At tax time and everybody wants to get their refund. At Optima Partners we have been seeing many clients who need to lodge their individual tax returns. Part of the service we aim to provide to our clients is to educate them about the taxation consequences of their affairs, so we are always happy to answer questions.Some of the most common “tax time questions” that we get include:

 “But I earned more than last year so shouldn’t I get more back?” or “but I earned less than last year so shouldn’t I get more back?” 

These questions are flawed because they aren’t based on anything to do with tax. Your refund (or the amount you have to pay) depends on a number of variables including your taxable income (income less deductible expenses), the amount of PAYG Withholding or PAYG Installment credits you have and any offsets & rebates that might be applicable to you. It can seem complex, but we can break it down for you.

“How do dividends & franking credits work?” 

Companies pay tax at a rate of 27.5% or 30% on their taxable income, depending on the size of the company. Franked dividends are paid out of profits which have already been taxed. To avoid the same money being taxed twice shareholders receive a rebate (franking credit) for the tax already paid by the company on profits distributed as dividends. Tax is then charged on the whole amount (the franked dividend and the franking credit) at the individual’s marginal tax rate.

“What happens if I move out of the house I live in and rent it out?” or “What happens if I move into the house I have rented out?” 

Either of these situations will probably have an effect on the capital gains treatment of your property when you sell it. It could mean that part of any capital gain will need to be taxed and part will not. You might be able to avoid tax completely. You will definitely need professional advice and that is something we can help you with.

“Should I get a depreciation report for my rental property?”

Yes, maybe you should. If your rental property is new enough or is old but has had extensive renovations recently enough then a depreciation report could be very worthwhile for you. Recently, I had a client who had a property rented out from November to the end of the financial year– approximately 8 months of the financial year – but didn’t have a depreciation report. We completed her tax return but I referred her to a quantity surveyor to get a depreciation report. Once we had it we amended her return to include the extra deductible expenses and were able to claim a further refund of over $2,400. The report paid for itself immediately and the fee paid for the report is deductible in her tax return for this year. We can refer you to a quantity surveyor so you can maximize your rental deductions

 “Should I salary sacrifice into my superannuation?”  

It depends on you! There are tax benefits to do so, but what you need to consider is not that. Will you have enough cash to allow you live as you want? Will you be alright with not having access to these funds again until you reach pension age? Might you be better off salary sacrificing for something other than your superannuation? Have you considered the opportunity cost of salary sacrificing?

At Optima Partners we have staff with a wide range of expertise in a number of different fields who will be able to answer all of your questions. We’d love to answer them for you, so if you do have any please contact us to make an appointment.

DANIEL CAUSERANO

SNR ACCOUNTANT – OPTIMA PARTNERS