This year, tax time requires a little more planning than usual as we round out the end of an out of the ordinary financial year.
Tax tips to get ahead this financial year
As the end of the financial year draws to a close, many of us are hoping to receive a financial windfall from our tax returns.
For most, the 2019/2020 financial year has been tough. Incomes and spending have been impacted by drought, fires and the COVID-19 pandemic, prompting the Australian Tax Office (ATO) to introduce new claim and support options. Some old offsets have also made a comeback.
Resimac caught up with tax experts Mark Chapman, Director of Tax Communications at H&R Block and Amanda Egan, Partner at Essentia Partners, to find out everything you need to know to maximise your return this financial year.
Initiatives introduced to support taxpayers in the wake of COVID-19
The 2019/2020 financial year has been a year like no other, with many citizens experiencing financial hardship or having their normal way of life interrupted. In response, the ATO has introduced new measures to support taxpayers.
For individuals, key support initiatives include:
Working from home deductions
When you work from home, it will be no surprise that running costs such as electricity, water and general wear and tear on your home will increase. Which is why you can claim a deduction on these expenses.
There are already two ways in which you can claim working from home deductions. Those who are home office veterans will know of the flat rate of 52 cents per hour, in which you can claim additional items like phone or internet usage, or the method in which you claim a deduction on actual costs incurred, which involves keeping more paperwork and additional calculations.
Knowing that capturing this detailed paper trail may be difficult for some remote workers, the ATO has introduced a third option, the shortcut method for those working from home. This option allows taxpayers to claim a deduction of 80 cents for every hour worked from home due to COVID-19.
However, according to Mark, there are some stipulations that come with using this method.
"If you use the 80 cents per hour method, you can make no other claims in relation to working from home. So, items like mobile phone and internet usage are already included in the rate of 80 cents per hour," says Mark.
Deciding on the method that is best suited to you will come down to comparing the calculations, Amanda Egan explains.
"Keeping in mind that the shortcut method is only applicable for three months, if you work from home longer than that, you may want to consider the other methods," says Amanda.
Amanda suggests preparing all the required paperwork and going to your tax agent who can compare the methods for you and decide what would get you the best return.
Regardless of what method you use, you will need to keep records of your time spent working from home. For the full list of what is or isn’t included as well a comprehensive look into the ways to calculate your working from home deductions, have a look at the ATOs working from home during COVID-19 page.
Early release of superannuation
If you were eligible to access your super and did so, the good news is that this release of superannuation is not taxable and doesn’t need to be included in your return.
Be sure to chat to your accountant to find out more and visit the ATO website here.
Reducing superannuation minimum drawdown rates
Many retirees depend on their superannuation for income. The pandemic caused a significant loss to the economy, forcing many retirees to consider selling assets in order to afford the required drawdown amount.
In order to keep the value in their superannuation, the Government has temporarily reduced the minimum drawdown requirements for account-based pensions by 50 per cent. This will allow many retirees to hold onto their investment assets in an unstable economy, instead of having to sell them in order to fund the previous drawdown minimum.
Pension payments are not taxable for those over the age of 60, and from ages 55 to 59 years are taxed at a marginal tax rate, less a 15 per cent tax offset.
Initiatives that have returned in 2019-2020
Last year, Prime Minister Scott Morrison introduced a new tax offset, seeing an increased amount of up to $1,080.00 for low to middle income earners.
The good news is that the incentive has returned this year and you don’t need to do anything to receive it. The Government automatically calculates if this offset applies to you.
Tax and the JobSeeker and JobKeeper initiatives
If you were are one of the millions of Australians whose employment has been impacted by the pandemic and are receiving either JobKeeper or JobSeeker payments, this financial support will form part of your taxable income at tax time.
Your employer will be paying the tax that you owe from JobKeeper on your behalf each pay cycle, and Centrelink will deduct the tax on the JobSeeker, should it apply to you. So, when it comes to do your return, all the information will be available as pre-filled data.
What options are available to taxpayers who receive a bill instead of a refund?
"First of all, don’t panic. If you can’t pay the amount of tax you owe, reach out to the ATO as soon as possible. They can often set up a payment plan or defer the due date depending on your situation." says Mark.
As you come to prepare your tax, make sure you speak to your tax accountant to find out what incentives, offsets and legislation is available to you. You can also visit the ATO website for more tips and things to note for the 2019/2020 tax return.
Top tax time tips
Tips from: Mark Chapman, Director of Tax Communications at H&R Block
If you want to make a claim for work-related expenses, you need to follow the three golden rules:
- The expense must relate to your work
- You mustn't have been reimbursed by your employer
- You must be able to prove that you spent the money. That means that you must keep receipts, invoices or statements to demonstrate that you actually incurred the expense.
Keep a paper trail
Keep electronic copies of all documentation relating to expenses. Paper receipts get lost or fade, so keeping everything together on your phone or computer will save time and effort when you come to complete next year’s tax return. The ATO has an app in which you can do this, or try Expensify.
Get help! Using a tax agent takes away the stress of needing to know all the rules and regulations and opens up a whole world of expertise to guide you through the process. That way you can be sure you’re claiming everything you’re entitled to.
Tips from: Amanda Egan, Partner at Essentia Partners
Think about the future
It’s not just about minimising the tax you pay, it’s about maximising the opportunity with your after tax income.
Seek advice upfront for complex tax scenarios. Knowing the options available to you from the outset, and choosing the right option upfront, can save a lot of time, costs and tax, and set you up on a better financial path for the future.
Think bigger than your immediate tax return
Seeing the bigger picture is really important when it comes to your income and tax. If you only focus on reducing the amount of tax you owe, you could be missing out on increasing your yearly earnings.
The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Resimac. The above is general commentary only and is not advice tailored to any individual’s financial situation. We recommend seeking advice from an insurance or finance professional before implementing changes relating to your finances.