Tax Return Hacks Every Australian Should Be Doing

It's that time of year again...

Tax Return Hacks Every Australian Should Be Doing

It takes a rare soul to get excited about tax season. But if you play your receipts right; your next snow weekender might just pay for itself (not to mention shifting you into a different tax bracket entirely). How? There are a bunch of actions you should be taking as the end of financial year approaches.

But one in particular is hyper-relevant this annum: working out exactly which ‘work from home’ expenses you can claim this year.

To help you do this we got in touch with Fernando Prieto, CA at Solid Partners Accountants & Advisors.

First up, Fernando told us the government has changed the system slightly to accommodate those working from home due to COVID. As the ATO website reads: “As the COVID-19 situation develops… We understand tracking these expenses can be challenging.”

“So, we will accept a temporary simplified method (or shortcut method) of calculating additional running expenses from 1 March 2020 until at least 30 June 2020,” the ATO advises. “We may extend this period, depending on when work patterns return to normal.”

This simplified method, Fernando explains, basically involves claiming 80c for every hour worked. According to him, this tends to be the easiest way for individuals who don’t normally work from home to make their claim.

Sound like you (if it’s not, click here for the full breakdown)? Read on for the official government guidelines on what you can and can’t claim.

End Of Financial Year Expenses: What Australians can and can’t claim

Expenses you can claim when working from home

If you work (or during lockdown, worked) from home, you will be able to claim a deduction for the additional running expenses you incur. These include:

  • Electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
  • Cleaning costs for a dedicated work area
  • Phone and internet expenses
  • Computer consumables (for example, printer paper and ink) and stationery
  • Home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the full cost of items up to $300 or decline in value for items over $300.

Expenses you can’t claim when working from home

If you are (or were) working from home only due to COVID-19, you can’t claim:

  • Occupancy expenses such as mortgage interest, rent and rates
  • The cost of coffee, tea, milk and other general household items your employer may otherwise have provided you with at work

Calculating running expenses

There are three ways you can choose to calculate your additional running expenses:

  • Shortcut method ─ claim a rate of 80 cents per work hour for all additional running expenses
  • Fixed-rate method ─ claim all of these; a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture; the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery and the work-related portion of the decline in value of a computer, laptop or similar device.
  • Actual cost method ─ claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis.

For more information, click here.

Shortcut method

You can claim a deduction of 80 cents for each hour you work from home due to COVID-19 as long as you are:

  • Working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls
  • Incurring additional deductible running expenses as a result of working from home

You also don’t have to have a separate or dedicated area of your home set aside for working, such as a private study, to claim using this method.

The ATO says the shortcut method rate covers all deductible running expenses, including:

  • Electricity for lighting, cooling or heating and running electronic items used for work (for example your computer), and gas heating expenses
  • The decline in value and repair of capital items, such as home office furniture and furnishings
  • Cleaning expenses
  • Your phone costs, including the decline in value of the handset
  • Your internet costs
  • Computer consumables, such as printer ink
  • Stationery
  • The decline in value of a computer, laptop or similar device

“You do not have to incur all of these expenses, but you must have incurred additional expenses in some of those categories as a result of working from home due to COVID-19,” reads the ATO guidance page.

“If you use the shortcut method to claim a deduction for your additional running expenses, you cannot claim a further deduction for any of the expenses listed above.”

You must also keep a record of the number of hours you have worked from home as a result of COVID-19 (e.g. timesheets, diary notes, rosters. etc).

The ATO adds “if you use the shortcut method to claim a deduction and you lodge your 2019–20 tax return through myGov or a tax agent, you must include the note ‘COVID-hourly rate’ in your tax return.”

Records you must keep

If you use the shortcut method, you only need to keep a record of the hours you worked at home, for example timesheets or diary notes.

If you use the other methods, you must also keep a record of the number of hours you worked from home along with records of your expenses.

Bonus ways to maximize your return

Renew your Playboy subscription

It sounds too good to be true, but if you have spare EOFY cash, consider paying for certain items now (from magazine subscriptions to the interest on your investment property) that you’ll use next financial year. “You can claim a tax deduction this year for expenses which wholly or partly relate to next year,” explains Mark Chapman, Director of Tax Communications at H&R Block.

An often overlooked way of doing this is making a personal contribution into your super fund. Provided the total amount of your contributions (including the contributions made on your behalf by your employer) does not exceed $25,000, this can be a great way to simultaneously boost your nest egg and claim a tax deduction.

Develop a Messiah complex

Yes: you may have spent the last 51 weeks of the year avoiding eye contact with do-gooders wanting your signature in the street, but now is the perfect time to rediscover your latent Mother Teresa. The question isn’t: would you rather someone in need got your money or the ATO. It’s: would you rather you got your money (back) or the ATO. Right?

Remember: there’s no limit to how much you can donate and claim back—as long as you have the receipts to prove it. Just make sure you don’t claim for donations that could give you some form of benefit (e.g. raffle tickets or tickets to a charity dinner).

Quit while you’re ahead

Sold an investment property and made a few (million) bucks? Consider looking at investments you have sitting at a loss and selling those off too, because the resulting capital losses can be offset against the capital gain.

Invest in your business

If you’re an entrepreneur or small business owner with an aggregate turnover of less than $20 million, you can buy something worth up to $20,000 for your company and immediately write it off against your business tax bill. New technology, stationary, furniture, a time share in a Ferrari—as long as you can justify it, the market’s your oyster.

Sacrifice your salary

If you use your mobile phone, tablet or laptop predominately for work (provided your employer allows you to), you can opt to “salary sacrifice” these items once a year (upgrading your equipment so you are using the latest technology).

Doing this means you are buying these items with your pre-tax income (you’ll be taxed less), and if your employer is registered for GST you should also get the benefits of GST on the items. Doing this saves you tax and means your employer doesn’t have to pay a ‘fringe benefits’ tax (on the basis that the items are mainly used for work purposes) and you’ll save on the GST (if your employer is registered for GST).

According to Fernando Prieto, our friendly CA  at Solid Partners Accountants & Advisors, “There is some administration behind this and implementing it usually depends on your employers agreeing to it and making sure you meet all the requirements. But if you meet the requirements it’s a great way to fund the purchase of some technology you’ve been holding off on, or switching to a sim only plan and improving your cashflow.”

A word of warning

Fernando also told us, “This year the ATO is paying particular attention to work related clothing deductions and work related car expenses.” Which means you need to carefully consider whether you are eligible to claim the work related clothing deduction and car expenses (referring to your occupation specific guide—on the ATO website). A common mistake, he says is people claiming suits that don’t have a company logo.

“Suits for office workers aren’t deductible unless they have a company logo, so you can’t claim dry cleaning etc. – even if you are expected to wear a suit as part of your occupation.”

You also need to, “Make sure you keep the correct records/substantiation requirements for those claims (i.e. if you claim a proportion of your mobile expenses, you have to calculate your business call percentage for one month’s phone bill in that financial year).”

Extra advice

The application of deductions varies greatly between occupations, so the easiest way to maximise your deductions is to look at the guidance the ATO provides for specific occupations and determine if any of those deductions apply to you.

Even if your occupation isn’t specifically listed, according to Fernando, “You should be able to find an occupation that is very similar to yours and then use it as a guide (i.e. if there’s no guidance for accountants, you could refer to the business professionals guide).”

There are 30+ guides, and the important things to do are; get familiar with what you can (and can’t) claim specific to your occupation, keep the correct records and claim the correct amount.

Disclaimer: The information provided below is general in nature and should not be relied upon by individual tax payers – as it does not take into consideration your specific circumstances.

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