There is never a bad time to start preparing for your next tax return, and these simple steps can help you to avoid a tax shock next year.
No one likes a tax bill coming out of the blue, as it can seriously impact on your finances, and challenge your ability to cope.
Individuals should consider taking the following steps now to ensure the correct amount of tax is being put aside throughout the year.
Let your employer know if you have a study or training support loan, such as a HECS or HELP debt
You must advise your employer if you have a study or training support loan. Your employer will be required to withhold any additional amounts from your wages to cover your compulsory repayment. Let them know anytime these circumstances change – either you start or finish paying for a training loan. The sooner you tell them, the lesser impact it will have on your next return.
Check you are only claiming the tax-free threshold from one employer
You can only claim the tax-free threshold from one employer. Your income may come from employers, government agencies, or work you do as a sole trader. Usually, you claim the tax-free threshold from the payer who pays you the highest salary or wage. If you’re an Australian resident, the first $18,200 you earn is tax-free which is equivalent to earning $350 a week or $700 a fortnight. If you start a second job, you need to make sure your employment forms are filled out correctly and you don’t claim the tax-free threshold from both jobs.
Consider whether the Medicare Levy Surcharge may affect you this financial year (e.g. whether you have the appropriate private health insurance)
If you do not have private hospital cover for yourself and spouse/family and your combined taxable income is nearly reaching the $194,000 combined threshold (as at 1 July 2024) or $97,000 for singles in the future you may be required to pay the extra ‘Medicare levy surcharge (MLS)’. The MLS is an amount you pay on top of the Medicare levy. If you take out an appropriate level of private patient hospital cover for yourself, your spouse and all your dependants, you will not pay the MLS.
The MLS starts at 1% or a minimum of $1,940 in total for yourself and your spouse. Depending on your combined incomes this does go up to 2% of income for Medicare purposes.
We recommend shopping around to see if having private hospital cover is beneficial for you, both cost and function wise. Please note: extras cover (chiro, physio, dental etc) is not required and does not negate the MLS.
Check your income tier is correct for your private health insurance rebate
The private health insurance rebate is income tested. This means that if your income is higher than the relevant income threshold, you may not be eligible to receive a rebate. Your rebate entitlement depends on your family status on 30 June. Different thresholds apply depending on whether you have a single income or a family income.
When you lodge your tax return, the Australian Tax Office (ATO) calculates your income for surcharge purposes and determines your rebate entitlement. Your entitlement is also based on the age of the oldest person covered by the policy.
To calculate your private health insurance rebate, see Private health insurance rebate calculator.
Consider voluntarily entering PAYG instalments and pre-paying tax throughout the year to avoid a large tax bill at tax time for investment or business income
To reduce the shock of a big tax bill, you can choose to pre-pay tax during the year. This mostly applies to those with investment or businesses, and it allows you to spread out your payments.
Pay as you go (PAYG) instalments are regular prepayments of the tax on your business and investment income.
If you receive an:
- activity statement, complete and lodge it to report your PAYG instalment
- instalment notice, you do not need to complete or lodge, unless you wish to vary the amount. You can simply pay the amount shown on the notice.
If you need any assistance with any of the above to avoid a tax shock, current clients can contact us to discuss how we can help. You can email office@ultimate-tax.com.au or call 61443370.
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