Legal Ways to Minimise Tax - Discussion

Ace26 on 29/01/2016 - 15:51

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?

Financial

Comments

        • mskeggs on 03/02/2016 - 22:19
          +1

          No possibility of a capital gain for a renter, so the CGT caution doesn't apply to you.

        • kyttiekat on 04/02/2016 - 12:34

          @mskeggs: Thanks! Good to know.

        • [Deactivated] on 09/02/2016 - 09:29

          I doubt this would apply to me then as I am a 100% WFH employee but not business owner.

  • ednamekin on 01/02/2016 - 23:39

    I have a query here more than a comment, but can someone comment on paying off overseas student loans as a tax-claim?

    My thoughts are that on the one hand, this falls into the definition of education expenses where the education is related to your work (and can include fees, stationery, interest) BUT at the same time this is money going overseas to foreign banks / governments.

    I used the ATO eligibility calculator, and going by that questionnaire the expense is claimable.

    • CheapskateQueen on 02/02/2016 - 00:18
      +1

      You're never entitled to claim "the repayment of a student loan". What you may be entitled to is the incurring of the original debt. There's a difference. So when you got the initial invoice during your studies, that's the liability that MAY be deductible but if you're talking about your actual loan repayments (eg making $100 monthly repayments off your loan) they're definitely not deductible.

      Your overseas student expenses are subject to the same deductibility tests. E.g undergrad courses required to qualify you for a job are not deductible. A Master's degree in something unrelated to your current employment is not deductible (eg currently a nurse studying say law is unrelated) the degree/course has to be relayed to improving your skills/knowledge/promotion chances in your current employment and not can't be for opening you up to a new income earning activity. If you weren't employed in Australia while studying overseas,or even living in Australia on a permanent basis, don't think you'd satisfy the deductibility tests

  • rodinthink on 02/02/2016 - 10:06
    +1

    Bernie Sanders be mad like a wizard that his hair will rise up when he read this discussion #FeelTheHair

  • rinco on 02/02/2016 - 18:15

    "I currently rent to live"

    Property is exempt from capital gains tax if it is your primary residency. This is an effective way for you to reduce your tax. By renting you cannot take advantage of this exemption.

    If you were to move into your investment property you could begin taking advantage of the CGT exemption, albeit prorated. But you could only do that legally for reasons other than reducing tax e.g. your landlord kicked you out of your rental property. Or just buy a principal residence next time.

    • CheapskateQueen on 02/02/2016 - 20:19
      +3

      ….

      you can move into your own property whenever you want and for whatever reason you want.

      "move into your investment property to avoid cgt" <- well then you no longer have an investment property which most people want when they own an investment property.

      also, you can rent your "main residence" for up to 6 years at a time without losing the CGT exemption. But you can only have one main residence for the exemption purposes at any time.

      e.g. You live in your house for 2 years. You move out and rent it out for 5 years. You rent elsewhere/live with family during that time and have no other "main residence". You move back into your house. You do not lose the CGT exemption for the 5 years you treated it as an investment property.

      • rinco on 03/02/2016 - 19:54
        -1

        Got some references to back up those claims?

        ATO website states a number of exemption rules. For instance "has not been used to produce assessable income – that is, you've not run a business from it or rented it out" [1], and "If you do not use it to produce income (for example, you leave it vacant, or use it as a holiday home) you can treat the dwelling as your main residence for an unlimited period after you cease living in it." [2]. I suspect you are confusing this with the travelling overseas or temporary job transfer rental rules which state "use your vacated home to produce income, you can choose to treat that home as your main residence for a period of up to six years" [3].

        I am no lawyer. But I still believe moving into your investment property to avoid CGT is most probably illegal. And those who are renting are missing out on a great way to reduce [capital gains] tax.

        [1] https://www.ato.gov.au/General/capital-gains-tax/your-home-a…

        [2] https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…

        [3] https://www.ato.gov.au/General/Capital-gains-tax/In-detail/I…

        • CheapskateQueen on 03/02/2016 - 21:12
          +3

          lol

        • CheapskateQueen on 03/02/2016 - 21:28
          +2

          @CheapskateQueen:
          if anyone's interested re the 6 year cgt exemption

          https://www.ato.gov.au/General/Capital-gains-tax/In-detail/R…

        • rinco on 03/02/2016 - 23:45

          Better still, try the Capital gains tax property exemption tool…

          http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=…

          Good luck getting it to give an exemption on what was initially an investment!

        • jenkemjunkie on 04/02/2016 - 11:09
          +2

          hey mate, cheapskateQueen is correct.

          I'll add some references. I am a lawyer (although not a taxation lawyer) so I find it hard to write this briefly. The courts have a definition for 'main residence' (Case 26/93 and Couch v FCT) although I won't go into detail here.

          In regards to 'absences' which is found under s 118-145 of the ITAA

          If the taxpayer uses the dwelling to produce assessable income, then they may only treat it as their main residence for 6 years: s 118-145(3)

          The six year period restarts every time the dwelling becomes and ceases to be the taxpayer’s main residence: s 118-145(3)

          A main residence is CGT exempt for taxation purposes. You can't have more than 1 main residence so moving around constantly if you own a few houses will be quite impractical.

        • jenkemjunkie on 04/02/2016 - 11:12
          +2

          @rinco:

          Luck isn't needed. It is legislated.

        • rinco on 04/02/2016 - 13:53
          -4

          What I would call tax evasion but you may consider tax avoidance? …

          1. You purchase an investment property so you can deduct stamp duty, conveyance fees, interest, etc. But the truth is that it will become your main residence on the day of settlement.

          2. You have several investment properties, none of which you have lived in. Your strategy is to wait for one of them to go up in value. For the sale you declare that one as your main residence for the purposes of CGT.

        • jenkemjunkie on 04/02/2016 - 18:12

          @rinco:

          Many people move into their investment properties for multitudes of reasons. Buying a property to rent out and then move into later to avoid the multitudes of fees associated with home ownership (yes avoiding stamp duty, mortgage etc) is a valid and legal reason and people can scream these intentions to the high heavens and to the ATO. Sure you may not like it but that's how the government has framed it in the ITA Act. Some people would say that doing what you said in 1. would be a financially astute move. The only way to stop it is to ammend the provision.

          An individual that has multiple properties would be hard pressed to 'move into' each one and claim it as their main residence when they want to sell it. It would be a disastrous strategy and the ATO will make your life hell (And yes this may be construed as tax evasion in this scenario). The courts apply a test of what defines 'main' residence. I could go through the elements of this as outlined in Case 26/93 and Couch v FCT but it would be a very, very long post.

          I think your conflating a scenario where someone owns 1 investment property that they decide to move into and someone that trys to pull some stunt to avoid CGT on their property portfolio. 'Declaring' a main residence and it actually being a main residence would be one of the submissions the ATO would have you going to court for under a '6 year provision'.

          If someone is astute enough to calculate property values in 6 year timespans and then actually move into them. They'd probably be able to make more money elsewhere because that would be a gift in itself.

        • rinco on 04/02/2016 - 21:14
          -2

          @jenkemjunkie:

          I have my doubts that buying a property as an investment and then immediately moving is valid and legal. Seems very shady to me. I don't suppose your name is Saul? I love free legal advice but maybe I'll run this hypothetical past a conveyance/tax lawyer next chance I get.

          And with regards to conflating, you got me. But even if the 2nd example were 1 investment property, and actually being a main residence at some point, the CGT exemption is only partial not full, correct? If so then my original point still stands - the OP is missing out.

        • jenkemjunkie on 04/02/2016 - 22:09

          @rinco:

          I'm just telling you how the courts may interpret the issue, not my personal moral convictions on the state of taxation affairs in Australia.

          I don't own any investment properties, nor would I rort the tax system, lest I lose my practicing certificate and probably be barred from practicing so I wouldn't really be fitting of the saul moniker. Lawyers are probably the most cynical of all when they see what passes as being legal, even if morally it looks kind of shady.

          How about you elaborate why you think there should be a partial exemption? I actually don't mind going through the scenario more structured if I can see what information that has given rise to your feelings on the situation. Don't interpret this as a personal attack or anything

        • CheapskateQueen on 04/02/2016 - 22:50

          Wow.

          some utterly incorrect "views" being argued here.

        • jenkemjunkie on 05/02/2016 - 00:07

          @CheapskateQueen:

          The 6 year provision is even in the second link he provided to dispute your claims, so there's a fair bit of selective reading going on…or his issue keeps changing and becoming more convoluted with 'what ifs'

          If you use the dwelling to produce income (for example, you rent it out or it is available for rent) you can choose to treat it as your main residence for up to six years after you cease living in it. If, as a result of you making this choice, the dwelling is fully exempt, the home first used to produce income rule does not apply.

        • rinco on 05/02/2016 - 09:35

          @jenkemjunkie:

          The first link I posted states that partial exemption is applied in a few circumstances, the third being "you've used part of the property (either the dwelling or the land) to produce assessable income". In Cheapskate's example this would mean that a full CGT exemption does not apply.

          For the OP we could assume they have never lived in their investment property so right will not benefit from any CGT exemption. But I suspect potential tax shadiness so I recommend to tread carefully. After all if it is easy and legal to claim stamp duty deductions on a main residence, wouldn't everyone? And if so what is an acceptable period of time for renting before making the switch… 1 month? a quarter? Do you even need to find a tenant?

          I have purchased several properties both investment and not. Tax deductions against property can be very effective so of course I am interested in the facts. But I find it odd that you would have so much interest when you are neither a tax lawyer nor have any investment properties.

        • jenkemjunkie on 05/02/2016 - 10:11

          @rinco:

          You can move in whenever you want. Probably suitable to do so once the tenants are out. Why are you talking about acceptable time now? Go find the rule that stipulates an acceptable time.

          I owned an apartment, then rented it out when I moved interstate, then sold it. I was exempt from the CGT. Do I now have permission to comment on this thread?

          Edit: and yes usually a tenant is needed to… you know, be able to receive rent payments…but hey I'm not a tax lawyer so I may be wrong

        • CheapskateQueen on 05/02/2016 - 10:49
          +1

          @rinco:

          well i hope you're not deducting your stamp duty or your conveyance fees (as mentioned above) because both those are't deductible! They go to cost base. Might need to go and amend your returns if you did, and while you're at it, ask anyone if it's illegal to move into your own home to save on tax.

          -Yours Sincerely, a lawyer with a Master of Tax, who works in tax, and who is also currently treating my main residence as an investment property per the 6 year rule so that I will still obtain the benefit of the FULL CGT exemption once I move back in. Peace.

        • CheapskateQueen on 05/02/2016 - 10:51
          +1

          @jenkemjunkie:

          mate, don't waste your time! s/he is in their own world

        • rinco on 05/02/2016 - 16:57

          @CheapskateQueen:

          Stamp duty on property no, on mortgage yes. And conveyance fees no, good point. In any case welcome back to the conversation.

          So your strategy appears to take advantage of the 'main residence after the dwelling ceases to be your main residence' rule. And even the ATO state "there is no minimum time a person has to live in a home before it is considered to be their main residence". In the case of the OP and myself, if they/I were to move into the investment property for a short period of time then it effectively creates 6 years of CGT exemption. Usually finding a new tenant takes weeks or even months. I had previously considered this lost rental income. But instead it could be a brief change of residence that later turns into a huge tax exemption. Good to know. Thanks CheapskateQueen!

        • CheapskateQueen on 05/02/2016 - 18:41

          @rinco:

          Well no your understanding about minimum time to live in it is wrong. But I'm done, so happy weekend

  • Thaal Sinestro on 02/02/2016 - 23:17
    -5

    I hope you tax minimizers realize that Australia is going broke? You probably do, but you just don't care.

    People only care about themselves now. Whereas once people worshiped God, now they worship themselves and consider themselves to be elevated above all others. Modern culture is toxic, bringing out the worst in us humans, destroying all community bonds and the sense of mutual obligation.

  • jabroni on 03/02/2016 - 00:23

    so for those that don't have a business but are employed by a company that already takes the tax out before it hits your pocket, does the ATO know what your job title in the company is or what you do?

    what is the best job to choose for claiming more deductions without triggering their software algorithm?

  • garage sale on 03/02/2016 - 01:35

    make yourself trustee, and your family or spouse beneficiaries in a family trust. Put your positive or partially negative geared property in the trust. Distribute the rental income to beneficiaries, as trustee you are liable for the trusts debts, pay the interest and claim it.

    you can turn a positive geared into a negative geared and give some money to non-working family.

    Hobby farm ….. let a primary producer agist on it. Tax laws aren't that you have to be a primary producer, just that the land has to be used for primary production …… so now your daughter can have her pony on the hobby farm, but its tax deductible because it's used for primary production.

    Trick is find a neighbour who is a primary producer.

    • ruriruri on 04/02/2016 - 12:42

      regarding your advise on the family trust. It is different to what my accountant told me. Can any experts clarify/confirm? Thanks

      • jenkemjunkie on 04/02/2016 - 21:24

        It depends how you want the trust set up for your needs, that's why you want to see a tax lawyer for advice as it depends on your 'life situation'… it is highly frowned upon and quite possible considered evasive if you start a trust a certain way and then try to change the structure of the trust to minimise your tax, because you figured out a better way to minimise the tax

  • CCDee on 03/02/2016 - 09:36

    I am starting my grad job as a Tax Consultant soon, thanks

  • cashless on 03/02/2016 - 12:11

    Salary sacrifice

  • wlz2000 on 03/02/2016 - 13:41

    can you claim oversea flight/accommodation fees if you are going to receive professional training oversea?

    do you need to prove it's necessary?

    • Overtime2000 on 03/02/2016 - 14:37

      Of course its claimable

      how on earth can they prove it is unnecessary?

    • CheapskateQueen on 04/02/2016 - 22:46

      study expenses aren't a question of necessity. it's about whether it will improve your skills/abilities/promotion prospects.

      if you fly solely to do training, and the training is deductible, your expenses are deductible. but if you fly for mixed study and mixed holiday, your flights arent deductible and only the accommodation relating to study is deductible.

      eg. if your course is 5 days and you fly OS for 5-6 days only and come back then your flight & accommodation is deductible. if your course is 3 days but you go for 10 days so you can holiday as well, your flights aren't deductible and only 3 nights hotel are deductible. this is of course assuming your "training" is related to your work and is itself deductible. i.e. if your course isn't closely related enough so that the course fees aren't deductible (or wouldn't be deductible if you had to pay for it), then none of the travel expenses are deductible

      • wlz2000 on 05/02/2016 - 10:16

        interesting, i would thought flight ticket would be deductible on based on the percentage of studies days / total days. thanks for the clarification

        found the source from ATO
        https://www.ato.gov.au/Individuals/Income-and-deductions/In-…

      • wlz2000 on 05/02/2016 - 10:29

        as a follow-up question, what format of tax invoice in foreign currency is acceptable? tried to read ato website but it seemed hard to comprehend.

        • CheapskateQueen on 05/02/2016 - 10:49

          What do you mean by format?

          Invoices still need to be formal invoice issued by the supplier with identifying information including date, location, description of service etc If it looks a little iffy, they may ask for proof of actual payment as well. Invoices have to be in English. The ATO may choose to accept a certified translation but they'll probably look at all the facts.

          This is a hard one because the ATO can't predict or mandate how other countries issue invoices, but they also need to ensure a certain level of due diligence to ensure the expense is legit. So there may be a degree of discretion exercised depending on each case.

        • wlz2000 on 05/02/2016 - 11:43

          @CheapskateQueen:

          thanks for your reply. i meant if the tax invoice is in other foreign language other than english, would it need to be certified like foreign documents?

        • CheapskateQueen on 05/02/2016 - 18:42

          @wlz2000:

          My reply above still applies re English.

          And you're welcome

  • dealover on 03/02/2016 - 18:20

    If your job involves on the road, you can claim expense on your car but you will need a logbook for continuous 12 weeks.

  • SevenSmurfs on 04/02/2016 - 17:05

    Run an eBay business - wondering whether it would be possible to claim apple iwatch as a say 70% work expense (used for notifications, replying to msgs etc)

    My guess would be that it would be possible aka similar to a work phone?

  • chumlee on 05/02/2016 - 18:46
    +1

    Be interesting to see the outcome of this one. Hoping to make a similar deduction if all legit.

    http://www.afr.com/news/policy/tax/meet-the-man-who-tried-to…

  • CheapskateQueen on 05/02/2016 - 21:47

    some entertaining reading on what NOT to claim in your tax return as deductions http://www.afr.com/news/policy/tax/meet-the-man-who-tried-to…

  • [Deactivated] on 08/02/2016 - 15:13

    become a church and pay no tax

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