Do you know which tax deductions and offsets you might be eligible this financial year? The following tips may help you to legitimately reduce your tax liability in your 2019-20 return.
With so much information being pre-filled into your tax return this year, it’s best to wait until all the data is finalised before lodging. This is usually by the end of July but can take up until mid-August.
Check that your income statement from your employer says ‘tax ready’ and your private health insurance, dividend and interest information is available before visiting your tax agent. Otherwise, you’re potentially lodging your return with unfinalised data and may need to amend your tax return and pay additional tax.
If you’ve used the myDeductions tool in the ATO app, you can email your data or upload it to prefill your tax return. If you use a tax agent, they can access your uploaded data through their practice management software.
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Declare your income
Your income statement will show as ‘tax ready’ when finalised by your employer. Employers need to make a finalisation declaration by Tuesday 14 July if they have 20 or more employees, or Friday 31 July if they have 19 or fewer employees.
JobKeeper payments are treated the same as your usual salary or wages from your employer. If you receive JobKeeper as an employee, it will be included on your income statement as either salary and wages or as an allowance, depending on your circumstances. JobKeeper and JobSeeker payments will be included automatically by the ATO in your tax return by the end of July.
You also need to include income protection, sickness or accident insurance payments, redundancy payments and accrued leave payments in your tax return.
If you take leave, are temporarily stood down or lose your job and receive a payment from your employer, there are different tax rules that may apply for the different payments.
If you have received access to your superannuation due to COVID-19, you will not need to pay tax on these amounts and will not need to include these amounts in your tax return.
Report income and expenses from the cash or online economy
If you drive people around, do odd jobs, rent out your possessions, run social media accounts or sell products, your income from such activity may be assessable and your expenses deductible. This can include barter and cryptocurrency payments as well.
The ATO is receiving data from a range of websites including AirTasker, Uber, AirBnb and eBay which is matched against tax returns. Make sure you keep records and report correctly.
For some activities such as online selling, you’ll need to first determine whether you are in business. Find more information here or talk to your CPA Australia-registered tax agent.
Claim your expenses
Claiming all work-related deduction entitlements may save considerable income tax. Typical work-related expenses include employment-related mobile phone, internet usage, computer repairs, union fees and professional subscriptions that the employee paid themselves and for which they were not reimbursed.
Be aware that the ATO continues to check work-related expense claims and expects to see a substantial increase in deductions for working from home or protective items required for work, and a reduction in claims for laundry expenses or travel expenses. You cannot claim the cost of travelling to and from work and working from home as a result of COVID-19.
If your usual pattern of work has changed during the year due to COVID-19 or other circumstances, you may need to complete an additional record for the period your work pattern changed, especially where claims are calculated using representative periods.
Just remember that for an expense to qualify:
- you must have spent the money yourself and weren't reimbursed
- it must directly relate to earning your income, and
- you must have a record to prove it.
Work from home and home office expenses
When you are an employee who regularly works from home and part of your home has been set aside primarily or exclusively for the purpose of work, a home office deduction may be allowable. Typical home office costs include heating, cooling, lighting and office equipment depreciation.
The ATO is also allowing the use of a shortcut method for working from home claims between 1 March 2020 and 30 June 2020 which enables you to claim a deduction of 80 cents per hour. You can use this method if:
- are working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls, and
- have incurred additional running expenses as a result of working from home.
The shortcut method doesn’t require you to have a dedicated work area, such as a private study. If this method is chosen, no other expenses for working from home for that period can be claimed.
You must keep a record of the number of hours you have worked from home. This could be a timesheet, roster, diary, or similar document that sets out the hours you worked.
If you use the other methods, you must also keep a record of the number of hours you worked from home along with records of your expenses.
The ATO has published a series of occupation-specific fact sheets and information on employees working from home during COVID-19.
Find more information on home office expenses here or talk to your CPA Australia-registered tax agent.
Self-education expenses can be claimed provided the study is directly related to either maintaining or improving current occupational skills or is likely to increase income from your current employment. If you obtain new qualifications in a different field through study, the expenses incurred are not tax deductible.
Typical self-education expenses include course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers, tablets and printers.
Higher Education Loan Program (HELP) repayments are not deductible. You must also disallow $250 of self-education expenses, which can include non-deductible amounts such as child-care costs.
Motor vehicle deductions
If you use your motor vehicle for work-related travel, there are two choices of how you can claim.
If the annual travel claim does not exceed 5000 kilometres, you can claim a deduction for your vehicle expenses on the cents-per-kilometre basis. This figure includes all your vehicle running expenses, including depreciation.
The allowable rate for such claims changes annually; this year’s rate can be obtained from the ATO or your CPA Australia-registered tax agent.
You do not need written evidence to show how many kilometres you have travelled, but the ATO and therefore your tax agent may ask you to show how you worked out your business kilometres. The ATO has flagged concerns that taxpayers are automatically claiming the 5000-kilometre limit regardless of the actual amount travelled.
If your business travel exceeds 5000 kilometres, you must use the log book method to claim a deduction for your total car-running expenses.
You can contact your CPA Australia-registered tax agent to clarify what constitutes work-related travel and which of the above methods can be applied to maximise your tax position.
Immediate deductions can be claimed for assets that cost under $300 to the extent the asset is used to generate income. Such assets may include tools for tradespeople, calculators, briefcases, computer equipment and technical books purchased by an employee, or minor items of plant purchased by a landlord.
Assets costing $300 or more that are used for an income producing purpose can be written off over a period of time as a tax deduction.
The amount of the deduction is generally determined by the asset’s value, its effective life and the extent to which you use it for income-producing purposes.
The ATO will pre-fill your tax return with the gifts and donations information they have received. Make sure to add in any donations not included where the receipt shows your donation is tax deductible.
If you made donations to an approved organisation through workplace-giving, you still need to record the total amount of your donations at this item.
Your payment summary, or other written statement from your employer showing the donated amount, is sufficient evidence to support your claim. You do not need to have a receipt.
Claim a tax deduction for your superannuation contributions
Claiming a tax deduction for personal superannuation contributions is no longer restricted to the self-employed. The rules changed on 1 July 2017 and anyone under the age of 75 will be able to claim contributions made from their after-tax income to a complying superannuation fund as fully tax deductible in the 2018-19 tax year.
Any contributions you claim a deduction on will count towards your concessional contribution cap. Such a deduction cannot increase or create a tax loss to be carried forward.
If you’re aged 65 or over, you will have to satisfy the work test to contribute and if you’re under 18 at 30 June you can only claim the deduction if you earned income as an employee or business owner. Other eligibility criteria apply.
To claim the deduction, you will first need to lodge a Notice of intent to claim or vary a deduction for personal contributions form with your superannuation fund by the earlier of the day you lodge your tax return or the end of the following income year.
Superannuation contribution limits
Watch your superannuation contribution limits. You may wish to consider maximising your concessional or non-concessional contributions before the end of the financial year but keep in mind the contribution caps were reduced to $25,000 from 1 July 2017.
Concessional contributions include any contributions made by your employer, salary sacrificed amounts and personal contributions claimed as a tax deduction by self-employed or substantially self-employed persons.
If you're making extra contributions to your super, and breach the concessional cap, the excess contributions over the cap will be taxed at your marginal tax rate, although you can have the excess contribution refunded from your super fund.
Similarly, the annual non-concessional (post-tax) contributions cap is only $100,000 and the three-year bring forward provision is $300,000. Individuals with a balance of $1.6 million or more are no longer eligible to make non-concessional contributions.
High-income earners are also reminded that the contributions tax on concessional contributions is effectively doubled from the normal 15 per cent rate to 30 per cent if their combined income plus concessional contributions exceeds $250,000.
Importantly, don't leave it until 30 June to make your contributions as your super fund may not receive the contribution in time and it will count towards next year's contribution caps, which could result in excess contributions and an unexpected tax bill.
Consider the superannuation co-contribution
An individual likely to earn less than $53,564 in the 2019-20 tax year should consider making after-tax contributions to their superannuation to qualify for the superannuation co-contribution if their circumstances permit.
The government will match after-tax contributions 50 cents for each dollar contributed up to a maximum of $500 for a person earning up to $38,564. The maximum then gradually reduces for every dollar of total income over $38,564 reducing to nil at $53,564.
Consolidate your super
For most employees, it makes a lot of sense to have your entire super in one place. You'll reduce the amount of fees you're paying, only receive one lot of paperwork and only have to keep track of one fund.
Consider consolidating the super funds you do have into one fund. Compare your funds to work out which best suits your needs. Important things to look at are fees and charges, the investment options available and life insurance cover.
In particular, if you have insurance cover in a fund check you can transfer or replace it in the new fund so you don’t end up losing the benefit altogether. You can look at past investment performance as well but remember it is no guarantee of how the fund will perform in the future.
Once you've chosen the fund you want to keep, contact them and they can help transfer the money from your other super funds.
From November 2019, the ATO has been proactively consolidating these unclaimed super monies into eligible active super accounts, if an individual hasn’t requested a direct payment or for it to be rolled over to a fund of their choice. You will be notified by the ATO if this has been done.
If you've moved around or changed jobs occasionally, your old super fund may have lost track of you and you may miss out on some of your super when you need it. To find your lost super check out SuperSeeker on the ATO website at www.ato.gov.au.
Consider salary sacrifice arrangements
You may wish to review your remuneration arrangements with your employer and forego future gross salary in return for receiving exempt or concessionally taxed fringe benefits and/or making additional superannuation contributions under a valid salary sacrifice arrangement.
You should consult a licensed CPA Australia financial planner to consider the merits of exploring these options.
Tax residency and COVID-19
The tests used to work out residency status for tax purposes are not the same as residency tests used for other purposes such as immigration. The ATO publishes information on residency and the relevant tests.
For non-residents temporarily in Australia as a result of COVID-19, the ATO has advised that if the client is in Australia temporarily for some weeks or months then they will not become an Australian resident for tax purposes as long as they usually live overseas permanently and intend to return there as soon as they are able.
First home super saver scheme
The First Home Super Saver (FHSS) Scheme allows you to save money faster for your first home with the concessional tax treatment of super. You can make additional voluntary salary sacrificed superannuation contributions up to $15,000 per year (and $30,000 in total) into your complying superannuation fund which can be withdrawn to help finance a first home deposit.
Compulsory superannuation employer contributions and contributions in respect of defined benefit funds are not eligible for the FHSS scheme. Various other eligibility conditions must be satisfied.
The FHSS scheme is primarily aimed at low to middle income earners – speak to your CPA Australia-registered tax agent to get more information.
Maximise tax offsets
Tax offsets directly reduce your tax payable and can add up to a sizeable amount. Eligibility for tax offsets generally depends on your income, family circumstances and conditions for particular offsets.
Taxpayers should check their eligibility for tax offsets which include, amongst others, the low and middle-income tax offset, senior Australians and pensioners offset and the offset for superannuation contributions on behalf of a low-income spouse.
From 1 July 2019, the tax offset for net medical expenses for disability aids, attendant care or aged care is no longer available.
Beware of big promises and very low fees
Like most things in life, you tend to get what you pay for and tax is no different. You should be careful about who you ask to prepare your return to ensure that your tax affairs are reported correctly and that you are able to prove your claims if the ATO ask any questions. If your refund is too good to be true, then you – or your agent – have probably broken the law.
Firstly, check that your tax agent is registered with the Tax Practitioners Board. It’s also recommended that they’re a member of a professional accounting organisation such as CPA Australia so that you know they're abiding by professional and ethical standards.
A registered tax agent will never ask you for your myGovID credentials or seek to lodge your tax return through myTax.
Every tax agent is legally obliged to take reasonable care. This means checking your tax history, ensuring you have documentation such as receipts, and asking questions about your income, expenses and assets. They should provide a tailored service and only include information that you have provided to them.
Things you should watch out for include agents who:
- offer a very low fixed fee
- promise large refunds
- charge a percentage of your refund as a fee
- spend very little time with you or on your tax return
- don’t ask for receipts
- don’t ask questions or enter information that you can’t substantiate
- ask you to sign blank or incomplete returns, or blank voluntary disclosure forms, or
- ask to lodge your tax return through myTax.
Make sure that you check the tax return in detail before signing. All of your assessable income should have been reported and your deductions correctly recorded. Ensure that you can back up every dollar of the claims.
Remember that ultimately, it’s your responsibility what gets lodged and you are the one who has to pay the extra tax plus penalties and interest if anything is wrong on your tax return.
Be careful of scams and protect your identity
There has been a significant increase in Australians being targeted with COVID-19 scams, fraud attempts and deceptive email and SMS schemes. If you’re unsure whether an ATO interaction is genuine, do not reply. If you receive an SMS or email claiming to be from the ATO, check with the ATO first to confirm it's genuine.
During this time of heightened scam activity, the ATO encourages individuals to:
- run the latest software updates to ensure operating systems security is current
- update antivirus software
- always exercise caution when clicking on links and providing personal identifying information
- never share personal information on social media, such as your TFN, myGov or bank account details.
- avoid accessing online government services via a hyperlink in an email or SMS – only via an independent search
- always access the ATO’s online services directly via ato.gov.au or my.gov.au or the ATO app
- call the ATO on an independently sourced number to verify an interaction if in doubt
- don't click on a link, open an attachment or download a file if in doubt.
Thieves only need some basic details such as name, date of birth, address, myGov details, or tax file number (TFN) to commit identity crime. If criminals steal your identity, it can take a long time to fix. It may be difficult for you to get a job, a loan, rent a house, or apply for government services or benefits.
Ensure your digital identity, such as your myGovID, is secure. Your digital identity is unique to you and shouldn’t be shared, as this will enable others access to your personal data across services such as tax and health.
If you suspect your TFN or ABN has been stolen, misused or compromised, phone the ATO as soon as possible on 1800 467 033 between 8.00am and 6.00pm Monday – Friday so they can investigate and place additional protective measures on your account.