The magic form to get your tax refund in every pay
If it’s attracted the attention of the Governor of the Reserve Bank of Australia, money may well feel tight for you right now.
Reserve Bank Governor Philip Lowe has spoken a couple of times recently about wages stagnation — and not falling property prices — as posing the real risk to the economy.
By electing to reduce the amount of Pay As You Go tax you pay, it magically cuts the amount deducted from each and every pay.Credit:Virginia Star
Our spending, he says, has outpaced our earning.
Mind you, he’s optimistic we’ll all be enjoying pay rises before too long.
Last week, he told a business summit held by the Australian Financial Review: "A further tightening of the labour market is expected to see a gradual increase in wages growth and faster income growth."
Goodo. In the meantime, let’s look at some simple ways to game the tax system to engineer your own, immediate bottom-line boost.
Tax hack 1: Get your refund in every pay
Are you one of those people who relishes a big, fat refund at the end of a long financially challenging year?
I’ve never understood that… you’re simply letting the government keep your money, as opposed to using it to, say, cut the interest you’ll ultimately pay on your mortgage.
Before you do another thing, go to ato.gov.au and fill out what’s called a withholding variation form.
By electing to reduce the amount of Pay As You Go tax you pay, it magically cuts the amount deducted from each and every pay and adds it to the salary that hits your bank account.
You get your tax refund spread throughout the year, for you to put to far better use than the tax office.
Get your skates on though, as the last date for lodgment is April 30 of the application year.
Doing this by what’s called an e-variation should see your salary swell within 28 days.
What caveats, you ask? Be careful not to reduce the amount of tax you pay by too much, otherwise you’ll face an big Australian Taxation Office bill at the end of the tax year.
And if you think – for you – this is a recipe to squander the money, when you could instead work compounding to make or save interest, then as you were.
Tax hack 2: Avoid the Medicare Levy Surcharge
This is a big one and eminently avoidable.
If you’ve been caught before by this tax penalty for not having private medical insurance, you may as well get something for nothing, right?
You might even be able to pick up the requisite basic hospital cover for less than the penalty you’ll otherwise pay.
Go to the excellent and independent privatehealth.gov.au to see the most competitive deals in your state and circumstance.
The no-net-cost budget you are working with is 1 per cent of your taxable income, if you are single and earn between $90,001 and $105,000, and the same if you’re in a family that together makes between $180,001 and $210,000.
It’s 1.25 per cent for any amount above that but moves up to 1.5 per cent once you hit $140,001 for singles and $280,001 for families (kids increase these numbers slightly).
Remember, too, that most people are eligible for a tax rebate for private health premiums.
Only when you reach that last income threshold, above, does it zero out. You can even get this as a reduction in the premiums you pay, minimising the hit to your hip-pocket.
Tax hack 3: Save money to get free money
I’m going to lump all these together because, yes, you have to outlay to get the "pay"… but future you will be so very grateful you did.
Here we are talking about the generous tax perks still available for contributing extra into super.
As a family, you should certainly be paying in for any spouse on a career-for-carer temporary swap.
One thousand dollars will net them a free, up-to $500 co-contribution in their fund.
Once they are earning again in some capacity, it phases out at a $52,697 salary.
But $3000 will snare the "working" party in the couple (ignoring the fact staying home with children is the hardest work ever!) a sweet $540 tax offset.
The stay-at-home spouse does not have to be earning a thing to qualify but can make up to $40,000 before the tax "discount" zeroes out.
Finally, let’s talk salary sacrifice.
Could there be worse branding for something that’s actually a powerful future fix?
Whatever you pay in comes out before tax, so you get more for less.
See the amazing effects at the super calculator and, if you can manage it, talk to your employer today.
Nicole Pedersen-McKinnon delivers Smart Money Start in schools and her free 5-week S.M.A.R.T. Money Makeover videos online. themoneymentorway.com
Financial educator, commentator and author, as well as a qualified financial adviser and stockbroker.