Burning tax questions answered

Tax time is looming and it's the one chance in a year to get something back. Peter Switzer addresses some of your concerns from last week around tax time. If you have a question, write to us here.

What’s the best way to invest my tax return? I am a 32-year-old city girl, and don’t want to waste the neat sum (or whatever little) that might be heading my way. Minx, Sydney.

Peter Switzer answers: You could put it into your super fund as money that goes in and stays there for a long time and really builds up.

I know $18,000 into super by age 30 will roll over to around $500,000 in 35 years! If you want to be able to access the money, you could buy an ETF, which tracks the S&P/ASX 200 index. It effectively gives you 200 stocks and the dividends. When it rises by two per cent, you make two per cent minus a small fee.

When the stock market crashes one day in the future, you keep on buying more and if you look at what happens when you stay in quality stocks through booms and crashes, a thing called compounding works in your favour.

For example, $10,000 invested in 1970 turned into around $450,000 by 2009, according to Vanguard, despite about five market crashes!

You don’t make money out of stocks overnight, but if you buy quality and hang in there, it can be a great result! If you have a home loan, you could put the tax return against your mortgage and that will save you a lot of money as well.

Also read: Top tax myths busted
 
Can you please explain how taxes will be affected in this new Budget and when does it kick in? My gross annual income is $83,000 and I am struggling to do the maths on how much I’ll have to shell out. Alex, QLD.

Peter Switzer answers: As the debt levy only affects people earning more than $180,000, your direct tax bill won’t change.

Petrol prices will go up twice a year because of inflation adjustments, which will raise the tax on fuel, but generally you have been slugged very lightly.

Of course, if you think the GP co-payment is a tax and you go to the doctors regularly, then that could be a little hit.
 
Please could you share some rental property tax strategies. Mark, Melbourne

Peter Switzer answers: If you borrow to buy an investment property, the interest and other costs are deducted from the rent and if this is a loss, then this is deducted off your income and effectively lowers your tax bill.

Happily, you don’t have to wait a year for the tax return as you can inform your paymaster about your expected loss.

By filling out a special ATO form, your regular pay can be adjusted so you get the tax return broken up and effectively paid to you with each pay.

This helps your cash flow and makes the interest repayments easier. If you do borrow for property, invest in a quantity surveyor who knows everything about deductions — even more than many accountants because they will go to the property with their eagle, tax-deduction eyes.

A good book is Margaret Lomas’ 20 Must Ask Questions For Every Property Investor.