Avoid These Tax-Time Pitfalls

Jason · 00:00Welcome to episode 201 of the Numbers Game. I'm Jason. I'm joined by Nick and Marty. Guys, we're on the road to episode 300. I'm excited. What an epic journey. We've had. 2 0 1 Marty Rock and roll. What's happening?

Marty · 00:14Can't believe you're already pumped for 300. Here we go again. It just, it's like the cycle repeats, Nick.

Marty · 00:21It's like we get to one frontier and he is already onto the next one. Unbelievable.

Nick · 00:26Swi's in a thriving business mate, he's never satisfied.

Marty · 00:28He's always just Visionary. Big

Nick · 00:31hairy audacious goals non stop. I like it. Visionary. Let's get to

Jason · 00:36250 mate, and then we'll just talk about 300 after that. You guys always got a way to bring me back down, get me back to reality, and get me talking about the things that, you know, really matter and, you know.

Jason · 00:47It's tax. It's always tax for me, isn't it?

Marty · 00:49I need to know more about this tax business. I think, I think as business owners, you only ever learn about sort of tax implications of working with the tax

Marty · 01:00office on the back end of doing something not quite right where you have to readjust. So if you could enlighten us in some way of things that could go wrong, that, uh, shouldn't be going wrong, that, that would be a help.

Marty · 01:12Have you got anything

Nick · 01:13for us? And things we can do without getting caught.

Marty · 01:17Yes. Yes. That's what our listeners always ask. All right. Well. You

Jason · 01:20know, there's going to be a few things where I say read between the lines and on YouTube, I'll use like a bit of sign language. So you've got to jump onto YouTube to see the things that I'm winking at as I'm describing it.

Jason · 01:31Um, cause you know, when, if you're in the podcast in the car and you can't see me winking, you won't know that I'm telling you what you should be doing when you're doing your tax return. Uh, no guys, um, I do want to talk about, it is tax time. As you were a couple, you know, we're, we're. Could be weeks or months into the tax return time, depending on how fast you book with your account to get your tax return done.

Jason · 01:50And whether you're an individual or a business owner, there's a few things that I, you know, we're going to run through today that will be helpful in understanding, I guess, um, not so much tax hacks or tax

Jason · 02:00myths, but just some of the fundamentals around completing your, your tax return that people get wrong.

Jason · 02:04Um, and I guess it also comes, you know, like no surprise every year, the ATO comes out with a bit of their hit list of, uh, who they're after each year. Now, of course, that's usually people doing the wrong thing. Um, that's who the ATO is after, but they always have a few, uh, high level people that they're going after.

Jason · 02:22And, um, you know, I'll highlight that as we go, but, uh, how's that sound guys? Ready for some fun tax time stories? Start winking. Beautiful mate, ready to rock and roll. So one of the biggest areas the ATO targets at tax time is work related expenses. Now that's pretty bloody generic and they come out every year and they say it.

Jason · 02:40So work related expenses, if you've done your own tax return, it goes at D5 and these are pretty much, you know, The biggest area of claims, you know, in another section, you've got your car, you've got travel, you've got self education, and then everything else gets lumped into this work related expenses kind of dumping ground.

Jason · 02:57So this is the biggest area where people

Jason · 03:00claim, and this is obviously the biggest area then where the mistakes happen. The biggest part of this one where people are getting it wrong is the home office claim. So for this year, the home office, if you want to claim cents per hour, you can just work out using diary entries and you need to have a diary and of basically every day and every hour you've worked from home.

Jason · 03:20You've got to log your diary and then you get the total number of hours and you multiply it by 67 cents. That is the ATO's recommended stock standard version of your home office claim. Now, if you choose not to go for the ATO 0. 67 per hour method, that is then where you need to work out your percentage of mobile phone use for work, your percentage of your home internet use for work, and then if you can be bothered trying to work out the home office running expenses of all of the other gas, electricity, and bills that go into operating the Dedicated home office space of your home office.

Jason · 03:56Now it needs to be a dedicated space, which is why

Jason · 04:00people sit back and go, Oh, I've got to get the floor space of my home office. I've got to calculate all the bills and the kilowattage of my units of things that I'm using at home, like air conditioning. It's all too hard. I've got to figure out my mobile phone, what percentage I'm using now.

Jason · 04:15Nah, I'm just going to do the 67 cents per hour because it's the easier method. But again, the ATO made it hard because you've got to have a diary of every single hour you've worked from home. So, I've powered into that pretty quick, but I don't know if you're picking up the vibe, guys, but the ATO is kind of trying to make it pretty hard for you to claim pretty much anything at the moment.

Marty · 04:33Why is that on the home expenses? Like, they give you the option on it. Is it that you're better off as, uh, uh, on your tax if you actually take down the diary and, and budget everything?

Jason · 04:44Yeah, well, I'll give you the background. Basically during COVID, the ATO shelled out billions back to the public, like to everyday Australians who were running their businesses from home or working their jobs from home.

Jason · 04:58So that we were, it was

Jason · 05:00genuine all day, every day we were home, we were using our phone, our internet, you know, we buying, buying new devices. We had stand up desks, bloody lights, microphones, headphones, anything and everything that you bought to run your home office during COVID. You had a shitload of expenses.

Jason · 05:15So the ATO gave you back. So, you know, you think about it, average rate of tax, either you're the 32 or the 37 cent bracket, every dollar you spent, you get, let's say you're getting 37 percent back. ATO shelled out a shitload. And then what ended up happening was people got used to claiming their home office expenses, even when they went back to the office.

Jason · 05:34People go, they'd rock up to their accountant or they'd be doing their own tax. Like, ah, same as last year, pretty common thing that people do. Same as last year. So from 2020, 2021, 2022, there was a lot of same as last year that kind of got applied to people's tax returns, whether they're doing themselves or going to their accountant and telling their accountant a few porkies.

Jason · 05:53So heading into 23 and then into 24, the ATO kept trying to ramp back. how easy it

Jason · 06:00was to claim home office expenses. They've put extra barriers in place like the formal hours logged in a diary. Um, during COVID they increased the cents per hour. I think it was 80 cents per hour during COVID. Again, to, to try kind of make it easier to just do the cents per hour rather than my phone, my internet, my stationery, my desk, my this, my that, my whatever.

Jason · 06:22So yeah, that's a big one. Um, won't harp on about it too much, but home office expenses are a big D5 general work related area. And if you are working from home a lot, keep your diary, track your records and expenses. And if you're using an accountant, present both options to your accountant to say, I work this many hours from home, but here's all my actual expenses I incurred.

Jason · 06:44Now, if you're working from home and you don't have a place of office to go to and you're renting, this is then where you definitely want to work out your floor space because you can claim a portion of your rent if you've got a dedicated office from home where you work from and you don't have a place that you can go to that, you know, if

Jason · 07:00you, let's say your work don't have a fixed office location in your state, Or capital city where you're working again for those people in previous episodes where we've talked about moving regional, you might still be working for your employer remotely, and you'll be able to claim a chunk of your home office there.

Jason · 07:15The again, the asterisk capital gains tax if you own your own home. Be careful not to claim, you know, the interest on your mortgage and all these different things to do with your home office, because next thing the ATO is going to want capital gains tax when you sell your home. So be careful when it comes to your work related expenses.

Jason · 07:33It's definitely a big one that the ATO are keeping an eye on. Now for others that, you know, it's not just home office, if you're a tradie, you know, you're claiming tools that are under 300 and pop, union fees, um, you know, uh, white cards, tickets, you know, different education, first aid. So again, all of this can really bulk up the D5 claim.

Jason · 07:53Keep your receipts. The other big misconception or urban myth here is that it's okay to use bank statements. If

Jason · 08:00you've gone through your bank statements and totaled up all your expenses. Not good enough. If you, if you're one of the unlucky people to get audited by the ATO, you need physical receipts or digital receipts.

Jason · 08:11You know, it's good if you've got a picture of the receipt in your hands and you've saved it into your digital receipt folder, that's okay too, as long as side by side with your bank statement that matches the digital copy of your receipt. You're going to need that in the event of an audit. If you don't have receipts, it's likely the ATO will just say, we're denying all your deductions.

Jason · 08:29You didn't keep receipts. It is your job as an Australian taxpayer that if you want to claim a tax deduction for anything, you've got to keep a receipt. Is that matched to your understanding, Nick? Or did you think your bank statement might be good enough?

Nick · 08:40Uh, no, I knew the bank statement wasn't good enough.

Nick · 08:43I was under the impression though, if you were keeping, um, and this is not written In law, I was under the impression that if you had your bank statement and maybe a spreadsheet with that outlined where you were, what you spent, you'd

Nick · 09:00probably be okay because the physical receipts it's, it's like, it's, it's difficult, right?

Nick · 09:06And you know, we can sit here and say, Oh, it's easy to take a photo of the receipt. Well, that's right. But you just forget, like you're hopping around from day to day, you're busy. Um, so I was told that if we had a log, a bit of a log book on your expenses, I spent it here with this person. And you could back it up.

Jason · 09:22Yep. Look, there's also materiality. Like if, you know, if you've got a couple of 50 receipts from Officeworks that you've misplaced, and it's on your, your bank statement that you've been to Officeworks and spend a couple of hundred bucks, it's very unlikely that someone's going to waste ATO resources coming down on you, like a ton of crap to deny you of those claims.

Jason · 09:39But obviously it's where these things might get to, you know, can we talked about Dave, the trade in early episode, if he's bought five grand worth of miscellaneous tools under 300 bucks from Bunnings and he's gone through the Bunnings on his bank statement for five grand total. Bang. Let's whack that in there.

Jason · 09:56Cool. I'm going to get a big refund. How do we know some of that wasn't

Jason · 10:00materials or from an ATO point of view, they think maybe that was materials and there's been a job done on the weekend for cash. So that's then, you know, again, having, having receipts for all these tools and stuff becomes really important.

Jason · 10:10There's, there's a huge kind of, um, area of all of the, you know, work related expenses and whatnot. And one of the big ones won't go into it, but motor vehicle expenses, um, I had a client the other day, um, couldn't be bothered keeping a log book. And again, you know, all this paperwork is, is really when you get to tax time going, Oh, 12 weeks, I've got to keep a log book.

Jason · 10:30Jase, look, just claim the cents per kilometer method for a car. And the cents per kilometer method is where you claim 5, 000 kilometers worth of driving. You can do it by diary entries to say that you did 5, 000 Ks and you get a 4, 250 tax deduction. Now that's if you do the cent per kilometre method and you've done 5, 000 Ks.

Jason · 10:50But I said to this client, I'm like, mate, you genuinely bought a car. You carry tools, like every job site that you go to. You would have driven 30, 000

Jason · 11:00Ks in the last 12 months. Depreciation, interest, fuel, rego, repairs, maintenance, the whole shebang. The difference in claims for you worked out to be, I think it was an extra 6, 000 refund.

Jason · 11:14And? If that client recreate, like went back and did a 12 week logbook, I'm like, that homework that I'm giving you to do a 12 week logbook is going to get you 8, 000 in year one. And he was like, whoa, Jace shit. Nobody explained it to me like that. Of course, I'm going to go keep a logbook.

Nick · 11:31Can you claim if you've got a debt on the car?

Nick · 11:35And you're P A Y G, but you're using your car for work. Can you claim a percentage of the repayment?

Jason · 11:39Interest. Interest. You claim the interest and the depreciation, but the depreciation Did you say 100

Nick · 11:43percent of the interest you can claim?

Jason · 11:45Per the logbook percentage. So, you know, most people, their logbooks so it's per your logbook.

Jason · 11:5285 percent for work use. And you've got, you know, you're paying a couple of grand interest. You get to claim 85 percent of the

Jason · 12:00interest on that vehicle loan. Um, and by the time you've done depreciation as well, it kind of works out to be almost like claiming for the whole repayment anyway, because the depreciation is where, where you're getting the big, the big bang for buck on your refund.

Nick · 12:13And is there a standard, like, like how do you, I guess if you came to the logbook, It becomes an easy answer, right?

Jason · 12:20Yep. Yeah. And look at the logbook you do it again for this homework that I set this, uh, this young man who was very excited that he was potentially going to get a, quite a nice refund. It lasts for five years.

Jason · 12:31So, or until you change car or significantly change the type of work you're doing. But if you imagine if you're doing the same job, you're going out every day, driving the new car that you bought. You might as well be getting the claims that you're entitled to. So that's what we talk about with our clients.

Jason · 12:44It's getting back what you're entitled to. Paying the lowest legal amount of tax possible within the rules. So if you're driving your car for work, do the bloody logbook. Claim what you're entitled to and get a nice chunky refund back for the car that you're providing to do your job, to get you

Jason · 13:00from A to B.

Marty · 13:00So Jase, with um, driving to work, you can't, is it true you can't claim the trip to work? Um, you can only claim it from when you're at work going to another workplace. Cause I thought, is that still the same? Cause I remember being told. You know, you, you virtually have to, if you're driving from home to the workplace, you can't claim that.

Marty · 13:22Yep. Good question. Yeah, no, no.

Jason · 13:24So it depends on the circumstances of what you're doing. And I've just lost the demo tax return. I had open that I was playing around with.

Marty · 13:30Cause there'd be a lot of tradies just, uh,

Jason · 13:32well, and this, this is it. This is it Marty. So if you're driving to and from work, um, and you don't have any tools, you don't carry anything, you know, that's private.

Jason · 13:41Like me driving, you know, my first trip to the accounting office from home to work is private. For most people, it's private. However, if you are carrying a significant amount of bulky tools from home to work as part of your job as a trades person, then your trip, your travel carrying

Jason · 14:00those bulky tools means that that is work related because you've already kind of got the tools on hand and you're carrying them.

Jason · 14:05So that's where, you know, Again, if you're doing it, you've got to claim what you're entitled to. Um, but yeah, for the general public though, home to work, work to home is private. So

Marty · 14:15that's really important. And a tool is not a laptop, is it?

Jason · 14:18No, unfortunately not Marty. How heavy is your laptop?

Marty · 14:21I don't know, but I feel like I've got to buy nine of them now, but, uh, but these are the sort of things where you need this professional advice is in regards to, like, you usually hear it in hindsight.

Marty · 14:31So it's great to hear it proactively to then know what you can do and what you can't do. Well, yeah, and look,

Jason · 14:37unfortunately you see a lot of online people going, Oh, I was going to pay an accountant, but Oh, why would I pay 200 bucks when I can do it myself? Hey, all good. If you can do it yourself. But. These are those extra things for, for the right tax payers.

Jason · 14:47It makes sense to use an accountant to get the extra benefit, like to have these conversations, to have someone in your corner. Um, and then beyond that, I mean, some of these conversations then lead to, you know, would you like a, your mortgage reviewed, what's your superannuation doing? And that's

Jason · 15:00where we get together as our relationship with future and innovate, and we make the magic happen with our clients.

Jason · 15:04So it's not just about doing your tax and getting a refund. It's making sure you've got a. you know, a team of people around you that are, you know, caring about you and kicking ass for you. So, um, look, can go into car stuff. It's huge. Don't get me wrong though. You claim the logbook, you claim all the deductions and a couple of years later you sell your Ford Ranger for a profit.

Jason · 15:24You're giving the ATO back some money when you sell it. So keep, just remember that little asterisk there that, you know, it's not all glory riding the gravy train of free refunds from the If you make money when you sell the car. It goes back the other way and the ATO takes a slice of the pie. Moving on from some of the general work related deductions and, uh, you know, car stuff.

Jason · 15:43Look, there's heaps of this. If you've got questions, also ping them into the numbers game podcast on Instagram or find me on LinkedIn or the YouTube channel. You can add some comments to the episode. I'll move on to rental property deductions. I think a lot of our mutual clients between innovate and future have rental properties.

Jason · 15:58Um, This

Jason · 16:00one's a big area where there's a lot of data matching. So, you know, the banks have got the interest on particular home loans that match back to certain properties. But if people have paid down the loan, redrawn the loan, used the money for something else, the interest claim needs to be calculated to be correct for the property that you're claiming interest against.

Jason · 16:19Um, we often say clients will, you know, give a particular interest number. And then once we ask for the bank statements, it turns out that some money was redrawn off that. Loan, for example, it was used for the family holiday and it was, oh yeah, you know, whoops. So, you know, I didn't really calculate that properly.

Jason · 16:35Sorry. So, you know, claiming the right things, the other big ones, repairs and maintenance. There's a big difference between repairs and maintenance, which is, you know, just a general pair and, you know, let's say chucking a whole brand new set of gutters on or replacing the roof or putting a new fence up.

Jason · 16:48So repairs and maintenance is a big issue that the ATO look for. So if you've got a big chunky, uh, repair bill. Keep your seats, make sure you're, uh, got it all in the right spot on the tax return.

Jason · 17:00Um, big one that we've seen, uh, unfortunately for some run into an issue was capital gains tax, uh, for retirees.

Jason · 17:07Um, so if I told you that retirees didn't have to pay tax after they've retired and sold their investment property, would, would you think that was true, Nick or Marty?

Marty · 17:16I'd probably think that, uh, there'd be some benefits to waiting till retirement off if, if, you know, off the top of my head, but it makes sense.

Marty · 17:24It's on property that there'd still be a gain. There'd still be a

Nick · 17:27gain but the Yeah, worked on

Marty · 17:28some way through.

Nick · 17:29You wouldn't have any other income so your taxable income would be only the gain. If you're retired. Yep. No, you work it. Yeah. You should pay less tax.

Jason · 17:40Correct. Definitely less tax. Definitely less tax.

Jason · 17:42Um, there was a bit of, you know, an urban myth going around that if I just wait until retirement, once I'm retired, I can sell my investment property and you know, I shouldn't have any tax issues. But again, um, talk to your professionals, talk to your advisors, because when you sell your property, even if you are retired, if it's been an investment property and it

Jason · 18:00needs capital gains tax to be paid on it, you're still going to be up for capital gains tax.

Jason · 18:04Um, one of the other or, you know, quick other couple of quick wins, uh, for you guys at the moment, one, one area that people who rush to do their tax returns too early, uh, get wrong is the ATO's income matching power. So, um, the ATO has got a lot more AI, a lot more data, um, collection going on in the background, and they've been working on this for years and years and years.

Jason · 18:28And a big one is on your ATO preflow report, there's now the income statements that come through a single touch payroll for your wage job, there's the interest earned on your bank accounts, there's dividends from your, um, fund or whoever's managing your, your shares. So when you get dividends, that goes on your preflow report.

Jason · 18:46And there's also a big line item now that says that, you know, you bought or sold or transacted in cryptocurrency. So there's a lot more data about your income coming through. There's also when you sell a property. So even if you sell your main residence. You have a

Jason · 19:00requirement to put that on your tax return, what you bought it for, what you sold it for, what your gain was.

Jason · 19:08And then you've got to click the button that says back off ATO. This is my main residence. You can't touch it. It's my money. But they are still now reporting the sale of your main residence on your pre fill report with a requirement that you lodged that on your tax return. And I believe, you know, part of the reason why they want to do this is that, you know, if you did, Use your main residence for income producing purposes.

Jason · 19:28That's your opportunity to tick the box and say, actually a small percent of my main residence was income producing or was used as an Airbnb or an office where I claimed for it. Um, and that just gives people the opportunity to, to add that on there. The reason I bring up the, the mistake people make is, you know, just thinking the ATO is going to have all the correct data.

Jason · 19:49So, you know, if it says you earned a hundred dollars interest on ING, you just go tick done, no worries, but realistically all of the data wasn't there. So if the ATO didn't have all the data and you've

Jason · 20:00lodged your tax return, and then more data comes through later, it's going to come back on you. You're going to get done for not declaring all your income.

Jason · 20:07And there's going to be usually penalties and interest charged to the taxpayer for not declaring all of their income at the time they lodged their tax return. And that might be something simple as forgetting that you sold some shares or forgetting the bank account that was earning some interest, um, that you didn't put through.

Jason · 20:22So just as, just as important as that we talked before about getting your tax deductions right, the other side of the token is making sure you're declaring all of your taxable income when you lodge your tax return. And it's easy to do. I personally put my hand up and say, even as an accountant. I've, you know, was getting towards the due date of my tax return.

Jason · 20:41I rushed it, looked at it, went, yep, I'm pretty sure that's everything. And at the last minute I went, damn it. I sold some fringe, weird parcel of shares. two years ago or a year ago and forgot to put it on my tax return. So it's easy to do. And it's a lesson in record keeping. Just keep, keep track of your income, keep track of your expenses and make sure when you get to tax

Jason · 21:00time that it's not an afterthought.

Jason · 21:01If you start to be really deliberate about your income and your expenses, this is where you can really start to get some wins at tax time where it's not scary or not annoying. You're prepared, you're organized, you've got all your ducks lined up and tax time becomes, you know, a much more pleasant time.

Jason · 21:17Um, when you go and see your accountant or push it through yourself.

Marty · 21:20Yeah. If you know the rules, you know how to play it. Right. So you got to know the rules and know what to do to get the benefits. So that's why people like Jason, great to have on your tape chase in regards to audits, uh, from the tax office.

Marty · 21:35Are they a costly thing if like, let's say the genuine punter, um, yeah, a couple of people are working jobs as opposed to a business owner might be turning over one, two million bucks. What's the cost of time that takes up and can you get some form of insurance around it? In order to, cause it sounds like it'd be costly and if you get the accountant involved, then there's going to be a cost to that, no doubt, obviously.

Marty · 21:59So

Marty · 22:00what can we do to protect ourselves in those types of situations?

Jason · 22:03Yeah, great question, Marty. And straight off the bat, yes, there is insurance. It's called audit insurance. Um, so talk to your accountant about that if you don't have audit insurance, but ultimately what that is, is if the, you, the individual or a business gets audited.

Jason · 22:17You don't need to pay the accounting fees for your accountant to have your back during the audit. So, you know, if you did something wrong and the HO comes after you for fines or penalties, the audit insurance doesn't cover you for that. If you've done the wrong thing, you're going to pay the fine. You're going to pay the penalties.

Jason · 22:32If you've claimed over claimed, same thing, you'll pay back the tax. But what audit insurance will stop you from doing is paying your accounting fee. So let's say, I think, you know, most average accounting firms would charge 300 an hour for handling an ATO audit. Um, so, you know, hypothetical, um, business, Dave, Dave, who's the example, usually, um, Dave's trade business, um, carpentry gets audited.

Jason · 22:58And let's say it takes 10

Jason · 23:00hours for me to liaise with the ATO, um, Bring up the bank statements, match it to the receipts or invoices that Dave's provided, compile an argument back to the ATO to show why it's right or what the adjustment will be if it's wrong, and for that 10 hours that would have been 3, 000 that I would have had to have charged Dave, I bill the insurance company, and then I work it out with the ATO on behalf of Dave, whatever that audit was for.

Marty · 23:25So it is, um, yep. What would that cost, Dave, Jace, on that sort of level? Couple hundred bucks. Roughly. Yeah, a couple hundred bucks a year.

Jason · 23:31Look, like, like most insurances, right? You know, you've got car insurance, but most years you don't have a car crash. You know, most people have trauma, TPD, life insurance.

Jason · 23:41Um, you know, they're, they're kind of the bigger end of the must have examples, but then you've got some of the nice to have examples. You might have jewelry insurance. You might have landlord insurance. You might have. You know, just insurance on your property. Um, there's all these different insurances.

Jason · 23:55Some people have phone insurance that if they lose or break their phones, they get a new phone. Audit

Jason · 24:00insurance is another one of these, you know, most, like a lot of business owners and individuals go, nah, look, very small chance I get audited. If I get audited, I'll pay the accounting fees is what it is.

Jason · 24:10And is

Marty · 24:10there a percentage of how many people get audited? Like a percentage that. The tax office hits up every year.

Jason · 24:16I did try to find these numbers and I reckon they deliberately don't share too much data around it. It's a small number. It is small. From a resource point of view, what I could find was something along in the 2023 financial year, there was 20, 000 audits and reviews.

Jason · 24:34And a review is like a pre audit. Um, you know, when you think about the sheer, like scale of how many taxpayers there are in Australia, 20, 000 reviews and audits, it's, it's not a big number, but at the same time, you know, for a bit of peace of mind, maybe the audit insurance is something that you, that you have.

Jason · 24:50And even though you sit back and go, I'm not doing anything wrong. Pay my account. It's all good. It's more. The, the time consuming nature of having to put together everything to go back to the ATO when you are being

Jason · 25:00reviewed or audited, some people go, yeah, I'm just for the sake of 200 bucks or whatever it is, I'm just going to have it there in case I ever need it.

Jason · 25:07Uh, but it's a good question, Marty. And, you know, for, for the audit point of view, I mean, They're looking for discrepancies in your reporting, like what your bank statement says versus what you've lodged. You know, if you've got cash, if you're a cash based business and you didn't report all the cash that you took.

Jason · 25:20And again, this record data matching. Um, so like PayPal, Square, Stripe, all our merchant facilities, all the places that collect money for your business. They told the ATO how much money was collected. So if there's ever a discrepancy between what you. brought in through your bank account and what the ATO knows about the, you know, it's likely that it's going to trigger an audit.

Jason · 25:39And most of the time it's a few years down the track. The ATO has kind of got quite a backlog, um, when it comes to, um, audit, auditing and audit, um, yeah, auditing people to make sure that all this stuff was done right. So good question though, Marty. Very good question.

Marty · 25:52Yeah. And what, what I take away from this discussion is that, um, You know, you, you just can't do the wrong

Marty · 26:00thing.

Marty · 26:00It, it, everything is so measured now, but there's a big benefit in getting the advice to do the right things. So you can expand your opportunity. Everyone's on a level playing field in regards to, you know, what the reporting's doing now. So I think that's where the benefit comes in is getting that advice, knowing what you can claim.

Marty · 26:18Uh, being proactive about it and people no doubt to be leaving money on the table, just with what you've discussed today.

Jason · 26:24Correct. And you know, for, for people who do choose it themselves, it's like, it is a self assessment system. Correct. But it is so complex. Like my team and I learn new stuff every day.

Jason · 26:35So it's like, if you once a year lodge your own tax return and, and. How can you keep up with all the changes that happen every year? Um, it's kind of mind boggling for me, but, um, one other big area that I'll, I'll throw in there and then maybe throw to some open questions. If you've got anything else you want to touch on is around private health insurance, but also, uh, matching up spouses.

Jason · 26:55So. Um, especially as you get younger couples that start to live

Jason · 27:00together and they're renting together and maybe they've got their first joint savings account, they're saving for a house, there's often the conversation around, uh, whether you have a spouse or not. Now, on the tax return, if you do have a spouse, um, and you decide, yes, my partner and I, or my new girlfriend, we've been together for a couple of months, 6 months, 12 months, we live together.

Jason · 27:18Um, we're starting to merge our finances. We'll lodge our tax return together. Um, that'll come down to also the main thing that'll affect realistically is Medicare levy surcharge. Um, so with your combined income as a single, um, you've got a certain threshold for paying Medicare levy surcharge. I'm just going to bring up the new thresholds for this year if I can find them.

Jason · 27:40Um, and while I do that, there we go. All right. So as a single, you can earn 97, 000 or less and not pay Medicare levy surcharge. So if you're earning 85 grand, you don't need to have private health insurance. You're not going to cop the Medicare levy surcharge, but every Australian taxpayer that

Jason · 28:00earns, you know, kind of the average income, you will pay Medicare levy.

Jason · 28:03That's every Australian taxpayer pays Medicare levy. Now, when you and a spouse get together. You get the family threshold of 194, 000. So if you earn combined less than 194, 000, you and your spouse don't need to have private health insurance. Now as a single or family, those two numbers, I said, if you earn more than 97 as a single or more than 194, 000 as a couple, you will need to have private health insurance.

Jason · 28:31If you don't want to pay Medicare levy surcharge. Now Medicare levy surcharge is the additional tax that you cop. If you don't have private health insurance.

Nick · 28:41So if you don't, if you have private health insurance, no matter what, um, you don't pay the Medicare levy? Surcharge. Surcharge.

Jason · 28:53Yep. So even if you have private health insurance, great question.

Jason · 28:55I might've jumped out at the wrong angle here. Even if, so if you're, you're on

Jason · 29:00combined income, you and your partner over 200, 000 and you go and get private health insurance, you will still pay Medicare levy. So every Australian taxpayer contributes to Medicare levy. But because you earned over the threshold and you've got private health, you won't pay the surcharge.

Nick · 29:16So, so the levy is a set fee for everyone or is a percentage base?

Jason · 29:21Medicare levy is a set, set percentage. It's a percentage of your taxable income.

Marty · 29:25Okay, so this is the confusion out there because for me I thought when you took out private health cover you would, um, you wouldn't have to pay the Medicare levy.

Marty · 29:34But that was, that was my initial thought why I took it out in the first place. Because I thought you may as well have private if it's a little bit more so be it. But what you're telling me is that if you're over, well it doesn't matter if you're over a threshold, we all, yeah, you all have to pay it to a certain degree.

Jason · 29:51So unless you're an extreme, unless you're an extremely low income earner and you fall below the threshold for Medicare levy to kick on, the average

Jason · 30:00Australian taxpayer pays 2 percent to Medicare levy, and even if you're an extremely high income earner and you have private health insurance, you will still pay the 2 percent to Medicare levy.

Marty · 30:11And what's the surcharge? Is that based on your income as well? Correct. That'll,

Jason · 30:14that'll go up in a couple of jumps. So once your, I guess your tier one, if you've just gone over, you're copping 1%, so then you're contributing the 2% plus 1%, so you're losing 3% of your taxable income to Medicare. Medicare, every surcharge.

Jason · 30:28Then it goes to 1.25% if you're kind of medium above, and then tier three goes to 1.5%. of the med is Medicare levy surcharge once you're above, and that's for a single above 151, 000 and for a couple above 302, 000. So, and then look one, one more little hot tip, because everyone's getting slammed by this at the moment is you're a high, you're a higher income earner, single or family, and you took out private health insurance, What you can have on there is what's called the Australian

Jason · 31:00government rebate.

Jason · 31:00So the Australian government gives you a rebate for taking out private health insurance, and it makes your private health insurance policy a bit cheaper. Unfortunately, what we're finding is that people that take it out, they call, you know, I select, or one of these agencies that help you pick the right private health insurance to avoid paying Medicare levy surcharge.

Jason · 31:18But what happens is. We've got taxpayers that get like a 700 rebate for their private health insurance during the year. So it makes their monthly payments smaller, but then they get a tax time. And they're like, Oh, Jace, my refund's smaller than I expected. I took out private health insurance. Shouldn't I get a big refund?

Jason · 31:34But what's happened is that 700 rebate they received, they weren't entitled to it. So the ATO is snipping 700 straight back out of their refunded tax time. So again, it's another one of these minefields where private health insurance, Medicare levy, Medicare levy surcharge and Australian government rebates on private health insurance are complex and they're complicated.

Jason · 31:54And then another one where we've unfortunately seen, you know, mum and dad couple or, you

Jason · 32:00know, a couple that had their first baby. Awesome. Such a great time for a family. Decent income earners. They get to tax time. They forgot to put their baby on their private health insurance policy. The question at tax time to avoid paying Medicare levy surcharge was, were you or your entire family covered for private health insurance?

Jason · 32:21Now, if your baby's not on your policy, that is a family member that is not covered for Medicare levy surcharge purposes. And you're now going to cop 1. 5 percent of your taxable income for the time that your baby has become part of your family. So again, hot tip for people out there, you have a baby, get it on your private health insurance policy so that you're not copying Medicare levy surcharge.

Jason · 32:40Cause I'm sure things are as expensive enough as it is without paying more tax for having a child.

Marty · 32:45Geez, you've opened, you've opened up our eyes in regards to some of this, uh, Medicare levy things, but it just shows you, you don't know what you don't know. And it's, um, yeah. And you know, you need to compare that surcharge to what you're paying and.

Marty · 32:59Yeah,

Marty · 33:00lots of intrinsic things that, uh, you really need advice around.

Jason · 33:03A hundred percent. Now look, I've ramped on about, uh, rambled on about quite a lot of tax stuff there, and I do get excited about it. But if you've got any tax myths or tax questions you want to send in, hit us up at the Numbers Game podcast on Instagram or find Nick, Marty and I on LinkedIn.

Jason · 33:17We love to connect with our audience. Thanks again for tuning in to the Numbers Game. It's been great to have you here listening to me ramble on about tax stuff. It gets me so excited until next time.

Marty · 33:27Well, I was in the future advisory offices last week and they were taking calls, giving advice. It's amazing how the phones were running off the hook and no doubt, they'll run off the hook even further now, Jason.

Marty · 33:39Great episode. Game over.

Jason · 33:42This podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice. We recommend before you make any financial decisions, you consult a licensed professional. Individuals on the podcast may hold positions in the companies discussed. <aside> 🍿 **EPISODE LINKS** | **ASSET NAME** | **LINK** | | --- | --- | | Episode Audio | [https://drive.google.com/file/d/1gtgKcfa5svIx7LgPeuUO_OJdTkA_IpMU/view?usp=sharing](https://drive.google.com/file/d/1gtgKcfa5svIx7LgPeuUO_OJdTkA_IpMU/view?usp=sharing) | | Video Snippets | [https://drive.google.com/drive/folders/1VwdTBKCW8zc-LXPqPq4ia0lpletAsKQM?usp=sharing](https://drive.google.com/drive/folders/1VwdTBKCW8zc-LXPqPq4ia0lpletAsKQM?usp=sharing) | | Youtube Link | [https://youtu.be/0QbVqLvsKMc?si=4rHKYsM0bpHccrtc](https://youtu.be/0QbVqLvsKMc?si=4rHKYsM0bpHccrtc) | | Youtube Embed | | | Simplecast Embed | | </aside> ---