The End of Financial Year (EOFY) brings with it some necessary evils… such as having to do your tax return, and spending all your money at the stocktake sales.
Okay, we jest. But there is a lot going on during this time of year.
The Australian financial year runs from 1 July and ends the next year on 30 June. Once it’s over, individuals have three months to submit their yearly tax returns.
What’s a tax return?
A tax return is a record of how much money a person or business has earned during the financial year, and what, if any, deductions they’re claiming.
Tax returns get submitted to the Australian Tax Office (ATO). The ATO works out how much tax each person and business has paid to the government, and compares it to what they’re deducting. The ATO can then issue refunds in the form of a tax return, or send a bill if it decides you owe more tax.
What’s a tax deduction?
When you or your business spends money to try to make more money, you can often claim it as a tax deduction. For example, common work expenses include dry cleaning (if you have to wear clothing that’s specific to your occupation ) or petrol (if you have to drive your car somewhere on a work trip). These are expenses related to your income that you otherwise may not have incurred.
How can you prepare for the new financial year?
The EOFY period is a good time to prepare for the next financial year. You can get a head start on tax time, as well as make some decisions about how you want the next year to go. Here are some things to think about. Remember to ask for expert advice before making any decisions.
1. Get a picture of your finances
Now’s as good a time as any to get organised. Comparing your assets, such as savings and investments, with your liabilities will give you a picture of your net worth and help you understand how you’re tracking.
Make a list of all the bank accounts and loans you have, including their balances. Don’t forget to add any investment accounts you have, such as Spaceship Voyager, too.
Other sources of income you may have include any lump sums or termination payments, rental property, interest, dividends, profit you’ve made from crypto and other capital gains.
Then, take stock of your liabilities. These include any debts you’re paying, such as a student loan or car loan, and any lines of credit or Buy Now, Pay Later accounts. If your net worth’s not where you want it to be, here are some steps you can take toward changing it.
The EOFY period is also a great time to review any regularly occurring expenses you may have. Gym memberships, car rego, or music festivals you regularly attend all apply here. Making note of these can help you plan for your expenses over the coming year.
2. Research your tax deductions
The ATO has a list of deductions you may be able to claim on your tax return, depending on your occupation. If you use an accountant you should be able to access their advice, but if you’re doing your own tax you’ll need to understand what you can claim.
Depending on your occupation, some deductions you may be able to claim include self-education and professional development, tax or accountant fees, donations, and home office expenses. In the wake of COVID-19, the ATO released new guidelines for deductions you can claim from working from home.
3. Plan how you’ll use your tax refund
The average Australian tax refund is $2,500 and for many of us, this is the largest windfall we’ll receive during the year. So it can be worth putting some thought into how you’ll make your tax refund work for you. Take a look at six ways you can use your tax refund for some ideas.
4. Set goals for the new year
Fast forward to a year from now. What do you hope you’ll have achieved through the coming 12 months? We humbly suggest:
1. Setting an audacious goal.
2. Breaking it down into smaller SMART goals.
3. Figuring out the monthly, weekly and daily milestones that will get you there.
For example, let’s imagine your goal is to travel around Australia for a month. You want to do it in nine months and you decide you’ll need $5,000 to have a really good trip. You work out you’ll need to save an average of $560 per month to get you there, or roughly $140 per week.
Does this still feel achievable? What might you have to start or stop doing to get you there? Do you need to start bringing your lunch from home, or making cheaper entertainment choices? Or do you need to shorten your trip, or postpone your departure date to give you more time to save?
5. Schedule regular check-ins
A great way to stay on top of your finances is to keep an eye on them, so you can plan for the ups and downs of life. Scheduling a regular appointment with yourself, when you’ll review your income, budget, what you’ve spent money on and how you’re progressing toward your goals, can help you keep on track with your finances and have a really great year.
So how will you prepare for the new financial year?
