Tax Time

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Tony Nagle likens the relationship you should have with your accountant to the one you have with your family doctor. 'They should know where you are heading and what you want to do.' The only thing is, to me he looks a bit more like a house painter who has scrubbed up for our interview than he does a doctor. Or even an accountant.

But appearances are deceiving. Tony is a highly regarded accountant who provides financial and taxation services to the film, arts, music, media and publishing sectors. Which means that he is used to clients who have a fluctuating income from a variety of sources, who depend largely on freelance contracts and who often work from a shared or home-based office.

We meet in a busy Fitzroy café - Tony's office is conveniently located upstairs and he is on first-name terms with all the waiters. After a brief rundown about Editors Victoria and our members, he launches in with some advice.

His first recommendation is for editors who have more than one job from which they will receive a group certificate. You can only claim the tax-free threshold from one payer at a time, so work out what your highest earning job is and claim it from that employer.

Anyone who runs a business, however small, should ensure they completely separate the income and expenses related to their business from their personal finances. Separate bank accounts are ideal. You should also consider setting up a system to put away a percentage of your business earnings to cover GST and tax (as discussed by Dear Ed a few months ago).

Tony suggests that, even if you aren't required to register for GST (it's not compulsory for businesses turning over less than $75,000 per annum), you should consider doing so anyway. 'It makes you look more professional,' he says, and then runs some quick maths past me. 'Say you spend $11,000 on expenses and you weren't registered for GST, then all you'd get back is your tax rate. You're probably on a tax rate of 34 per cent, times $1000. Or do you register for GST and get back the whole lot?'

(I deciphered this later. If you aren't registered for GST, the $1,000 that is the GST component of your $11,000 of expenses offsets the income you earned. It's just another business expense. So you avoid paying 34% tax on that $1000 - saving you $340. If you are registered for GST, you simply declare that $1000 on your Business Activity Statement and get it all back.)

He also recommends that if your business does bring in less than $75,000 a year, you should take advantage of the option to report and pay GST annually. During the year you can park that money in a mortgage offset account or somewhere that earns higher interest than your regular bank account.

For those of us who work from home, Tony says you can claim some of your basic utilities, rent and even interest on your mortgage (but beware: that might give you capital gains headaches later on when you sell). The amount you can claim for utilities is either based on a flat rate of 34c per hour, or on the proportion of floor space your office takes up. If you want to use the second method (and you will if you are claiming rent or interest), your office must be a dedicated space. That means no-one else uses it to study in and you don't have a sneaky foldout couch for visitors to sleep on.

Your proportion of phone and internet costs are a different matter. You are required to keep a log of your business usage (at least 6 weeks for phone and 4 weeks for internet) to justify your claim. He recommends going low rather than high - 20% business use is what he advises his clients to claim.

I must have looked a bit shocked at that point, because Tony gives me a brief lecture on tax accountancy and responsibilities. The ATO do audit taxpayers. Sometimes they target particular industries, sometimes they target specific accountants, and sometimes they look at types of deductions. Currently, they are looking at home office expenses. An accountant who claims lots of expenses on your behalf may seem to be doing you a brilliant job, but if you are audited you will have to provide evidence to support those claims. And if they are doing the same thing for all of their clients, the ATO may well have good reason to look more closely at them. Your accountant should be looking after your long-term financial health, not offering quick fixes that might get you into trouble in the future.

Some of you sent in specific questions for us to ask Tony. The first was about claiming newspapers, on the grounds that editors need to keep up with current affairs in order to do their jobs properly. Tony shook his head. Again, the issue here is about proportional use. How much of the content of the newspaper is work-related? Maybe 10 per cent? He tells me about a real estate agent who was not allowed to claim the Saturday paper as a work expense, because he only required the real estate pages. 'I wouldn't bother,' he says.

What about the question from a fiction editor who regularly buys competitors' books to compare with the titles she is working on? Surprisingly, this time Tony nods. 'Totally reasonable. Say, for instance, she's editing young adult fiction and she's a 45-year-old woman, I'd argue she's not going to be going to the store and buying those books for herself.' (As a 47-year-old woman who regularly reads YA fiction, I keep quiet. There's no point in bursting this particular bubble.) If your work is in a more general area of publishing, the key is to gather your evidence. Keep receipts for all the books you buy, even the non-work related ones that you aren't claiming. That way you can show that in one year you bought 42 novels, eight of which were for work and the rest for personal use.

Our final question was about superannuation. Tony is careful to point out that super is a huge topic and everyone's circumstances are different. He is also very clear that there are many ways to save for your retirement. 'Some people have rich parents,' he says bluntly. That future inheritance can be a form of super, as can property that you own. It is also important to have money out of superannuation as well, as you can't access super until you are a 'certain age'. (You can calculate what that is for you here.)

One issue for editors with multiple sources of income is that your personal superannuation contributions are only tax-deductible if you earn less than 10% of your total income through PAYG sources. If you are in that very annoying position of earning slightly more than that from PAYG, Tony's advice is to consider salary sacrificing most or all of that income directly to your superannuation fund. That money will be taxed at 15% as it goes into super, which is likely to be considerably less than you will be taxed if it is counted as income. You can then keep all of your business income for yourself, rather than siphoning some of that into superannuation.

Again, I had to do some private maths to make sense of that later on.

If your total income is $70,000, with $60,000 of that coming from your business and $10,000 from a PAYG source like a sessional teaching job, you won't be able to claim any personal superannuation contributions as a tax deduction.

Scenario 1: All of your $70,000 is taxed at 34%. Any additional super contributions you make come out of the $46,200 you have left. You'd probably want to contribute about 10% of your non-PAYG income, which is $6,000. Those contributions won't be taxed as they go into your super fund.

Super fund: $807 from the PAYG job (9.5% of your salary less 15% tax) + $6,000 = $6,807
In your pocket: $40,200

Scenario 2: Rather than take the $10,000 as income, you salary sacrifice it all into super. Those contributions will be taxed at 15%. Your super is more than covered, and you only pay the 34% income tax on your $60,000 of business income.

Super fund: $807 from the PAYG job (9.5% of your salary less 15% tax) + $8,500 (salary sacrificed and taxed at 15%) = $9,307
In your pocket: $39,600

Tony's final piece of advice was to find an accountant you can trust and build a relationship with. Don't be seduced by promises of huge tax returns - it's not necessarily a good thing. Ask them what they want from you and don't overcomplicate your accounts. As editors, we may think that more detail is always better, but if your accountant has to sift through spreadsheets full of notes about individual purchases and itemised lists of stationery purchases you will end up paying for their time as they edit your accounts.

As always, this advice is general and you should seek your own advice about your financial matters. From that trustworthy accountant who will be helping you manage your money for years to come.

Lorna Hendry, with many thanks to Tony Nagle for his time