The essential guide for all Australian tax payers – a book review.
Intrigued, I’ve picked this book up from the new release shelf at my local library and was not disappointed.
It’s the latest edition for 2019-20 and is written in simple language making it easy to read. The book covers eight areas of taxation law to help you save money in your everyday life.
The chapters inside the book include You and Your Family, Your Employment, Your Education, Your Investment Property, Your Shares, Your Superannuation, Your Business and the good ol’ Miscellaneous chapter.
Throughout the book are tax tips, facts, pitfalls, bonus resources, FAQs and proposed taxation changes. You’ll also find many examples, graphs and formulas. Even though you’d expect a factual book of this subject area to be dry, it’s actually a comfortable read.
This book doesn’t have the same Aussie humour and colloquialisms as The Barefoot Investor, however it has a similar format for ease of readability.
There’s a total of 272 pages which includes a glossary, and index for the quick finding of a topic.
Part I: You and Your Family
When the book mentioned this chapter included the tax consequences for everything ‘from marriage and children right through to divorce, retirement and ultimately death, it wasn’t joking.
This section has information about:
- income splitting
- dependent tax offsets
- childcare (subsidy & family payment)
- low and middle income tax offsets
- senior and pensioner tax offsets
- other government benefits
- family breakdown
- family trusts
I found it odd that any income derived after the date of death requires a new tax file number for lodging a deceased estate’s tax return. This could happen in scenarios where it takes years to fully administer an estate.
The deceased estate is still taxed at the usual rates, however no medicare levy is payable (which makes sense).
If you’re worried about your assets being abused by ‘beneficiaries who are hopeless with money, suffer from drug addiction, have long-term health problems or are likely to experience a relationship breakdown in the future’ then the book recommends setting up a family or discretionary trust.
Another option is to set up a testamentary trust as way to manage your family’s wealth after your death. This type of trust only comes into effect after your date of death. More details are given in the book.
Tip: If you are worried about certain family members ‘blowing’ all the assets that you worked hard accumulating over the years, the creation of a trust will give you a bit more peace of mind.Adrian Raftery
Part II: Your Employment
Here you’ll find information on:
- car usage
- the home office
- work related deductions
- working a second job
- salary sacrifice
- fringe benefits
- living away from home allowance
I figured out I should have been claiming a deduction for a home office, depreciation of equipment and internet costs. For further information the book recommends going to www.mrtaxman.com.au for a home office expenses calculator.
There are so many other claimable work related expenses such as diaries, professional development, subscriptions and union fees, to name a few.
I’m glad I’ve read the book as I’m about to pay for a Toastmasters membership to improve my public speaking skills. Now I know to keep the receipt and claim it as a work related deduction.
Tip: It is better to get your employer to pay for as many work related expenses as possible rather than claiming them yourself. Based on the marginal tax rates, you only get back a percentage of any expense incurred, not 100 percent of the expense. Avoid leaving yourself out of pocket.Adrian Raftery
Part III: Your Education
It’s said that the biggest investment you can make is in yourself.
If you think you can’t afford to study, check out this tax fact:
Of the 539,000 tax payers that claimed for self-education expenses in 2016-17, 68 percent earned less than $80K for the year.Adrian Raftery
Did you know that if your study relates to your current employment that there’s a huge range of allowable tax deductions. Items such as stationary, photocopying, textbooks, depreciation of a computer and office equipment, to name a few, are deductions.
You’ll also be able to claim a flat rate deduction of 52 cents per hour if you have a room set aside for work-related study purposes. How to calculate this deduction is included in the book.
Other information in the Your Education chapter includes:
- $250 threshold
- self-development courses such as in leadership
- student loans
- Austudy and Abstudy
- school building funds
- education savings plans
Part IV: Your Investment Property
I was surprised to read that almost one in four Australian tax payers own a rental property.
According to the book, rental properties are on the ATOs watch list due to the amount of errors made in tax returns. There’s a higher chance your tax affairs will be audited if you own a rental property.
There are a lot of examples and working out in this chapter to demonstrate correct calculations for:
- negative gearing
- low-value pooling
- repairs and maintenance
- borrowing expenses
- legal expenses
- other rental property deductions
- foreign investment properties
- capital gains tax
- PAYG withholding variation
- having a property genuinely available to rent
Tip: A positively geared property, where the rent received is greater than your property expenses, provides a better financial result after tax than a negatively geared property. Of course you need to pay tax, but I would happily pay $5311 in tax if I knew that my bank account increased by $11300 without any effort.Adrian Raftery
Part V: Your Shares
I was particularly interested in this chapter as dividends from shares is our strategy for reaching financial independence.
‘Your Shares’ focusses on the tax implications of owning a share portfolio and how you can minimise future capital gains tax liabilities.
Tax Fact: If you hold shares, the ATO requires you to keep proper records for tax purposes, including: buy and sell contracts for five years from the date you dispose of your shares; and, dividend statements for five years from the date you lodge your tax return.Adrian Raftery
This chapter goes through:
- dividends both franked and unfranked
- franking credits
- dividend reinvestment plans
- shares owned by low income earners
- borrowing to buy shares
- other share deductions
- capital gains tax on shares
- realising capital losses
- inheriting share portfolios
- share traders vs share investors
- rights and options
- employee share schemes
- share portfolios within self managed superannuation funds
I’m going to have to study this chapter very carefully!
Part VI: Your Superannuation
Superannuation is the largest investment for a lot of Australians, after the family home. Yet, little attention is paid to these nest eggs.
This becomes even more surprising when considering the collective investment in super.
Have a look at these comparisons: the ASX market capitalisation is valued at $1.790 trillion; the combined deposits of all Australian banks is at $2.179 trillion; however, the combined collective money held in superannuation is $2.653 trillion! So why don’t Australians pay more attention to their superannuation?
I haven’t been immune to making mistakes with my superannuation and am now playing catch up to ensure I have a comfortable retirement.
If you’re not taking notice of your own superannuation, it’s time you do. At the moment 9.5% of YOUR MONEY goes every payday into superannuation. The government is increasing this amount by 0.5% each financial year until you’ll be putting 12% of YOUR MONEY into super by 2025-26.
The best thing you can do to increase your nest egg is to become financially literate. In the book, under ‘Your Superannuation’, you’ll find information on:
- contribution limits
- transfer balance cap
- downsizer contribution
- compulsory employer contributions
- salary sacrifice
- division 293 tax
- super co-contributions
- transferring foreign superannuation
- self managed superannuation fund (SMSF)
- buying property within a SMSF
- gearing through a superannuation fund
- accessing your superannuation
- transition to retirement
- account based pensions
- death benefits
- lost or unclaimed superannuation
Tax fact: If you leave your job after age 60, you can claim your superannuation as a lump sum or as an income stream, despite starting a new job.Adrian Raftery
Part VII: Your Business
There’s a lot to consider when running your own business, including the taxation implications and allowable deductions.
You may be wondering if your ventures are classified as a hobby or a business; or, if you should set up as a sole trader, partnership, company or trust. This book answers all those questions and more.
The biggest surprise I gained from this chapter was on the sharing economy. Enterprises such as airbnb or renting out a parking space may result in having to pay capital gains tax on a family home when selling the property later on!
In this section you’ll find:
- choosing the right business structure
- tax obligations
- record keeping
- deferring tax
- trading stock
- bad debt
- home-based businesses
- sharing economy
- employing people
- tax concession and offsets
- selling or closing down
- personal services income
- non-commercial losses
Tax fact: According to the ATO, over 50,000 Australians now derive a substantial source of income online.Adrian Raftery
Part VIII: Miscellaneous
Much like the cutlery draw, here you’ll find the odds and ends all mixed up together. It covers everything from the administrative side of taxation to overseas money to levies.
- overseas income
- getting a great accountant
- lodging your tax return
- amending returns and objecting to assessments
- ATO data matching
- problems paying your tax
- medical expenses tax offset
- zone and overseas forces tax offsets
- tax effective investments
- tax planning as a 365 day process
- just do it (take action)
Did you know?
According to the ATO, the average cost of managing tax affairs claimed by an individual in the 2016-17 financial year was $374.Adrian Raftery
The fee charged by an accountant to manage your tax is a classified as a deduction, and so is the purchase of 101 Ways To Save Money On Your Tax Legally.
In fact, the author claims that not only will you save money on your tax by using the information in the book – the book itself is tax deductible (provided you kept the receipt).
In conclusion, I think this book would be a great reference source to have at home or at work. At any time you have a taxation query, you can go to the index and look up a topic as needed, rather than doing a mad scramble at tax time and realising you’ve got the wrong information.
Please comment below with your favourite tax hack.