Legal Ways to Minimise Tax - Discussion

A few days ago I posted a thread to discuss whether fines should be income tested and have seen some very valid points around rich people using strategies to minimises their tax so they barely pay any tax to ATO.

So I am starting this thread to see tax saving/minimising tips from fellow ozbargainers.

I think it's fair I start this thread with my own tax minimising tricks

  1. I don't have a work supplied phone so I claim 50% of usage as work based. (I landed at 50% based on usage pattern over 6 months)
  2. I claim work related expenses (from memory I don't need receipts for combined expenses below $150 e.g. laundry)
  3. I also work from home in the evening most weekdays and some weekends as well as some full weekdays. So I claim 25% of home broadband as work related expense. (Again based on the usage patterns over a period of 6 months)
  4. If I buy a technology devices such as a laptop or a tablet (my work allows us to bring our own device to work) e.g. this FY I bought a surface pro 4 so I plan to claim tax deduction on it.
  5. I do my own tax so I don't pay an accountant. If I did tax through an accountant then I claim their fee the following year.
  6. Work related study. I didn't do this in the recent past but when I did I claimed deduction (once I even got private ruling from ATO to ensure eligibility)
  7. Interest (after expenses) and depreciation and other related costs for investment property (I currently rent to live)
  8. I don't have any other work related expenses that I can claim.
  9. Save money in mrs name as she is on lower tax bracket so tax on interest is lower
  10. I claim child care rebate of $7500 a year, last year total cost was around $33k for one child. (not eligible for CCB)

So what other ways do you save on tax?

Comments

  • +6 votes

    Negative gearing

    • +7 votes

      must be advise from property agent. they are actually sellers agent so they work for the property developers and try to sell as many as they can thus provide "not so accurate" advises like "negative gearing is the way to go"

      if you meet true buyers agent they will recommend positive gearing.

      • +11 votes

        I'm not an accountant, so I don't know all the tax loopholes, though I am an economist, so I have some idea of how these things work. I never claimed that negative gearing (whether in relation to property or any other asset) is a smart investment strategy. It is, however, a tax deduction, i.e. a way to minimise tax. Whether it is smart or recommendable isn't really relevant to the question.

        • +5 votes

          paying tax is a good problem to have, thus it means your making money. if should be aiming for a positive gear or neutral gear property. negative gearing is not this perfect tax avoidance thing. not bad but not perfect.

        •  

          But make sure people understand all the depreciations they have claimed (one of the source a property become negative) need to be calculated back when property is being sold.

        •  

          @eisniwre: Hi eisniwre, this is something new, can you please elaborate on what you mean by this? From what you wrote, it seems to me that if I claim for the depreciation according to the depreciation report provided, I need to pay some back when I sell the investment property? Or is there a link to more info on your point? Thanks!

        • +8 votes

          @Tomato: easy peasy. not paying back straight but they will go into your "profit" amount when calculating how much CGT you need to pay.
          i wont give tax advise but google with this keyword (no quotes) "selling property depreciation".

          example:
          http://somersoft.com/forums/showthread.php?t=47347
          http://propertyupdate.com.au/six-capital-gains-depreciation-...

          summary:
          So if you bought the unit for $200k net cost (incl SD, legals, etc) and have claimed $10k depreciation to date and sell it for $250k net proceeds (after REA fees, legals etc), your taxable capital gain is $60k, i.e. the 'cash' capital gain of $50k is increased by the depreciation you've claimed.

          lets go to ANY property agent who is talking big about negative gearing, 99.99% of them WILL NOT KNOW about that… go figure why…

          in short: too good to be true, maybe it is not (100%) true. and remember, ATO has the best accountant in Australia working for them. you cant beat them.

        • +1 vote

          @eisniwre: Appreciate the info, learnt something new almost everytime I visited OzBargain :)

        • +1 vote

          @Tomato: learn something new, spend on something new as well haha

          Please prove my theory when you meet property agent ask about the depreciations, they know that fact or not?

        • +2 votes

          @eisniwre: hhaha…wouldn't be meeting one soon, and i hv 2 but yet I didnt know about that! Haven't sold any, maybe that's why…probably most people will know from selling their investment property.

        •  

          @Tomato: Not sure why I get Neg? Is it because I didn't say 'sure I will'? I am just saying that this wouldn't be happening in the near future…but I will if I remember to ask when I meet a property agent down the road maybe at least after 5yrs? Please advise the reason for negging?? My genuine apologies if I did say something wrong.

      • +5 votes

        If you meet true buyers agent they will recommend positive gearing.

        That comment doesn't make sense. The purpose of buying property is for it to go up in value. Property shouldn't be bought simply for positive and negative gearing.

        Whether a property cost you $5k per year or earns you $5k per year is nothing compared to it going up in value $50-100k per year or dropping in value..

        The gearing side is more to do with maintaining cash flow while you have the investment.

        • +1 vote

          If you are looking for capital gains.

          Some people invest in property for the revenue stream and so of course would want an income-producing asset.

        •  

          @antt: true but there will be a time that they sell and I'm sure that they would prefer not to loose more than they gained in positive gearing. There are always exceptions to the rule though..

      • +20 votes

        The government hates him. Find out this OzBargainer's secret to paying no GST tonight on Today Tonight.

    • +21 votes

      CA here.

      Unfortunately thats not quite how it works.

      Although most people can get away with claiming certain things the ATO 'benchmarks' your deductions versus your taxable income.

      So for an accountant like myself I may be able to claim some motor vehicle, phone, text books and CA fees up to around 5 to 10% of my taxable income and it will not flag on the system.

      However if you are a call centre worker then the ATO expects that your phone, computer and everything else to be provided by your employer. If you claim 1% or more of your taxable income in deductions then there is a high chance your ratio will go above the benchmark and you will get audited.

      In reality it isn't quite as strict as this, but I feel it needs to be said otherwise people may end up claiming expenses under the belief that they read it was fine to do so here.

  • +6 votes

    My family members have Swiss accounts and bank accounts in Dubai.

    • +3 votes

      The ATO has been looking at foreign held accounts for high wealth indivduals over the last couple of years.

      Essentially they have guessed as to the people they expect to hold foreign assets and have sent out letters asking them to declare their foreign income in low tax countries.

      If any of your family get one of these I would highly recommend that you declare all of the foreign income as the ATO will hammer them if they decide to audit.

      • +1 vote

        Exactly, they are sending the letters to the parents who have their children at the private schools and paying tuition fees from the foreign bank accounts.

    •  

      Do they allow the Aussie to open an account offshore? If yes, how?

      •  

        Easiest to travel there in person, walk into a bank, show them your passport, open an account and put your $1 mil deposit (or $100 whatever the minimum is). It is very common for people to do, especially in Singapore.

        • +1 vote

          Singapore doesn't allow you to do that, I've been there many time and they required work or student pass which I didn't have.

        •  

          @tlam:
          The requirement has changed for most normal day-to-day transaction accounts, but you should still be able to open a managed fund or term deposit type of account. Have a look into Citibank or DBS website for their requirements.

        •  

          @divious:

          I've checked with Citibank Singapore when I was in Singapore and you are able to open certain accounts without requiring a work/student pass if you're not PR. I'm not sure exactly what the minimum deposit was, but I think it was around $5k.

          You do need to show your passport, and you have to do it at the main branch though.

  • +9 votes

    someone told me, don't bother to think too hard how to minimise tax but put your energy to maximise (read: increase) income.

    • +15 votes

      rich people do both :p

    • +10 votes

      Nonsense TAX EFFICIENCY is crucial. The power of compounding over time makes it even more evident.

    • +22 votes

      I strongly agree with this.
      I take care when doing my return to claim all valid deductions, but at the end of that process, if the tax bill is still a large number I am very pleased. It means I am going well financially, and that the country is getting a share of my success to repay all the things the community has gifted me over the years.
      If the tax paid is too small I will worry I'm not earning enough! Or worse, that I may have made an error and could face an audit.

      • +2 votes

        "the country is getting a share of my success to repay all the things the community has gifted me over the years"
        The problem with that is that the more tax you pay the less you get back.

        • +3 votes

          Not sure about this. Do you mean means tested welfare payments? I am thinking more like roads, education, hospitals, policing etc.
          Assuming Gina Reinhart pays more tax than me (maybe a faulty assumption) she gets a huge benefit in personal security in Australia that she would need to pay for in Brazil or Nigeria or other countries where her wealth would make her a target. She also enjoys services like air traffic control for her jet that I have trouble making regular use of.

        • +3 votes

          @mskeggs:
          Gina Reinhart is not your standard taxpayer though. She probably has an army of accountants and lawyers making sure her tax bill is less than mine and yours.
          For "normal" people the more you earn the more tax you pay the less you get back (no FTB, no child care, no private health rebate, no pension, no health card, more Medicare tax). Most things are income or assett tested.

        • +5 votes

          @maxi:
          So those things are mainly means tested welfare.
          If we extend those benefits to higher income earners we need to raise taxes to pay for it. Literally taking out of your pocket with one hand to give it on the other.
          And the overhead of administration makes it more efficient to just have lower taxes (economists call this 'churning').
          I actually think the welfare benefits are already too high.
          Do people earning over $100,000 really need help from the government if they decide to buy private health insurance?
          If I decide my family can afford my wife can stay home to raise kids, should the government really give us more money than if she was working a part time job earning $150 a week?

          I like low taxes, and I like helping needy people. I'm a bit wary when taxes rise and there is spending on people who aren't very needy.

        • +1 vote

          @mskeggs:totally understand where you are coming from. System is designed to help people in need. However, It just doesn't work for everyone. I'm sure it impacts either side.
          In my case when my second child starts day care this year it would mean I have to part 66k in day care fees a year (33k per child) so a $100k salary just cover the PAYG,Medicare, private insurance, and child care fees and some change after CCR. Sad reality is that we feel my partner has no incentive to go to work.

        • +1 vote

          @mskeggs:
          "I like helping needy people"
          I mostly agree with you, but it is the definition of "needy" that does not work in my view. Before being able to qualify for the "needy" status people should have done all they can to make it on their own. And not waste money on unnecessary things that other more conservative people would only buy if they can afford.
          And I refer to pensioners and/or jobless people on welfare wanting to go on holiday or to buy the latest TV, mobile phone or tablet (I know a few) or even worst wasting all their pension on gambling, alcohol or cigarettes and then crying poor.
          Or families that decide that the wife should not work, but look after the kids until they are teenagers. Very well if they wish to do it, but they should not expect any welfare. Welfare should be regarded and considered as a charity to the really needy that are really not able to provide for themselfs. It should not be regarded as an entitlement by people that choose to rely on it for their own convenience, laziness or lifestyle.

          Edit: just read my post and realised that it does not have much to do with the forum on how to legally minimise tax. However I am sure that people would not mind so much paying tax if they knew that it was going to be used fairly and judiciously.

        •  

          @Ace26: Childcare costs $137.5 per child day? And childcare workers are among the lowest paid in the country?

        • +1 vote

          @macrocephalic: child care in some parts of Sunday costs more than $170/day. Luckily I don't work in the city and have tried a cheaper one (not because of the price but proximity to home) and we got what we paid. Happily pay more for better care but as I said above there is no incentive for my partner to work when 2nd child starts care. Still We both would rather work than have one income. At the end of day we feel we are fortunate to have jobs that can our bills. I feel sorry for those who can't do this due to cost.

      • +2 votes

        Best comment ever.
        People should consider what is good for our society in the long run and how we, as individuals will eventually benefit from this.

    • +2 votes

      Couldn't agree more, build income!

  • +5 votes
    • I claim work related expenses (from memory I don't need receipts for combined expenses below $150 e.g. laundry)
    • I claim child care rebate of $7500 a year, last year total cost was around $33k for one child. (not eligible for CCB)

    The first point is interesting? I thought you needed all receipts once your total deductions were over $300.

    $33k for childcare for 1 child??

    • +4 votes

      Agreed, the 50% of phone costs would no doubt push you over the $300 so you would need receipts for everything.

      https://www.ato.gov.au/Tax-professionals/Compliance-for-tax-...

    •  

      Didn't know phone bills counted towards the 150 limit, damn it. Well I suppose I will keep that in my from the coming years. Thanks for pointing this out.
      Yes mate a little over 33000 precisely is what I paid last year for daycare for one child full time and got 7500 back as child care rebate. 2nd child starts day care soon so 2nd income just pays for this expense. :( I wish this was a deductible expense as without this I wouldn't have 2nd income.

      Work has a deal with another child care that is eligible for salary sacrifice but we weren't satisfied with centre.
      Also, considered novated lease on the car we purchased recently but ended up paying cash due to all interest and fringe benefit tax implications.

      • +1 vote

        do you have a spare bedroom in your house? get a nanny. several of my friends have done this. usually overseas uni students. you give them food and board and pay them around $150 a week. they work 4 or 5 days a week and have weekends off (or what ever arrangement you require.

      •  

        I take your point about it being reasonable to make it a deductible expense if both parents work.
        It seems the current arrangements just serve to push up the price of day care. My kids are a bit bigger now, but if I want to put one in after school care, it costs the same for 2 hours that a whole day did for my eldest 15 years ago.

        I suppose, like real estate, it is a marginal cost. People pay up to what they can afford for a house, and a day care that is of good quality and well located for your convenience etc. can largely charge what the market will bear. And that is a lot in the CBD or other places where the second income is correspondingly high.

      •  

        If the second income just pays for day care perhaps the 2nd income earner (wife?) should not work and look after the kids. That way you could also have all investments and bank accounts in her name and pay no tax for income up to $18200.

    •  

      Are you sure about the first point?

      "Diary records of your laundry costs if
      - the amount of your laundry expenses claim is greater than $150, and
      - your total claim for work-related expenses exceeds $300"

      Note the word 'and', does that mean it therefore needs to satisfy the 2 requirements before receipts are required?

      •  

        Everything you mentioned is what I said- 'all receipts required once your total deductions were over $300'

        You can have laundry expenses of $299 and $0 other and not need it.

        •  

          What I was trying to say was,

          If for example you have $130 of laundry, and $1000 of deductions (other than laundry), apart from providing the receipt for that $1000, are you required to provide receipts for the $130 of laundry?

        •  

          @revolushenary:

          you need all receipts once your total deductions are over $300.

          You can't just scam the $130 laundry otherwise everyone will do it if you dont have to prove it.

    • +1 vote

      Oh even better,don't work so you don't pay tax at all :)

    • +4 votes

      Thanks but I'd rather earn more even if it means I pay more tax, just looking for anything I am missing out on.

  • +7 votes

    just for this tax year, get an accountant

    see if there is any difference in what they return vs. what you reckon you can get (as you'll do your usual etax estimate)

    i was very surprised when i first used an accountant as to what more they can find - and it's all legal

    •  

      Tried it a few years in the past and it didn't really make any difference but wouldn't mind trying again.
      Can you give a couple of example of deductions that your account bought up that you didn't know about?

      • +4 votes

        I did this as I was borderline over the MLS threshold one year. The accountant only came up with one extra deduction, claiming vehicle travel expenses between the two different jobs i was working. All that for $350… atleast it kept me under the MLS threshold, saving $1000 in tax!

        To add another item to the list, only keep tax-deductible debt, or recycle/arrange any debt so that the fees and interest charges are deductible.

      • +1 vote

        People expect their accountants to be awesome.

        The fact is that Australian Taxation for Individuals is utter crap; in the sense of tax reductions. 9/10 accountants will give you the same outcome because there is no loopholes.

    • +2 votes

      Don't bothet with accountants, remember ATO goes after you, they don't go after the accountants.

      • +1 vote

        You do know there are some advantages of using a reputable accountant; firstly if you're a high income earner 100k+ less chance of been audited compared to doing it yourself and secondly tax practitioners are given extensions to submit which may be beneficial if you're lazy lol

        •  

          Yep, that's true. ATO state that even if your tax agent makes a mistake, it's still your problem.

        •  

          @gamechanger - your first point is completely wrong.

        •  

          @CheapskateQueen: Its not wrong because high income earners are targeted for audits of course this depends on the complexity of your return. The tax office goes after the $$ and probability of recovering money. The higher you earn the more tax you pay and so the greater scrutiny.

        •  

          @GameChanger:

          mate you said that using an agent reduces your chances of getting audited if you earn 100k+ <- this is utter nonsense and completely inappropriate to be suggesting as fact to people.

          also, the ato can audit you, and does audit, people of all incomes, from the lowest incomes to infinite amounts of income. you can be audited even if you only claim $300 tax deduction in your return.

        • +1 vote

          @CheapskateQueen: I didn't say it was a fact, but statistically if your Accountant is respectable your chances of been audited are lower. The quality accounting firms have a standard and dodgy deductions just won't happen.

        •  

          @GameChanger: Where are the statistics on this?

        •  

          @mooboy: Ring up the ATO or ask someone who has worked there. ATO is hungry for money and they go after the high probabilities of recovering money.

        • +1 vote

          @mooboy:

          there are none. this is fiction.

  • +5 votes

    Income Protection policies paid by yourself are tax deductible.
    Making concessional contributions to superannuation (self-employed) or as an employee via salary sacrifice.

    •  

      Thought of extra contributions into super but it's been a hard road to save due to expenses. but will try to get payroll to contribute some extras soon.

  • +4 votes

    You can not claim a deduction for your surface pro if you paid over $300 for it. You can only depreciate it over a period of time.

    • -4 votes

      correct, if you buy something and its say $450, buy a second item for $10 and ask the store clerk to reduce the 450 to 299, and increase the 10 to 160.

      • +4 votes

        This has to be borderline fraud.. Or at least extremely dishonest lol.

      • +2 votes

        It's not merely that an item is < $300.

        Check out https://www.ato.gov.au/Forms/Guide-to-depreciating-assets-20...

        An example is if you buy a motherboard and graphics card, both less than $300 and claim each in full in your tax. That might be valid if those two components were used separately in two different computers, both of which were used to generate income.

        However, more likely they are purchased as part of a set (e.g. they are combined, with other components (new or used), to build a 'computer'). In this case all the items that form a set would have to be depreciated.

        With tax, everyone keep in mind, ATO provide guidance for individuals about what might be considered a deduction for work-related activities. It is up to you (or your accountant) to take your set of potential deductions, combine it with appropriate compliance (record keeping, thresholds etc), and submit. If you "get away" with dodgy claims, that doesn't make it legitimate or legal. It means that if the ATO audit you within subsequent years, it is up to you to prove your claim was reasonable and valid, and it is at this point where your creative accounting will be thrown out and paybacks and fines may occur.

  • +2 votes

    can only claim Laundry if you have logo on your uniform and its compulsory.

    can claim any items bought in previous 12 months and they are gifted to charity. I do this with dart boards, and clothes.

    you can put $3000 post tax into your partners Super, and u get a 540 tax offset.

    put upto 30k a year into super, to decrease your income. it gets taxed at 15%, earnings for life taxed at 15%, and paid out interest free. No brainier to me, if you can spare it.

    bucket appeals for charity unto $20 no receipt required.

    mileage for trips to conferences, airports, etc for work related expenses.

    if you want a super awesome way to save tax, asks your parents to put your inheritance into a testamentary trust. kids can earn interest unto 18k a year

    • +3 votes

      Never heard of these ones before:
      - can claim any items bought in previous 12 months and they are gifted to charity. I do this with dart boards, and clothes.
      Do you have a link about this?
      - bucket appeals for charity unto $20 no receipt required.
      I know they will give you a receipt over $2 as that is deductible. Are you relying on it being a minor expense that is evidenced by a diary?
      - kids can earn interest unto 18k a year.
      How does the distribution from a trust change the unearned income rule? Under 18s pay high tax on unearned income over $416:
      https://www.ato.gov.au/Individuals/Investing/In-detail/Child...
      I have 4 kids so I would love for this to be true!

      • +2 votes

        Interesting, curious to find more info. Time for some research I suppose.

        •  

          Me too. Looking into testamentary trusts it appears income from such a trust (set up on the death of the contributor via their will) does, or at least did, escape the penalty tax rates for minor's unearned income. Having trouble finding a recent source, though, as google is pointing me to older documents.
          Sadly, neither I nor my parents are planning an imminent death, so we might have to wait a little while to benefit from this!

        •  

          @mskeggs: go see a lawyer, i haven't done it, as its a little insensitive to talk to your parents about, but I have read this before. basically can use your children as pawns. May well be old, seems stupid to me that it is allowed.

          the bucket appeals is word of mouth, i don't claim what i don't pay

          the donating to charity one was one my accountant stated, so i went with it.

          i don't think you claim going between home office and work on tax, as every man and his dog would do this. certainly if you have multiple offices provided by same employer. Most tradies go to the closest job to their house first, to sort this.

          I despise Australian Tax rules that doesn't allow partners to split income.

          Instead of 1 earning 100k a year, its better for them to job share and earn 50k a year, but whats the difference.

        •  

          @unclesnake:
          Thanks. Agreed that one isn't trivial and would take some coordination and planning.
          Can you shed any light on the charity gifts one particularly? I know in the USA they give tax relief for in-kind donations, but I haven't heard of it here.

        • +1 vote

          @mskeggs: I'll ask my wife tomorrow, but basically if you buy clothes mainly and within 12 months give them to st vincents etc, and you keep receipts and get receipts off them you can claim this as an expense. I had a quick google, and can't find anything.

          Pretty irrelevant unless you upgrade your clothes yearly.

          my situation sucks as I pay tonnes of rent, and the interest I earn from the money I have in the bank, which is quite a bit, is just taxed at 40%. Need to buy a house quickly, but interest rates are so low prices are inflated so I dunno whether to wait or not, what do you think?

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