by Jodi Escudier, Sixpence Wealth Management
Happy New Financial Year – Tax time is upon us and if you have earnt any income in the 19/20 tax year, then you are required to lodge a tax return with the ATO. The good news is that you may be entitled to getting some of your lovely money back in the form of a tax refund (wooohooo) so here are some tax hints and tips to help you maximise your return and fill your purse.
There are a couple of options when completing your return – you can complete it yourself directly with the ATO via your MyGov account (with a calculator and glass of wine) or engage the services of a registered tax agent (they’re smart!). With all of the drama 2020 has bought us mixed in with the added complications of working from home – your return may not be as simple as it usually is. Here is a list of the types of tax offsets and deductions you may be entitled to claim plus other handy tax tips:
(note: this is not an exhaustive list and advice from a professional tax agent should be sought)
Income that can be declared
- Gross salary, wages
- Lump sum such as redundancy payments
- Taxable government allowances such as jobkeeper
- Interest earned on cash at bank
- Dividends received or reinvested including franking credits
- Rent received from investment properties
- Capital gains or losses derived from selling property / assets
Expenses that can be deducted
- Deductible work from home expenses not reimbursed by your employer
- Motor vehicle expenses for work-related travel
- Other work-related travel such as taxis
- Purchase of compulsory uniforms, protective clothing including sun protection, hats, sunglasses
- Purchase of tools for trade
- Self-education expenses such as books and courses also tickets to seminars, conventions
- Telephone accounts for work related calls and home office set-up expenses such as computers and furniture
- Donations of $2 or more to charity
- Tax preparation fees including travel to your agent
Deductions for expenses related to working from home due to coronavirus:
If you are working from home due to the Coronavirus crisis and incur expenses that are not reimbursed by your employer, you may be able to claim them as a tax deduction. The expenses must be directly related to working from home and you need to keep a record of your working from home hours and your expenses.
There are three ways you can choose to calculate additional running expenses:
Shortcut method: a deduction of $0.80 for each hour worked from home due to the Coronavirus is allowed if you incur additional deductible running expenses as a result of working from home.
Fixed rate method: a rate of $0.52 per hour for the cost of utilities, cleaning and depreciation of office furniture; work related phone and internet expenses, computer consumables and stationary. Also work related depreciation of a computer, laptop or similar device.
Actual Cost Method: claim the actual work-related portion of all running expenses, calculated on a reasonable basis.
For more details, please refer to the ATO website under ‘employees working from home’
Super Tax Hints
Super is a very tax effective way to save for your retirement. Here ae some tips to help you maximise your super:
Contribution limits : Concessional contributions (those your employer makes or your salary sacrifice) are limited to $25k per person per year. Unused concessional contribution caps from the 2018/19 financial year and later years may be used for up to five financial years as long as the members total superannuation balance on 30 June prior to the financial year of contribution is less than $500,000. Non-concessional contributions are those you make from your bank account and have therefore already paid tax on the money and are therefore not treated as a favourable 15% taxed contribution. For the 19/20 tax year, non-concessional contributions are capped at $100k per person per year, or $300k over 3 years. (i.e $200k in yr 1, $100k in yr 2 and $0 in yr 3). Both types of contributions have age and work restrictions so make sure you qualify before contributing.
Salary Sacrifice : If you want to boost up your balance you can arrange with your employer to “top up” your super contributions using a salary sacrifice method. Your employer will direct more of your wages directly into your super account and less into your bank account, therefore reducing your taxable income. A great way to boost your super savings whilst saving on tax paid.
Personal Deductible Contributions: You can make voluntary personal contributions into your super (within the cap specified above) and claim a tax deduction. This gives you greater flexibility to top up your concessional contribution made by your employer if you do not want to salary sacrifice on a regular basis but still want to contribute and benefit from the tax advantage.
Super Co-Contributions: If you receive at least 10% of your income from employment of self-employment and you earn less than $38,564 you may be eligible for a super co-contribution from the government. If you contribute $1,000 of after tax money the government will contribution $500 into your super account. The co-contribution phases out once you earn $53,564 or more.
Super Splitting : From 1 July 2020 you may be able to split up to 85% of any concessional (or pre-tax) contributions you made during the 19/20 tax year with your spouse (or vice versa) which is a good way to boost your balance if your spouse has a much higher/lower balance than you or is able to access super earlier.
Other Tax Hints
Prepaying Interest: if you have an investment loan you can arrange to prepay the interest on that loan for up to 12 months and claim a tax deduction in the same ear the interest was preapaid.
Income protection insurance : if you hold an income protection policy and are paying from your cashflow (not super) then any premium payments you make are tax deductible.
Negative Gearing: if your cost of borrowing exceeds the income generated by investment the excess cost can reduce the tax you pay on other income. If you invest in shares, you may obtain imputation credits which can be used to further reduce the amount of tax you pay.
However you decide to complete your tax return this year, I would certainly suggest doing your homework on what exactly you can claim to maximise your return or consult a professional who can help you with the options available to you on maximising your return. If this all seems a bit “taxing” focus on the cash injection you may get back from the tax man and how much your piggy bank will thank you…….. until next year!
Jodi Escudier is a financial adviser and owner of Sixpence Wealth Management. Self confessed spreadsheet nerd and numbers gal Jodi started her finance career in London in 2003 and emigrated to Perth, WA in 2009 where she now lives with her husband, children and fur babies. To find out how Jodi works with clients go to www.sixpencewealth.com.au and for more tips and money motivation follow her at @the.womens.wealth.coach.
The information contained above is for general information purposes only and should not be taken as personal financial advice as no personal circumstances were considered in producing this article. Please consult a qualified professional before making any financial decisions.