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Published on: Saturday, June 27, 2009

Believe it or not but there seems to be around 280,000 people in this country who don’t want to accept a $900 plus gift from the Government! Mind you, I reckon the number who have a philosophical aversion to ‘free money’ would be close to zero, so the main reason would be boofheaded ignorance.

And while this story is a powerful tax lesson in its own right, there actually is a much bigger one that most of us should take on board.

Check again

Let’s examine the smaller take home tax message first.

The tax office has put out a press release that some 280,000 Aussies need to get their 2007-08 tax returns in by June 30 this year if they want to receive the Federal Government’s stimulus package handouts. These work off the tax office using the tax returns for last financial year to see who qualifies for the payments. In case you are wondering, this is how some recently deceased Aussies were sent the payments. They had paid their taxes, done their returns and therefore were sent their cheques. It gives a whole new take on the old line that there are only two certainties in life — death and taxes.

Wake up!

The key warning is that if you have not received a cheque from the Government, and you thought you should have, it might be because you have not filed last year’s tax return. And in case you don’t know, if you don’t get it in by June 30 you will miss out altogether.

This case of bone ignorance should be a wake up call for lots of Aussies that there probably is a virtual swag of tax tips and strategies out there that could save you money and even make you money. Yes, this inside information could make you money.

Negative gearing

Consider the negative gearing strategy as a case in point. Smart people who pay lots of tax can use borrowed funds to buy assets such as property and shares, which can deliver capital gain over time. This is money going to your bottom line and the taxman effectively makes it easier for you to do it.

With negative gearing, which means borrowing and making a loss on the deal, this loss is deducted from other income you earn and this reduces your overall tax bill and can result in a tax refund.

For those who know the tax rules, they can get this refund paid out with each pay packet so you actually pay less tax and this helps you fund the interest repayments effectively reducing the impost of the loss.

(The loss comes about because, say, the rent on the property is less than the interest repayments and other costs.)

Some might say, but hang on isn’t there capital gains tax to pay? The answer is yes, but if the investor did not own a house, they could move in to the property only for a short time, and under the tax rules, the capital gains tax meter would go back to zero. The vital time period is six years.

Super tax tip

Another example tax tip is the superannuation co-contribution, which means a working partner could throw in a $1,000 into their currently non-working partner’s super fund and the Government can contribute up to $1,500.

This not only gives you money but the invested money going into super will roll over and in time will grow in value.

Become an expert

These are only the tip of the iceberg and with only two weeks to go if you are a tax-challenged Aussie, you should be visiting www.ato.gov.au to see if the tax office website can help you.

You should pour over the tax pack, which is available in hardcopy as well as online and there should be one goal — to turn yourself into a tailor made tax expert.

Of course, if you don’t have confidence in your own research and tax comprehension powers, then seek out an accountant or a tax agent. It’s ideal if you get a referral from someone you trust and you consider is pretty smart.

Case study

This is crucial research and should be done as quickly as possible. To ram home my point, have a look at this little example, which underlines the cost of ignorance.

Imagine a person aged 17 who is new to the workforce and tax, and is someone who has not filed a tax return, which explains why he has not received the $900 Government handout.

Let’s call it $1,000 and assume the money is thrown into a super fund, which averages 8% return after tax for the ensuing 45 years this young fellow will work.

This $1,000 would grow into a $16,000 loss by retirement time. It does not bear thinking about if he made this mistake for over 45 years!

Tough love

Millions of Australians are poorer than they need to be because they are too lousy or lazy to do anything about it. I know this is tough love but someone who cares has to dish it up and I am happy to be that ‘lover’.


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