Maximise your tax deductions

Jun 12, 2020

The tax office will receive a barrage of tax claims from July 1, as people experiencing financial stress try to get refunds as soon as possible. Refunds may be higher this year, thanks to the new working-from-home deductions, and if you’ve lost work or income you may get a refund from the higher tax paid during the early part of the financial year.

The new deduction for people working from home is set at 80c an hour. You need to keep a record of hours worked but no further documentation, such as receipts.

Mark Chapman, H&R Block tax specialist, says that as a general rule people will get the highest deductions if they can claim actual costs such as phone, internet, heating, cleaning and depreciation. However, these are the hardest to work out so the 80c rule makes a great deal of sense.

“It isn’t necessarily going to give people the biggest refund, but it is easy to claim. You simply need to record all your working hours from home in a diary, but you don’t have to do anything beyond that. That then covers all your home-related expenses, including your mobile phone, internet, etc.”

However, if you have a large mobile phone or internet bill and other expenses, it may be worthwhile collating any receipts, credit card statements or proof of expenditure. “If you don’t have receipts you can’t make the claim,” he says.

Fight for every dollar

Adrian Raftery, principal at Mr Taxman, recommends keeping receipts for all expenses incurred while running your home office.

“Keep a diary or a spreadsheet of the amount of time that you are using your home for work purposes,” he says. “Record a summary of the number of landline and mobile calls you make as well as the text messages that are work-related.

“A good idea is to keep a logbook, for at least a month, of your phone and internet usage, and give all this to your tax agent at year end and let them weave their magic to determine the maximum claim.”

Raftery doesn’t think the 80c per hour shortcut is adequate. Across 18 weeks at 40 hours a week that is just $576. “I would be almost certain that if you add up the work-related portion of your home internet, phone calls, electricity (especially in the cooler months), stationery, printer cartridges and other computer consumables and new equipment that you have purchased, such as webcams for Zoom meetings and headphones to keep the noise down, it would be more,” he says.

“Even new desks and chairs are being purchased because people are complaining of sore backs from working too much at the dining room table.

“Just as you have two methods to claim car expenses (68c per kilometre versus a logbook), there will be some large differentials between the three methods to claim home office expenses.

“I really think the 80c an hour will be the lazy method and there will be plenty of legitimate deductions left off tax returns for those who will be lazy with their record-keeping.”

Raftery estimates the deductions for working at home could add up to $1500. “I know that if I saw $20 on the ground I would fight you for it, so why not claim what you are legally entitled to? Every dollar counts right now.”

When working from home, you can claim lighting, heating and cooling, cleaning, depreciation of furnishings, repairs to equipment, and other running expenses such as computer consumables and stationery.

Before the new allowance, the standard fixed rate for deductions was 52c an hour (heating, cooling, lighting, cleaning and depreciation), and you would still work out phone and internet usage, computer consumables and stationery and the decline in value on your computer. This is still available and people can work out which method best covers their expenses.

Unless your home is a genuine place of business, then you cannot claim for rent or mortgage interest, rates or insurance.

The ATO has a fact sheet available at ato.gov.au/ workingfromhome.

Chance to catch up

Mariana von-Lucken, tax partner at HLB Mann Judd, says the ATO understands that people may not have met their tax obligations as a result of stress brought on by Covid-19.

“Don’t stress over delays – there’s been a deferral of the 2019 income tax return lodgement due date until

June 5 (if you’re using a registered tax agent), and as a result of having a deferred tax return date, the commissioner may apply his discretion and allow these taxpayers the ability to access the JobKeeper payment,” says von-Lucken.

“For taxpayers who haven’t yet lodged their tax return, I’d recommend they do so. If they don’t have the funds available to pay their tax liability, they can contact the ATO to request that the payment date be deferred or ask to enter into a payment arrangement.”

In addition, von-Lucken says that if interest and penalties have accrued on your tax liability, the ATO may remit the charges incurred on or after January 23, 2020.

However, other charges you owe can only be deferred, but von-Lucken says this gives taxpayers the opportunity to catch up on their liabilities with no additional charges.

“Taxpayers may be thinking, I’ve got tax and other bills to pay and I know my tax won’t go away, but maybe I can deal with it when the crisis is over,” she says.

The ability to reduce the PAYG income tax instalment (through the cash flow boost scheme) is targeted at sole traders and SMEs and can be done through the ATO’s business portal or the MyGov website when you lodge your activity statement. Alternatively, tax agents will be able to assist with this.

“It’s a reality that many sole traders and small businesses have suffered financially from March, and possibly earlier. As a result the ATO is also allowing them to vary their income tax instalments to nil for the March and June 2020 quarters, and depending on the business’s estimated tax liability for the current financial year, the ATO may refund any instalments paid in the September and December 2019 quarters,” says von-Lucken.

Deals for small business

There are several tax areas where small business can benefit before the end of the financial year.

There is a $150,000 instant asset write-off ($164,999 including GST), which is generous if your business has been going well, says Raftery.

“But don’t spend purely for the tax deduction because you’re only getting 27.5% back on the original outlay – that is, saving $41,250 in income tax on an outlay of $150,000,” he says.

Again, if the business is doing well, Raftery suggests contributing the maximum $25,000 into super for each business owner.

However, he acknowledges that for most SMEs it’s a matter of survival right now and they should apply for the JobKeeper subsidy and complete their business activity statements in a timely manner to get the cash flow boost grant.

“Small businesses should look at scrapping obsolete stock as well as writing off bad debts before June 30 to get a tax deduction for it this year,” he says. “If you operate via a family trust, ensure that the family trust resolution for intended income resolutions is written up before June 30.

“If there are any private loans, ensure that the appropriate principal and interest repayments are made by June 30, otherwise the ATO could enforce Division 7A and make the balance an unfranked dividend, leading to potential double taxation.”

Raftery also highlights the company tax rate falling from 27.5% to 26% from July 1. “Businesses may consider deferring income until 2020-21 and bringing forward expenses in 2019-20. Saving 1.5% may not be much, but margins are tight and every bit helps,” he says.

Original article published on 1 June 2020 by Money Magazine Australia.

 

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