Tax policies are rarely static laws. The Australian government regularly makes changes and adjustments to tax laws in response to the economic environment or political temperatures. The main sectors of tax policy that undergo regular change are tax deductions, income brackets, and tax breaks.
Since Australia operates on a progressive tax policy (where the higher your income, the higher your tax), there tend to be many different components of tax laws that individuals need to adhere to. In addition, tax reform can significantly influence how much tax you pay after the reforms are implemented.
If you're used to benefitting from a particular tax deduction, you could find yourself paying more tax after the deduction is revised or eliminated. To make sure you're not caught off guard, consider the following preparation tips before a tax reform.
Take advantage of current deductions
In situations where you're expecting a particular deduction that you're enjoying to be eliminated or reduced through a reform, it's a good idea to essentially "accelerate" those deductions into the current tax year.
For example, if you were originally planning on taking advantage of a state income tax break, a property tax exemption, or a tax reduction for a medical expense, make sure those are recognised within the current tax year rather than pushing them forward to subsequent years. This is because the deduction may be reformed and you could end up losing the credit that you were planning on obtaining.
Recognise your tax losses early
Are you expecting an upcoming tax reform to affect business or personal losses? It might be a good idea to recognise losses in the current year and before the tax reforms are implemented. For example, capital gains taxes often allow property owners to offset losses that they may make in real estate.
In cases where the capital gains tax for losses is anticipated to be adjusted downwards, you may want to claim these losses within the current tax year to avoid a heavier tax bill.
Plan your timing for giving gifts and charitable contributions
The Australian tax office typically recognises gifts and charitable contributions and they reward the givers with tax deductions from their income. From time to time, the amount of the tax deduction can be adjusted upwards or downwards. If the deduction is expected to be adjusted downwards (where you will enjoy a lower tax deduction amount for gifts and contributions), it may be a good idea to time these contributions for the current tax year before amounts are reduced.
For more information, contact a tax agent.