Top tips for a lodging tax return: COVID-19 brings changes.
There are only a few days left of this tax year to make the most of new personal and business concessions aimed at helping taxpayers through a tumultuous year of COVID-19, bushfires and financial disruption.
But the Australian Taxation Office warns it is zeroing in on pandemic and other tax frauds through enhanced payroll access, the information provided by super funds and even contacting employers to verify work claims.
Missed the deadline to lodge your tax return? You’re not alone: heaps of Australians forget every year to file by the October 31 deadline.
Whether you’re behind by just one year or several, don’t panic. There are things you can do to stay on the ATO’s good side: but don’t dawdle. The longer you wait, the higher penalty you can pay – and those can reach in the hundreds of dollars.
COVID related to working from home
Lucky for those who aren’t super tax-savvy, the ATO has made the working from home claims easy this year.
“The ATO has introduced a temporary ‘shortcut method’ of calculating additional running expenses allowing those working from home to claim a rate of 80 cents per work hour during the coronavirus crisis.
This shortcut method applies for March 1, 2020, and at least June 30, 2020.
So what do people need to claim this? It’s quite a simple method.
“You will need to keep a record of the number of hours you have worked from home as a result of COVID-19, such as a diary or timesheet.
“If you use the 80 cents per hour method, you can make no other claims about working from home.”
Usual flat rate working from home
This means mobile phone and internet usage are included in this rate – unlike the ATO’s existing flat-rate allowance for working from home.
This rate is set at 52 cents per hour but only covers extra costs of heating, cooling, lighting and the decline in value of the furniture.
To claim the 52 cents per hour, all you need is a diary with start time, end time and any breaks.
“Also, (and this is what makes this rate different from the temporary 80 cent rate), you can also make separate claims for the work-related proportion of items.
“This is such as your home internet, mobile phone costs and other expenses that directly relate to your work such as stationery and printer ink.”
Claiming the actual costs
Another option for people is claiming the actual cost you have incurred while working from home.
With this one, you’ll need to have kept all original bills.
You’ll still need to keep a diary of your work from home hours, and you’ll also need to work out the amount of your home (by floor area) that you’re using as your workspace.
“From this, you can then work out the work-related proportion of your household expenses and apply this percentage to the actual amount you spend on electricity, gas, water, phone and internet, etc.”
Among the items you can claim here are costs of cleaning your home working area, depreciation of home office furniture and fittings and costs of repairing home office equipment, furniture and furnishings.
Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don’t need to be depreciated).
He also explained that this would generally produce a bigger claim than the flat rates – but the paperwork and calculation are much greater.
It’s recommended that people use a tax agent if choosing this option.
Keep in mind that JobKeeper and JobSeeker are taxable payments that will be needed to be included in your tax return.
“JobKeeper payments are treated the same as your usual salary or wages from your employer and will be included in your income statement.
“JobSeeker payments will automatically be included in your tax return at the Australian Government allowances and payments section by early July.
“If you want to lodge before Services Australia gets round to providing this information to the ATO, you can take details of your JobSeeker payments to your tax agent who will complete the necessary section.”
A further point to note about 2020 tax returns is the changes to payment summaries.
This year people won’t be getting one from their employer.
“If you’re employed by a large employer like Qantas or Coles, you’ll be familiar with the change that saw you issued last year with an ‘income statement’ from the ATO instead,” he said
“This year, the same system applies to all employees, regardless of the size of your employer.”
Tips For Doing Your Tax Return Late
Don’t panic if you get a letter from the ATO.
If you’ve waited too long to lodge a return, you may get a letter from the ATO containing the words “default assessment”. It will usually include an estimate for your income and the taxes that you owe.
Don’t freak out. The ATO sends these to everyone, and they’re designed to get you moving.
Figure out how many you have to lodge
If you’re behind by one year, it’s going to be a lot easier to manage and explain, than if you have a history of missed lodgements. Figure out exactly how many years you’ve missed, and then determine whether you need to lodge a tax return for those years.
The way you figure out whether you need to lodge is if you earned under the tax-free threshold for that year. This year the threshold is $18,200, but it was lower in previous years.
Talk to an accountant or tax agent.
Seriously – don’t try to do this by yourself. Lodging a late tax return is not as simple as using MyTax (the MyGov lodging system). Contact a professional who is in good standing with the ATO. Not only will they know about deductions and other concessions that could increase a refund, but they can negotiate with the ATO to reduce any fines that could apply.
Yes, it’s going to cost you some money. But considering the ATO might find your thousands if you leave it, it’s worth it.
You might want to contact the ATO.
Ask your accountant or tax advisor about this one, but it could be worth contacting the ATO in the case of several missed years to let them know you’re on top of things. The ATO is much more lenient on folks who are proactive about obeying tax law, so even if you sign that things are underway, you’ll be on the way to getting on their good side.
Gather all your documentation
First up, you’ll need payment summaries for every job you worked during the years of the missed tax returns. Employers are legally obligated to provide them to you.
If you don’t have them, you need to call them up and get another copy. If you can’t get copies, your accountant or tax advisor can help you with estimating your income.
Then you need to find evidence of purchases that can help deduct from your tax. Generally, anything you spend that is related to your employment, not reimbursed by your employer and relevant to the job at hand can be deducted, but there are all sorts of rules and regulations.
You can deduct up to $300 of expenses without receipts. But seriously, don’t lie – the ATO can still ask you about those purchases and the details thereof, even if you don’t have proof of them. If they suspect you’re fibbing or those deductions sit outside the realm of other people in your industry, they’re going to get suspicious.
Don’t freak out
Really! Don’t freak out. It may turn out that you’re owed a whopping big refund at the end of all of this. Just use this as an opportunity to remind yourself: the more you stay on top of your taxes, the easier it will be for you later down the road.
Savvy people are saving their refund wisely.
The Australian Tax Office estimates the average tax return is over $2,000*. Heritage’s Head of Wealth Management, Richard Herbst, says most people treat their tax refund money as a windfall and blow it. “There are some really smart ways to use tax refund money, depending on your circumstance. The obvious ways are through reducing any personal debt or saving it.”
Reduce your home loan
If you have a 25 year home loan, a one-off $2,000 lump sum repayment on a $300,000 loan at 5.19%pa could save you over $4,000 in interest over the life of your loan (without including any costs that may be incurred for lump-sum payments) and would end your loan term three months earlier1.
Pay off your credit card.
The average Australian credit card debt is $4,700^. If you are aiming to pay down your credit card balance, put your refund onto your credit card. If you have a credit card debt of $4,700, you could save over $2500 in interest, and you’ll wipe your credit card debt 14 years sooner than if you were making the minimum repayment2.
If you consider stashing your tax refund in high-interest savings accounts like our Online Saver, your annual tax refund could grow to over $26,000 in just ten years if you chose to save your $2,000 refund each year3. That could buy you a new car, a great overseas holiday or help with your home renovations!
Go shopping and find some bargains.
Let’s be honest; using your tax refund for a little splurge is a great way to reward yourself for all your hard work throughout the year. Remember to shop around to get the best price on whatever you are planning to buy.
- Support your local businesses – local stores are often very competitive with price, and you have the benefit of being able to see and feel the item you’re buying. Plus you get hands-on, personalised service and advice.
- Shopping online with your Heritage Visa debit or credit card comes with its benefits, in that you can often get a lower price, and your location does not restrict you. It’s a great way to shop in London, New York and Paris, without paying the airfare!
Lodge online for free with myTax
You can lodge your return using myTax, the ATO’s free online tool. You need a myGov account linked to the ATO to lodge online. Returns lodged through myGov are usually processed within two weeks.
Lodging online with myTax is easy. Most information from employers, banks, government agencies and health funds will be pre-filled into your myTax by mid-August. You have to check the information, enter any deductions you have, and submit. MyTax will then calculate your tax for you.
Declare all your income
Most of the information about your income will be pre-filled from details the ATO receives from your employer and financial institutions. There may be other income you need to add yourself.
Common types of income that must be declared includes:
- employment income
- government payments
- super pensions and annuities
- investment income (including interest, dividends, rent and capital gains)
- income from the sharing economy (for example Uber or Airbnb)
- compensation and insurance payments
Visit the ATO’s website for more information on the income you must declare.
Claim your tax deductions
You’re entitled to claim deductions for some expenses. A deduction reduces your taxable income and means you pay less tax.
To claim a deduction for work-related expenses:
- you must have spent the money yourself and not been reimbursed
- it must be directly related to earning your income
- you must have a record to prove you paid for it
When your expenses meet these criteria, here’s a list of the things you may be able to claim.
Vehicle and travel expenses
If you use your car for work or work in different locations, then you may be able to claim a deduction. This does not normally include the cost of travel between work and home.
Clothing, laundry and dry-cleaning expenses
To claim the cost of a work uniform, it needs to be unique and distinctive. For example, it contains your employer’s logo or is specific to your occupation, like chef’s pants or coloured safety vests.
If the study relates to your current job, you can claim expenses like course fees, student union fees, textbooks, stationery, internet, home office expenses, professional journals and some travel.
Tools and other equipment
If you buy tools or equipment to help earn your income, you can claim a deduction for some or all of the cost. Examples include protective gear, including sunscreen, sunglasses and hats if you work outside.
The ATO has created occupation and industry guides to help you work out your work-related deductions.
You may be able to claim the cost of earning interest, dividends or other investment income.
- interest charged on money borrowed to invest
- investment property expenses
- investing magazines and subscriptions
- the money you paid for investment advice
The ATO has more information about investment income deductions.
Home office expenses
Costs could include your computer, phone or other electronic devices and running costs such as an internet service. You can only claim the proportion of expenses that relate to work, not private use.
The ATO has introduced a shortcut to make it easier to claim deductions if you’re working from home due to COVID-19.
Instead of calculating costs for specific running expenses, you can now claim a rate of 80 cents per hour for all your running expenses. This covers the period from March 1 to June 30 2020.
Multiple people living in the same house can claim this new rate individually. You no longer need to have a dedicated work from the home area to claim.
The ATO has more information about the other methods you can use to calculate working from home expenses during COVID-19.
Other items you can claim include:
- union fees
- the cost of managing your tax affairs
- income protection insurance (if it’s not through super)
- personal super contributions
- gifts and donations to organisations that are endorsed by the ATO as deductible gift recipients
Keep receipts using deductions and make it easier to do your tax return. myDeductions allows you to record deductions including work-related expenses, gifts and donations, interest and dividends. It also lets you store photos of receipts and record car trips.
Get help from a registered tax agent.
If you want to use a professional to do your tax return, make sure you use a registered tax agent. You can check if the accountant or agent is registered on the tax practitioner register.
Most registered agents have special lodgement schedules and can lodge returns for their clients later than the October 31 deadline.
Whichever way you choose to lodge your tax return, remember you are responsible for the claims you make. So make sure your deductions are legitimate, and you include all your income before you or your agent lodges your return.
Whether it’s a new pair of shoes, watching your account balance grow or slashing your personal debt, we hope you make great use of your tax refund. If you’d like more information about using your tax refund to help reduce your personal debt – or saving it – talk to us today. We can even make an appointment with one of our financial planners for you, and your first consultation is free.