then emigrated, you should be aware of the following:

  • Any income derived from Australia is still subject to tax there.
  • For capital gains tax reasons, any abroad assets are regarded to have been disposed of, which could result in a tax liability.
  • The indexation of any HELP or SFSS debts will continue.

Fact:

Graduates who earn more than the minimal HELP repayment threshold and reside abroad must pay back their HELP debts based on their worldwide income.

Tip:

Notify your bank (about interest) and share registry (regarding dividends) if you relocate overseas and become a non-resident, so withholding tax is deducted at the source.

You have no additional tax responsibility in Australia for this taxable income. Not disclosing it on your Australian tax return is one option.

Data matching for ATO

Data matching has been a valuable tax compliance tool for the ATO for the past five years. It has had a significant deterrent effect on taxpayers who were considering not revealing all of their income.

It is entirely up to you to ensure that your income tax return information is accurate and complete when you file it.

Never attempt to overstate any aspect of your taxable income. If you use a registered tax agent to file your taxes, they will typically receive a pre-filling report from the ATO to help them find any income you might have overlooked. 

The report should be viewed as a beginning point for completing your tax return rather than an all-inclusive answer because it takes time for this information to come through from the pertinent institutions.

The ATO owes it to the community to ensure that everyone complies with the law's requirements for tax payment. If all taxes are correctly collected, better roads, hospitals, and schools will result, and maybe cheaper taxes overall. 

The ATO confirms the amounts reported on tax returns using data from other sources to ensure that taxpayer compliance with the law has been achieved.

Businesses in the building and construction sector must disclose the annual sums paid to each contractor for work performed.

The ATO then compares this data to information included in tax forms to identify people who might not be accurately disclosing all of their income. The ATO will take additional action if there are any irregularities, including audits, fines, and, in some cases, jail. 

The ATO might concentrate on future compliance concerns by identifying trends from industry-wide data analysis and benchmarking operations.

The ATO is now engaged in the following areas of targeted data matching:

  • Debit and credit cards
  • Digital currency
  • Registries for motor vehicles
  • Internet sales
  • Ride-sourcing 
  • Using shared accommodations
  • Sophisticated payment methods.

Estate planning 

There are various definitions of estate planning, but you can understand it as the tax-effective intergenerational transfer of wealth from one generation to another. 

It entails creating a plan for handling your assets when you pass away using the legal tools and frameworks you put in place, like a will, to transfer your assets to your beneficiaries in the case of your passing. If you like to be in charge of your possessions, effective estate planning may enable you to do so even after you pass away.

Tax is not the sole factor in estate planning, but it is significant. If your estate planning approach is not well thought out, a significant percentage of your assets may go to the ATO when it might have quickly gone to your beneficiaries.

Estate Planning

Valid will

Making a legally binding will is the first and most crucial step in any estate plan. Without a legal will, a person is said to have "died intestate," and their assets are divided according to Australia's state and territory inheritance laws.

In this instance, there is a chance that the decedent's unstated intentions about their estate may not be adequately carried out.

Capital gains tax

Intestacy may result in overall inequality in the distribution of an estate due to greater tax rates by some beneficiaries, depending on the marginal tax rates of various beneficiaries.

An otherwise kind-hearted decision to leave half of an estate in cash to one beneficiary on a low income (effectively tax-free) and the other half in a share portfolio with significant unrealized capital gains tax to another beneficiary on the highest marginal tax rate might serve as an illustration of this.

Effective estate planning can prevent this outcome. The will creator and their advisors can consider ways to manage the tax consequences for beneficiaries while creating a will. 

Testamentary trusts

A testamentary trust is established through a provision in a person's "testament" (or legally binding will), but it is not created until after the person's passing. It operates similarly to a discretionary family trust, with some will provisions acting as trust deeds.

A testamentary trust is a covert method of looking after your family's finances after your passing. Testamentary trusts provide significant tax advantages, including that distribution to minors is taxed at the more advantageous adult rates, which is their significant advantage.

Binding nominations for death and superannuation

Most significantly, retirement savings do not automatically pass to a decedent's estate upon death because they are not considered estate assets.

The trustee of your superannuation fund will typically pay a death benefit by the fund's governing rules and applicable law without a binding death benefit nomination. He or she can pay your superannuation to dependents instead of your estate. 

The provisions of your will, which only address the estate assets and postponing tax effects, are practically superseded by this discretion. Benefits will be distributed to the designated beneficiaries when a nomination is in place. To circumvent this trustee discretion, make a binding death benefit nominee.

Depending on the superannuation trust deed options, your nomination will be valid for three years from the date it was signed or non-lapsing. A nomination may be renewed, altered, updated, or withdrawn at any time.

Private ancillary funds

Ancillary funds are charity trusts created in Australia to award grants to DGRs for the benefit of the general public.

Ancillary funding is of two types: public and private. 

Private ancillary funds (PAFs) may not take gifts from the general public and are founded and sponsored by a person, a family, or a small group of donors. Private ancillary funds are tax-advantaged entities established by a trust deed comparable to SMSFs because they cannot operate businesses or pay their founders/trustees.

Still, they have several reporting requirements and must make a minimum distribution each year.

Consider creating your private auxiliary fund and making a tax-deductible donation if you experienced a sizable windfall gain throughout the year to lower your prospective tax liability.

A private auxiliary fund must distribute at least 5% of the market value of its net assets at the beginning of each financial year, except the year the fund is founded.

Medicare levy

Since 1975, Medicare has increased Australians' access to health care. Australian residents' Medicare levies fund it. The ATO levies 2% of your taxable income via your annual notice of assessment.

If you or your dependents don't have private health insurance and your 'adjusted taxable income is above a specific threshold, you may have to pay an additional 2% Medicare levy fee.

The Medicare levy surcharge is an additional 1.5% on your adjusted taxable income.

  • taxes
  • super donations
  • financial losses
  • fringe benefits reported
  • tax-paid family trust distributions

Having private health insurance may qualify you for a tax rebate. Even if you don't pay tax, you can get a refund. This private health rebate is affected by taxable income, marital status, and age, like the Medicare levy surcharge.

If you know you'll exceed a higher income threshold (or are unclear), contact your private health provider at the beginning of the year to minimize your upfront rebate. Otherwise, when you obtain your tax assessment, you may have to pay back part or all of your rebate.

Tax-efficient investments

Accountants and financial advisors advocate tax-effective agricultural and forestry projects in May and June.

Given the risk, a savvy financial adviser will advocate investing no more than 5% of your portfolio in tax-effective assets.

The ATO calls these investments 'aggressive tax planning' items for a good reason: some projects have gone bankrupt, costing investors thousands of dollars.

In the first year, investments in agribusiness or forestry are 100% tax deductible. If you invest $100,000 in these investments, you may earn a $100,000 tax deduction.

Before signing up for a tax-effective scheme, ensure the ATO has issued a product ruling so that you can be sure of the tax benefits in the PDS.

Used correctly, they can be an intelligent tax-planning approach; for example, they might assist level off capital gains or bonuses throughout a financial year.

Some investments sound too good to be true. Investors must judge the product's commercial and financial feasibility. Careful before investing risks the amount not covered by your marginal tax rate. If the project doesn't make money, you'll lose after taxes.

There are a number of different taxes payable for Australians and it can be difficult to keep track of them all. However, by knowing about these taxes and taking some simple steps to reduce your tax bill, you can make the process a little bit easier.

FAQs

Is GIC tax deductible in Australia?

Any expenses incurred in the course of generating income are tax deductible. So if you can demonstrate that the money you spent on GICs was in fact spent on generating taxable income, then you should be able to claim a deduction for those expenses.

What is tax exempt foreign income in Australia?

There are a few different types of foreign income that may be exempt from tax in Australia. These include certain types of investment income, such as interest, dividends, and royalties. There may also be exemption for foreign pensions and annuities. To claim an exemption, you'll need to provide evidence to the Australian Tax Office (ATO) showing that the income is indeed taxable in the country where it was earned.

How long does an amended tax return take in Australia?

The ATO generally takes about 6-8 weeks to process an amended return.

If you're expecting a refund as a result of the amendment, it will take longer - up to 12 weeks. This is because your original tax return needs to be processed and the associated refund paid before your amended return can be actioned.

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