tax returns

Tips and traps to help maximise your tax return

If you haven’t already done so, now is the time to collate all of your information and get your tax return sorted.

This year, it is essential for employees to be across some crucial changes implemented by the Australian Tax Office in response to the crisis.

Missing that October 31 lodgement deadline for your tax return can give rise to financial penalties.

For those who have relatively straightforward tax affairs and choose to do their return, what are the main points you need to be aware of?

Don’t file late

Missing that October 31 lodgement deadline can give rise to financial penalties. Also of note is the tax payment due date – three weeks after the lodgement deadline, i.e. by November 21. Paying your tax liability late is likely to give rise to interest charges being imposed by the ATO.

Most taxpayers lodge their return online via their myGov account. It helps streamline the process as most information from your employer, banks, government agencies, health funds and other third parties is pre-filled by late July.

If you are expecting a tax refund, lodging online should expedite receiving the money. The ATO usually issues refunds within two weeks where the return is lodged online. Paper returns are processed manually and can take up to 10 weeks.

This year, employers have reported through Single Touch Payroll, which refers to direct payroll reporting to the ATO on a real-time basis. This means you will not receive a payment summary from your employer, and instead, an income statement will be available via your myGov account by July 31.

How to maximise your refund

In recognition of the changes to many employees’ working arrangements due to COVID-19, the ATO has introduced a shortcut method for claiming working-from-home related tax deductions.

From March 1 to June 30, you can claim a deduction of 80 cents for each hour you work from home, provided that you are carrying out your ordinary employment duties and have incurred additional running expenses as a result.

Tip: It is essential to keep a record of the hours you have worked from home.

Trap: If you elect to use this method, you will be unable to claim any other working expenses.

You may elect to continue to use the existing methods available to calculate your deduction (e.g. the fixed-rate plan of 52 cents per hour or the actual cost method). You can choose whichever of the three ways provide the most beneficial tax outcome.

If you own a rental property, claim appropriate capital works and capital allowances (depreciation) deductions. Be aware that the rules changed from July 1, 2017, limiting capital allowance deductions for second-hand assets acquired after May 9, 2017. Investors who purchase new plant and equipment will continue to claim depreciation expenses on these assets.

Tip: Get a quantity surveyor to make an assessment and prepare a depreciation report to outline amounts to be claimed in your tax return each year. The cost of having a depreciation report prepared is also deductible.

Super contributions

tax returns

You no longer need to “salary sacrifice” super contributions to reap tax savings. All individuals under 75 years (including those aged 65-74 years who meet the prescribed work test) are now eligible to claim a tax deduction for super personal contributions made into a qualified fund.

To claim a deduction, you need to provide your super fund with a “notice of intent to claim” on or before the day the 2019-20 tax return is lodged, or June 20, 2021, whichever is earlier.

Trap: Be aware of the concessional contributions cap – currently $25,000 – and limit deductible contributions to the cap amount to avoid paying excess concessional contributions tax.

Tax-deductible gifts

Ensure you have picked up all donations made during the year to deductible gift recipients. Taxpayers often forget to claim them because they fail to keep a record. With the increased use of electronic receipts via email, locating these receipts has become more accessible.

Private health cover

Private hospital insurance coverage will ensure you are not liable for the Medicare Levy Surcharge (MLS). Having “extras” or “ancillary” cover only is not sufficient.

The MLS will apply where a taxpayer’s income is above $90,000 (singles) or $180,000 (families).

ATO cracks down on unusual claims

From July 1, 2019, health insurers do not have an obligation to send members a private health insurance statement. If you are lodging your return online, your health fund details should be prefilled online via myGov.

You may need to reach out to your provider to directly obtain a statement if the details are not flowing through July 20.

For more information, the ATO has provided helpful answers to a range of frequently asked questions on its website regarding COVID-19 and the preparation of 2019-20 tax returns, including claiming of tax deductions.

Finally, if you are experiencing difficulty paying your tax on time, you should get in touch with the ATO to explore payment options.

Top Ways to Spend Your Tax Refund

Tax season is officially here. Although you might consider lodging your tax return a chore, the good news is there may be a silver lining. As of last year, the average refund hovered around $3,600.

And with 84% of taxpayers expecting a refund, the odds are most likely in your favour. But, before you start making plans with your looming ashfall, here are some more innovative ways to consider spending your tax return.

Pay off your credit card bills and loans.

According to ASIC’s MoneySmart poll, almost a third of us who receive a return will likely spend it on paying bills. While paying off debt isn’t as glamorous as a holiday, it’s a smart move.

Start with higher interest debts like short-term loans and credit cards. If you’ve got multiple credit cards, pay off the card with the highest interest rate first. In the long run, paying off debts means you’ll pay less interest and save more money.

Start an emergency fund.

Accidents are just that – accidental. When the unexpected hits, the last thing you want to be doing is maxing out a high-interest credit card, a rainy-day stash of cash can be a lifeline when life gets hard. Look out for an account offering high interest, and if possible, add to your emergency fund regularly – you’ll be surprised how quickly it grows.

Superannuation top-up

If you’re young, you’re probably not thinking about retirement. Life expectancy and the cost of living are on the rise, which means retirees looking to live it up will need a lot more cash. Boosting your superannuation early gives your savings more time to grow. Be aware that there are caps and tax implications so, talk to your accountant before making any additional contributions. Your future self will thank you for it.

Mortgage offset account

If you’ve got a mortgage, chances are you’re paying interest. A mortgage offset account is a savings account attached to your home loan, which offsets the interest you pay on your home loan. With an offset account, you’ll end up paying less interest in the long run, which means more money in your pocket.

Invest in shares

Before investing in anything, it pays to research to make an informed decision. Depending on the amount you have to invest, and how savvy you are, there are plenty of investment options available.

Do good and donate

If you’ve got your finances under control and your debts are manageable, you could consider donating your return to a good cause. Giving can be a worthwhile investment, and aside from the philanthropic feels, all charitable donations are tax-deductible.

Invest in yourself

If there’s a course you’ve had your eye on or a new hobby you’ve been wanting to try – investing in personal growth is always a good idea. Depending on the course and its relation to your profession, it may be deductible in next year’s tax return.

14 tax tips for self-preparers

Do you know the tax deductions and offsets for which you might be eligible as a self-preparer? The following tax tips – work-related expenses, rental property deductions, cryptocurrencies and more – may help you to legitimately reduce your tax liability in your 2017-18 return.

Claim work-related deductions

Claiming all work-related deduction entitlements may save considerable income tax. Typical work-related expenses include an employment-related mobile phone, internet usage, computer repairs, union fees and professional subscriptions that the employee paid themselves and was not reimbursed. 

Essentially, for an expense to qualify:

  • you must have spent the money yourself 
  • it must be directly related to earning your income
  • it must not have been reimbursed
  • you must have the relevant records to prove it.

It is prudent also to be aware that the Australian Taxation Office (ATO) has received a significant boost in funding in this year’s Federal Budget that will enable it to have a stronger focus on ensuring taxpayers claim only the work-related expenses to which they are entitled. 

Some of this additional funding will improve the checking of claims in real-time, other audits, and prosecutions.

Claim home office expenses

When part of your home has been set aside primarily or exclusively for work, a home office deduction may be allowable. Typical home office costs include heating, cooling, lighting and even office equipment depreciation.

To claim the deduction, you must have kept a diary of the hours you worked at home for at least four weeks.

For more information on home office expenses, go to the ATO website or talk to your CPA Australia registered tax agent.

Claim self-education expenses

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, including non-deductible amounts such as child-care costs.

Claim depreciation

Immediate deductions can be claimed for assets that cost under $300 to the extent the investment is used to generate income. Such support may include 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 used for an income-producing purpose can be written off over time as a tax deduction. The amount of the deduction is generally determined by the asset’s value, its useful life and the extent to which you use it for income-producing purposes.

Maximise 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 a cents-per-kilometre basis. The allowable rate for such claims changes annually, so it is essential, you obtain this year’s speed 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.

If your business travel exceeds 5000 kilometres, you must use the logbook 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.

Claim rental property deductions

Owners of rental properties that are being rented out or are ready and available for rent can claim immediate deductions for a range of expenses such as:

  • interest on investment loans
  • land tax
  • council and water rates
  • body corporate charges
  • insurance
  • repairs and maintenance
  • agent’s commission
  • gardening
  • pest control
  • leases (preparation, registration and stamp duty)
  • advertising for tenants

Landlords may be entitled to claim annual deductions for the declining value of depreciable assets (such as stoves, carpets and hot-water systems) and capital-works deductions spread over several years (for structural improvements, like re-modelling a bathroom).

It is important to remember that landlords are no longer allowed travel deductions relating to inspecting, maintaining, or collecting rent for a residential rental property.

Further, deductions for the depreciation of plant and equipment for residential real estate properties are limited to investors’ outlays in residential real estate properties.

For example, for properties acquired from 9 May 2017, landlords can no longer depreciate assets in the property at the time of purchase; however, should they purchase a new investment, they can depreciate that asset.

Plant and equipment forming part of residential investment properties as of 9 May 2017 will continue to give rise to deductions for depreciation until either the investor no longer owns the asset or the asset reaches the end of its useful life.

You can contact your CPA Australia registered tax agent to clarify if your expenditure is repairs and maintenance and can be claimed immediately or improvements, which can be claimed overtime.

Seek advice on residential property and non-residents

The government has proposed that the Australian home of a non-resident for tax purposes, including Australian expatriates, will no longer have access to the capital gains tax principal residence exemption on disposal.

As proposed, non-residents who acquired properties by or before 9 May 2017 have until 30 June 2019 to dispose of the property to still access the principal residence exemption. The measure applies in full for properties acquired after 9 May 2017.

It should be noted that the change is retrospective in that it applies to homes acquired from 20 September 1985. Further, it does not matter whether the taxpayer was a resident or non-resident at the time of purchase – the only fact for consideration is that the owner is a non-resident at the time of disposal.

For example, an Australian resident bought a home in 1986. In 2016, the Australian resident took up an opportunity to work overseas and becomes a non-resident. In 2020, the person decided to sell their Australian home.

As they were a non-resident at the time of disposal, the capital gain on the property for the entire period from purchase in 1986 to removal in 2020 is taxable. This could result in an unexpected tax bill in the many hundreds of thousands of dollars, if not more. The measure will if passed, also have an impact on beneficiaries should the owner of an Australian home die as a non-resident.

If you are an Australian resident living overseas or thinking of moving overseas, you should contact your tax returns registered tax agent for advice on this proposed measure.

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 equilibria.

Taxpayers should check their eligibility for tax offsets, including the low-income tax offset, senior Australians and pensioners offset, and the offset for superannuation contributions on behalf of a low-income spouse.

Think about your gains or losses from cryptocurrencies

If you are involved in acquiring or disposing of cryptocurrencies, you need to be aware of the income tax consequences. These vary depending on the nature of your circumstances. 

One example of cryptocurrency is Bitcoin. The ATO view is that Bitcoin is neither money nor Australian or foreign currency. Instead, it is the property and is an asset for capital gains tax (CGT) purposes. 

Other cryptocurrencies with the same characteristics as Bitcoin will also be assets for CGT purposes and will be treated similarly for tax purposes. However, if you are carrying on a business trading cryptocurrencies, the income will be ordinary income.

A person involved in cryptocurrency transactions needs to keep appropriate records for income tax purposes.

If you are involved in cryptocurrencies, you should contact your CPA Australia registered tax agent for advice.

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 from 1 July 2017.

The concessional contribution cap for the 2017-18 financial year is only $25,000. 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. However, you can have the extra donation 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 standard 15 per cent rate to 30 per cent of their combined income, plus concessional contributions exceed $250,000.

Importantly, don’t leave it until 30 June to make your contributions as your super fund may not receive the gift in time, and it will count towards next year’s contribution caps, which could result in excess contributions and an unexpected tax bill.

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. 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 2017-18 tax year.

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 on 30 June, you can only claim the deduction if you earned income as an employee or business owner.

To claim the deduction, you will first need to lodge a Notice of intent to claim a deduction form with your superannuation fund by the earlier of the day you lodge your tax return or the end of the following income year. Any contributions you claim a deduction on will count towards your concessional contribution cap.

Employers can also claim deductions for superannuation contributions made on behalf of their employees.

Consider the superannuation co-contribution

An individual likely to earn less than $51,813 in the 2017-18 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 fifty cents for each dollar contributed to a maximum of $500 for a person earning up to $36,813. The most then gradually reduces for every dollar of total income over $36,813, reducing to nil at $51,813.

Consolidate your super

For most employees, it makes a lot of sense to have your entire super in one place. You’ll reduce the number 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, the investment options available and life insurance cover.

In particular, if you have insurance cover in a fund, check that 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 that 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.

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 awesome when you need it. To find your lost super, check out the ATO website.

Seek independent advice on investment products promoted as being tax-effective

The end of the financial year often sees the promotion of investment products that may claim to be tax-effective. If you consider such an investment, seek independent advice before making a decision, particularly from your CPA Australia registered tax agent.

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