Tax strategies that count the cost of COVID-19 and recession

Jun 06, 2020

COVID-19, bushfires, working from home and the recession will change the way millions of personal and small business taxpayers complete their tax returns this financial year.

Traditional office-related expenses for travel, clothing and accommodation will be supplanted by claims from business owners and their employees working from home offices.

Businesses that grew a mountain of unsold, damaged or obsolete summer/autumn stock because of the shutdown should be readying to write off the cost before the end of the year to claim a tax deduction, say tax experts.

“Those with customers who cannot, or will not, pay – and have done everything possible to recoup the debt without success – should also write it off by June 30 in order to claim a bad debt deduction,” says Mark Chapman, director of tax communications at H&R Block.

Write-offs should be noted with a board minute or other similar record, Chapman advises.

During the past four months nearly 90 per cent of the nation’s companies encouraged – or required – their employees to work from home, which creates opportunities to claim deductions from expenses involved in that work.

The Australian Taxation Office is trying to help those who have not worked from home before by setting a rate of 80¢ an hour for claims for the work-related portion of home telephone, internet, stationery, printers, computer equipment and consumables. There is also a 52¢ per hour rate for electricity.

The ATO has removed the requirement to have dedicated home offices, which means working on the kitchen table qualifies for claims. Multiple people working in the same house, such as a couple living together, can also individually claim the new rate.

Those who continued to use their car for work purposes need to keep a 12-week log book.

“Make sure you keep all costs associated with the running of your car for the whole year, not just the log book period,” advises Adrian Raftery, tax lecturer and adviser.

Claims for items that mix work and personal activities, such as use of a mobile phone, need to calculate a reasonable apportionment for the work-related time.

“It makes sense to set aside some time in advance of the end of the financial year to work it out and spare yourself stress when you’re getting your return prepared,” adds Chapman.

Raftery says those concerned about the possible impact of a recession on their business over the next 12 months could bring forward office deductions into this tax year.

“Stocking up your home office with stationery, laptops and printers or prepaying subscriptions and interest on rental properties for up to 12 months in advance are simple ways to reduce your income before June 30,” he says.

Small businesses also have the $150,000 immediate write-off for new business assets.

“Apart from motor vehicles – where the write-off is limited to the business portion of the car limit of $57,581 – there is no limit to the assets that you can purchase but beware you only get a percentage back and cash flow may suffer,” Raftery says.

Another COVID-19-related concession is a $10,000 tax-free withdrawal from super before the end of the tax year.

“To qualify you must have been made redundant, had your working hours reduced by 20 per cent or more or, if you were a sole trader, your business was suspended or there was a reduction in your turnover of 20 per cent or more,” says Chapman.

Tax experts also recommend topping up super to the “concessional contributions cap” of $25,000. That is the limit on compulsory contributions made by employers plus contributions made by individuals personally for which they claim a tax deduction.

“If you earn less than $37,000, your spouse can put up to $3000 into your super and they will receive the 18 per cent spouse contribution rebate,” adds Raftery.

The ATO is likely to reject attempts to combine a tax-free withdrawal with a tax-deductible contribution.

Tax experts encourage payment of professional subscriptions, or union fees, by June 30 to claim the deduction for the whole amount this year.

In addition, any charitable deduction over $2 (with a receipt) paid to a charity registered as a deductible gift recipient will be deductible.


Original article was published here on 6 June 2020 by The Australian Financial Review.







"Hi Adrian, I bought your new book, got my free $500 after co-contribution. I am planning to my CPA, enrolment starts 30 June 2020 but semester only begins on August 2020. Can i claim the invoice for 2019-2020? I have also purchased tax books and furniture for self study during the COVID which i wanted to claim in this year. Thank you kindly!"

By: Bikash on Jun 23, 2020 3:59AM

"Congrats Bikash. If you are working as an accountant (or in the general field) then you can prepay your CPA course fees & claim as a tax deduction this year as work-related self education study. If you are not working as an accountant then unfortunately you wouldn't be able to claim. Also have a look at which year would you get the biggest tax rebate as you might be on a higher marginal tax rate next year."

By: Mr Taxman on Jun 25, 2020 1:39AM

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