‘Overlooked’ $2000 tax deduction Aussies miss on tax return

There’s a common expense that Aussies don’t realise they can add to their tax return – losing them an average deduction of $1936.

In Australia we pay a lot of tax, but every dollar of tax you can save is an extra dollar you can save, invest, or spend on enjoying your lifestyle more.

For most people, tax is one of the biggest opportunities to get ahead faster. But the rules are confusing and complicated and it’s easy to end up overwhelmed. This leads most people to bury their heads in the sand or put tax in the too hard basket.

But when you get your tax planning and strategy right, you get to hold onto more of your income and accelerate your money progress. It can be complicated, but there are a few key areas you should be across to nail your tax planning before EOFY.

Understand your potential deductions

Every dollar of tax deductions you accumulate will cut your tax bill, and you don’t want to leave money on the table.

You can deduct work related expenses, fees around investing, professional investment and tax advice, self education expenses, and potentially a heap more depending on your occupation and what investments you currently have in place.

The most overlooked tax deductions I see are around self education and professional development, which can often run into thousands of dollars of tax deductions every year. Recent data has shown 30 per cent of Aussies spend an average of $1936 on professional education each year.

For education expenses, the Australian Taxation Office (ATO) has clarified that self education expenses are deductible when they maintain or improve knowledge required for your employment or are likley to result in increasing your income from your current employment.

You can also generally deduct the cost of content subscriptions that help with your work, like newspaper or online news site subscriptions. This means that along with formal study, any short courses, online training, or other content-based education can help to cut your tax bill.

The ATO website has some really helpful information on what tax deductions you can claim and what you can’t – educating yourself will pay off here.

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The ATO website has a list of work-related expenses and deductions. Picture: ATO.

Worth calling out that it’s critical you keep good records of your deductible expenses if you want to claim them. I talk to too many people who aren’t on top of their record keeping through the tax year, only to realise when doing their tax returns that they don’t have the information they need to claim their deductions.

Setting up a digital tax shoebox and staying on top of your record keeping through the financial year will make your life easier at tax time and mean you can claim everything you’re entitled to.

Bring forward (necessary) purchases

If you’re spending on things that are deductible, incurring the expense in June compared to July will mean you receive the tax benefits a full year earlier saving you tax dollars that can be put to work building your wealth (or maybe just funding your next holiday).

Spending on something that’s tax deductible will save you tax, and it makes a lot of sense to bring forward your tax deductible spending before EOFY, but it does still cost you money even after the tax saving. This means spending before EOFY will only put you in a better position if these expenses are things you really need.

Sell investments in a loss position

When you sell an investment for less than you paid for it you lock in a ‘capital loss’ that’s reported to the ATO. These losses then offset any capital gains you have in the same financial year. Because investment markets are currently down this creates an opportunity to refresh your investment portfolio and save tax dollars in the process.

It might be worth offloading some failing investments before the end of the financial year. Picture: Scott Graham/Unsplash

If you’ve made investment gains this financial year and have investments in a loss position, selling them before EOFY will reduce your investment tax bill when you submit your return.

To assess if this will benefit you, look at your investments through the current financial year and confirm any gains you’ve made. Then look at any investments you have in a loss position with a view to balancing out your gains.

Keep in mind that you can’t repurchase the same shares once you’ve sold them at a loss as this is considered a ‘wash sale’ and has consequences.

Also be aware that investment losses don’t help to reduce non-investment income, so unfortunately they can’t reduce tax on your employment income – but given the ups and downs we’ve seen in investment markets over the current financial year, selling down investments at a loss might make a big difference to your tax position.

Prepay deductible interest

When you borrow money for investment purposes, the interest costs on this debt is tax deductible in the financial year interest costs are paid. This means if you prepay your interest costs before the EOFY, you can boost your deductions and increase your tax return.

Get good professional advice

Most people know that your accountants fees are deductible, but don’t realise that fees paid for investment and strategic tax advice are also generally tax deductible. This sort of advice can help you build your investments and wealth faster, and getting a deduction for the cost of the advice amplifies the benefit to you.

The wrap

Most people don’t think too much about their tax return until after the financial year is finished, but thinking ahead here creates an opportunity to make some smart moves this financial year and benefit you sooner.

Every dollar of tax you save creates extra money that can be put to work building your wealth, which then compounds every single year. Invest the time to get this right and it will pay off for years into the future.

Ben Nash is a finance expert commentator, podcaster, financial advisor and founder of Pivot Wealth, and Author of the Amazon Best Selling Book ‘Get Unstuck: Your guide to creating a life not limited by money’.

Ben has just launched a series of free online money education events to help you get on the front financial foot. You can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.