Your Q and A
Is it still only $416 that kids can earn before they get taxed at 48.5%?
Lucy, Auburn
You are half correct Lucy.Yes minors under the age of 18 are taxed at the highest marginal tax rate (now 45%) for passive income over $416 per annum. However they are also eligible to receive the low income tax rebate.
With the rebate being $1,350 for the 2009/10 tax year, what this means is that the effective tax free threshold for minors is really $3000. This is because the low income tax offset offsets the tax payable (at 45%) on income less than $3,000.
With savings accounts paying around 5% currently, you shouldn’t have any more than $60,000 in a child's bank account.
It is important to note that a child must quote that TFN if interest is going to be more than $420 per annum otherwise the investment body will withhold PAYG tax at 46.5%. A child can get a tax file number (TFN) at any age.
I read that there will be voluntary tax returns in the future. Do you recommend that we accept what the taxman is saying is your refund?
Sandi‐Lee, Alice Springs
Does anyone trust the taxman? Do you really think the ATO will be Father Christmas when granting refunds?
Of course not.
Voluntary tax returns won't be far away as it is one of the key recommendations of the Henry Tax Review.
It is proposed that taxpayers will receive a one page summary from the ATO which will show your income together with a standard deduction for work expenses.
If you are happy with the ATO's calculation they you simply tick a box and get your refund. Sounds good in theory for those with basic tax returns and don’t want the hassle of filling out a return.
But those taxpayers who spend more than the average for work related expenses (such as car, study, home office, internet, phone, subscriptions and conferences) then you will miss out.
Returns with business income, rental property or capital gains will still require help from an accountant.
I haven't paid tax for about 14 years and to be honest, I just keep avoiding it because it all seems too hard now. If the tax man catches up with me will I be fined, black-listed or jailed? I've heard so many scare stories.
Simone, Melbourne
What are you doing Simone??? Go and see an accountant this week and get those tax returns sorted out. You are costing yourself money!
Assuming that you have been fully employed over the past 14 years, you are probably missing out on some nice big refunds. In fact, you have probably been providing the Australian Taxation Office (ATO) an interest free loan for all these years. If you are due a refund, then you won’t be fined or jailed.
I had a client not lodge his return for 33 years and he got back over $70,000 and he immediately retired. Imagine what you could do with your refund ... never know you might be able to afford a deposit on a home, retire or go on a nice overseas trip. Now there is an incentive for you!!
It always surprises me how many people are afraid to lodge their tax returns. No matter how hard you try, the obligation to lodge your income tax return will not go away and will probably only end up in sleepless nights for you.
Despite what you may think, a visit to an accountant is not as scary as a visit to the dentist - they may look scary but they really aren't. Getting a nice refund has to be less painful than having a tooth pulled.
I'm struggling to pay my mortgage. Should I try to start paying it off weekly rather than monthly. I’ve heard it can help reduce the amount automatically but I really don't understand how.
Bea, Oatlands Park.
I definitely recommend this strategy of paying weekly rather than monthly. Did you know that you could reduce a 30 year home loan by around 8 years simply by paying off your mortgage weekly (or fortnightly) rather than on a monthly basis?
I know it has been hard in recent times to pay your mortgage with rising interest rates but this simple strategy will help you in the long run Bea. Simply divide your monthly payment by 4 to work out your weekly payment and notify your bank to take out this amount weekly. You will get used to your weekly budget having a regular amount taken out.
Let's assume that your monthly repayments are currently $2,000. After 12 months you would have paid $24,000 to the bank (being $2,000 x 12). Now if you paid change your payments to weekly, you are paying one quarter of your monthly payment (ie $500) per week. You would now be paying $26,000 per year (being 52 payments of $500). So what you are effectively doing is making 4 extra repayments a year.
These extra repayments help reduce your loan faster and thus decreases the interest calculated on your mortgage each month, which is particularly important when the interest rate rises. As the interest is lower, you are taking a bigger chunk off the principal, which means that your loan gets paid sooner.
With talk that interest rates may fall inside the year, hopefully the pain will subside a little for you sooner rather later.