Tax advice for singles, couples and families

May 10, 2016 Tax advice for singles, couples and families

It’s human nature to ask “what’s in for me?”. I’m sure that’s the question many of you used to assess the latest federal budget and discover how the proposed changes affected you.

My question is, did you do anything about it? As an accountant and financial adviser I find many people are quick to complain about how changes to our tax system will affect them. For example, they’ll complain about the amount of tax they’re paying but other than the brief moment when they find out if they’re receiving a refund or not at tax time, they generally aren’t motivated to take action. Maybe that inaction is the result of not understanding what action to take. Or not understanding how their individual circumstances affect what they should be doing. Or maybe it’s simply resigning to the fact that just like death, taxes are inevitable and there’s no point fighting it.

If you have children, make sure you don’t accidentally go over a threshold and lose your family payments.

If you have children, make sure you don’t accidentally go over a threshold and lose your family payments. Photo: Louie Douvis

Well, here’s your chance to do something different. This is the opportunity to use your natural “what’s in it for me?” filter and potentially keep some dollars in your wallet at tax time. Following are a few different lifestyles, some common issues within each one and how you can make the most of your situation when it comes to tax.

Singles

Protect yourself

So you’re single and fabulous but that doesn’t mean you want to be fabulous but broke. That’s why it’s important to be smart with your money because at the end of the day, the buck quite literally stops with you. Sure you want to educate yourself and understand what you can claim as a deduction so you’re making the most of your tax situation but you also want to protect the income you have, which means insurance. That’s because while you may not be at the single threshold for private health insurance (currently $90,000) you should have a plan for what may happen if you are injured. This plan may include private health insurance or a pot of cash as well as income protection insurance so you’re able to continue paying rent or your mortgage in case something happens to you while you’re riding your bike on the weekend. The good news is income protection insurance is also tax deductible.

Think about different structures

If you’re investing as a single then you don’t have the luxury of splitting any gains with a partner who may be on a lower income than you. You can, however, still take advantage of lower tax rates by considering investing in alternative structures such as a trust or superannuation, whether self-managed or not. A discretionary family trust will potentially allow you to stream investment income to family members on lower incomes while super already has a lower income tax rate of 15 per cent. That way your hard earned investment gains won’t be added to your taxable income, which is particularly relevant for higher income earners.

Couples (DINKs and those with children)

Understand private health insurance limits

If you’re on a lower taxable income, you may not have prioritised private health insurance because you believed the medicare levy surcharge was never going to apply to you. However, if your new partner is on a higher income and your combined income is more than $180,000 then you’ll be charged an extra 1 per cent if you don’t have cover. On an average wage of $60,000 this means an extra $600 tax for absolutely no benefit – which is madness. So at the very least jump onto a site such as iselect.com.au and look at some type of basic hospital cover. That way you can apply the extra money you are going to have to pay by doing nothing to something that will actually benefit you.

Think about your interest

Many couples make the move once their relationship becomes serious to open a joint account for their savings goals but the problem here is that both partners end up paying tax on the interest. Which may not seem like a problem unless there is a big difference between incomes earned and the tax brackets that respective partners are on. If that’s the case, then instead of having both names on the account you may consider holding the savings in the partner’s name with the lowest taxable income to avoid eroding what little interest you’re earning in tax. Of course, you need to mitigate risk to avoid one partner cleaning out the account, which may include both partners to sign, but if you’re in a committed relationship it’s an option worth exploring.

Families

Understand your benefits

For families with children it’s important to be educated on what benefits you’re potentially entitled to from Human Services, whether that’s Family Tax Benefit, Child Care Benefit or another entitlement. That’s because you may be creeping towards a threshold and it may be worthwhile bringing forward some tax deductions to this financial year in order to stay just below the cut off point. Yes, dealing with Human Services may mean a time investment to determine what those limits are for benefits you’re currently receiving, but if it’s worth dollars to you then it may be worth doing your due diligence. Especially if a little time now spent doing some detective work and then prepaying for that conference means you stay under a threshold and continue receiving benefits for another year.

Of course, knowing what you should do is simply the first step. The important thing to do is take action. Sure, there’s not a whole lot of time left until the end of the financial year but a little time spent now will either save you tax this year or set you up for a much better, cheaper and safer 2017.

Credit – Melissa Browne (Age Correspondent)

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gb November 17, 2017

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