We’re almost half way through the year which means that tax time is once again upon us. June 30th is a key date stuck in the collective mind of most Australians, and the clockwork regularity of tax lodgement can lead to complacency that independent professionals in particular must avoid. Keeping abreast of tax rule changes and being aware of The Australian Tax Office’s (ATO) increasing sophistication in data collection techniques must be incorporated into your preparations on either side of the June 30th 2019 date. Here are some key considerations to ensure you are maximising your tax outcomes:
1. Don’t rush to lodge your tax return
If you’re an eligible recipient for the low to middle income tax offset that was announced in the May Federal Budget, you may be eager to get your tax return submitted as early as possible come July. However, accounting experts are cautioning against a hasty approach.
Keep in mind that the ATO starts full processing of 2018–19 tax returns on 5th July 2019 and expect to start paying refunds from 16th July 2019. Furthermore, most employers have until 31st July to issue payment summaries (which have now been renamed ‘income statements’). Remember that the ATO has started using digital data matching to automatically add the bulk of your income and other financial information to your return, which is visible when using the online myTax.
Pre-fill data is not immediately available come July 1st, and if you submit your return using your own figures without cross-matching the pre-fill amounts that are generated, you run the risk of not declaring the correct amount. For example, it is common for people to forget to include the interest accrued on an account, which in all likelihood will be picked up by the ATO and require you to lodge a tax amendment.
2. Verify work-related purchases before 30th June and gather records
No doubt that promotion of EOFY sales has already inspired you to consider making work-related purchases to claim on your tax return. Before you splash out unnecessarily, just be mindful that the ATO is cracking down on illegitimate work-related expenses. Furthermore, home offices, which have moved from the periphery of Australia’s business economy and closer to the centre, are also a prime target of ATO claim investigations.
For contractors who work away from their hiring organisation’s premises and intend to make a claim for expenses, or for those seeking to maximise their work-related deductions more generally, it’s a wise move to reacquaint yourself with the official ATO deduction criteria (see here). We recommend that you also consult with a professional accountant to help apply it to your circumstances and assess the viability of your expenses. They’ll know what to flag and in this way you can ensure that you’re not missing out on legitimate deductions or landing yourself in hot water with the ATO.
3. Understand what tax changes have been made and plan ahead for 2019/2020
As a busy contractor, it can be difficult to remain vigilant for tax change announcements, and some rules can just fly under the radar. Most people are aware of the new low and middle income tax offset for those earning $125,333 or below, which applies for 2018–19, 2019–20, 2020–21 and 2021–22 income years and will be available on assessment after you lodge your income tax return. But what about the superannuation rules from July 1, 2017? Tax payers have been able to claim voluntary super contributions as a tax deduction, however accounting firm experts this year have reported that many eligible people are still not taking advantage of this. For a full list of the most recent changes by the ATO, consult their website here.
Although now outside the scope for your 2018/2019 return, you can further maximise future tax outcomes by considering things like novated leasing, incorporating a company, and investment options. Understanding in advance how these changes can impact your cash flow and wealth creation strategy will benefit you greatly, and its best to get your ducks in a row now to ensure an optimum 2019-2020 return. This brings us to our next tip – using a registered accountant to assist with these responsibilities and give you absolute peace of mind.
4. Use a registered tax accountant with contractor experience
We cannot stress the importance of this enough, as enlisting an accountant who understands the nature of contracting will ensure a better tax outcome for you. As a contractor, your earnings are more fragmented than a yearly salary, so tax and accounting becomes more complicated with additional legal compliance coming into play.
If you’re going it alone in managing your tax affairs and unless you can stay up to date with an ever-changing tax landscape, you ought to consider an accountant. Their industry expertise can determine a contractor-specific tax saving structure for you throughout the year, and they can lodge a tax return that leaves no stone unturned.
Whatever your situation – whether you’re single or in a family, operating as a PAYG contractor or a Pty Ltd, Entity Solutions has an in-house team of registered accountants who can advise on appropriate ways to maximise your income whilst meeting the rules of the ATO.
5. Review your insurances as circumstances may have changed
Finally, aspects of your life and business can change throughout the course of 12 months, so the end of financial year is a perfect reminder and opportunity for contractors to review the insurances they have in place. Mitigating risk is essential for contractors, so your cover needs to include income and accident protection in addition to your business insurances. Entity Solutions has a range of insurances designed specifically for contractors, so get in touch to ensure you have sufficient, up to date policies in place.
In summary, don’t lodge your 2019 return until you are prepared. Need help? Our Entity Business and Taxation (EBAT) division is offering IPros individual tax returns completed and lodged for $250 plus GST. To register, please get in touch with your Customer Delivery Manager or email email@example.com.