Tax Myths

April 11, 2012, 12:30 pm Magdy Marcos Yahoo!7

As a tax Accountant for over 18 years, I thought I’d write an article on Tax Myths. I will be covering three types of myths in this article - deductions, depreciation and salary sacrifice.

Tax Deductions

I have valid work related receipt for $500 shouldn’t I get a full refund of $500?

Well, firstly provided that the item that you purchased is tax deductible, then you would include the full $500 in your tax return as a deduction. This will, however, not result in you receiving $500 from the tax office, but rather a proportion of the amount (depending on your tax bracket).

For example, if your income tax bracket falls in the 30% range, and you were due tax refund prior to the inclusion of the deduction, then you would basically get an additional refundable amount of $150 from the $500 that you have claimed. This is why I always recommend to my clients that if their employer has the option for reimbursement of out of pocket business expenses, it is a better option for them to claim it through work and get the whole amount paid back, rather than claim the deduction.

Salary Sacrifice

If my employer pays for my car expenses, am I better off tax wise?

With the top marginal rate of 46.5% coming into effect on earnings greater than $180,000, just because you are salary sacrificing your car, does not mean that you are actually better off. Before entering into a Salary Sacrifice arrangement, it is highly recommended that you arrange for your payroll department (or even better, your accountant) to do a calculation on your personal circumstances as to whether you are actually better off salary sacrificing, or not.

This is mainly due to Fringe Benefits Tax (FBT) which is a tax that is calculated on benefits, which in simple terms is a tax of 46.5%. From our example mentioned above, if you’re in the marginal tax bracket of 30%, why would you want to pay a higher rate of tax than you otherwise would, had you not been salary sacrificing?

$5,000 tax write-off on Motor Vehicles

I bought a car for $30,000 – can I get a refund of $5,000 back immediately?

In short – no. The May 2011 Budget announced that from 1 July 2012, those classified as Small Business Owners are eligible for an immediate deduction of $5,000 of the total purchase price on NEW vehicles purchased. This amount is not a refund, it simply allows a deduction of $5,000 to be claimed, thereby reducing profit (& paying less tax).

What happens to the remainder, you ask? Well, in keeping with Small Business Entity rules, the balance must be placed in to a Pooled Depreciation Fund. With the first year allowing a 15% depreciating deduction (on top of the immediate $5,000 deduction), and 30% each year following until the asset is "written off."

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