This End of Financial Year may feel different to previous ones. You might be experiencing reduced working hours or find yourself unemployed, maybe you’re working from home more, or as a landlord you could be incurring more out of pocket expenses as tenants struggle with affordability.
As the end of another tax year rapidly approaches on 30 June, we’ve put together an End of Financial Year checklist to help you maximise tax time benefits.
How you can prepare
Don’t put your Tax Return into the ‘too hard basket’. You could enjoy an End of Financial Year cash boost if you know what to include and how to maximise any work-related deductions.
Many people don’t realise their income isn’t necessarily just what they earn from their employer. Consider if any of the following apply to you:
- Lump sum/termination payments
- Bank interest
- Employee share schemes
- Managed Funds income
- Rental property income
- Foreign income
- Capital gains
No doubt the most confusing and contentious area of tax returns. This could include expenses you’ve incurred and haven’t been reimbursed for which may reduce your tax liability.
- Work-related deductions
- Home office expenses
- Self-education and professional development
- Registrations, subscriptions, memberships
- Vehicle and travel expenses
- Protective clothing, laundry and dry-cleaning expenses
- Tools and equipment, including depreciable assets (such as laptops)
- Accountant or tax agent fees
- Personal super contributions
- Investment income expenses, such as margin loans and financial adviser fees
- Income protection insurance premiums
You can find more information about deductions on the Australian Taxation Office (ATO) website.
Ways to reduce your tax bill
Although tax time is about income minus expenses, there are other things you can do throughout the year to help manage your tax effectively.
Get your super in order
You could boost your super savings rather than just relying on your employer’s SG contributions.
- Personal super contributions: you may be eligible to claim a tax deduction for your personal contributions up to the $25,000 Concessional contributions cap limit, but beware that this cap is for all concessional contributions and includes employer contributions aswell. You may also be eligible to make additional personal contributions from your after-tax salary up to the non-concessional contributions cap.
- Co-contributions: low or middle-income earners that make personal super contributions may receive a government co-contribution, up to a maximum $500.
- Employee salary sacrifice: an agreement with your employer to give up part of your salary (thereby reducing your taxable income) and investing it into super to boost your retirement savings.
- Spouse contributions: a tax rebate (maximum $540) may be available for after-tax contributions to super on behalf of a low-income spouse.
But there are some things to be aware of too.
- Timing: contributions must be in your super account before 30 June or they will be counted against the next financial year’s limits.
- Concessional contribution cap: for the 2019/20 financial year, Concessional contributions (employer SG, salary sacrifice and personal contributions for which you have claimed a deduction) cannot exceed $25,000. If you contribute more than this amount, you may have to pay extra tax.
- If you are over the age of 65, you will need to meet the work test to ensure you are eligible to make personal contributions.
- If you want to claim deductions for your personal contributions, you need to provide a valid 'notice of intent to claim a deduction for personal superannuation contributions' to your super fund and have received written acknowledgement.
Understand additional levies
Everyone pays the Medicare levy (2% of taxable income) to help fund Australia's public health system.
You may also have to pay the Medicare levy surcharge if you don’t have an appropriate level of private health insurance and your income is above a certain level.
However, it’s worth reviewing the pros and cons of private health insurance, as you might also find you’re eligible for the private health insurance rebate, which is an amount the government contributes towards the cost of your premiums.
Be an organised landlord
Make sure you have the annual tax statement from your property’s managing agent, plus details of any expenses you’ve paid personally, like land tax, strata, insurance or mortgage interest.
If you made any capital improvements, keep the receipts for any depreciable items. And if you bought or sold a property, keep copies of the sales contract, settlement sheet and other associated costs.
It can also be useful to have a depreciation schedule for your property. It shows the deductions for the depreciation of the building structure and the items within and can deliver significant savings at tax time.
Offset a capital gain
If you realise a capital gain from an investment during the year, you could consider offsetting this by selling a poorly performing investment that no longer suits your needs. This would trigger a capital loss, which could reduce your tax payable, as well as potentially releasing money to invest in new investment opportunities.
Prepay investment loans
If you have a geared asset like a rental property, and you have capital to inject, some lenders may allow you to prepay 12 months interest on your investment loan. This will effectively bring forward your tax deduction into the current year and could help offset any capital gains or additional income you’ve earned.
Does COVID-19 affect this End of Financial Year?
Our daily routines have changed since COVID-19 and the ATO has stepped in to make it easier when claiming deductions that reflect the new working environment.
Home office expenses
To streamline claiming a deduction for additional running costs while working from home, the ATO has introduced a simplified method so you can claim a flat rate of 80 cents per hour for all running expenses, rather than calculating an amount for each individual expense. Expenses include:
- Phone and internet.
- Cost of heating, cooling and lighting the work area.
- Printing and stationery.
- Equipment, including computers, printers and furniture.
This simplified method applies for home office expenses incurred between 1 March 2020 until 30 June 2020. Of course, you can still calculate your actual running expenses if you prefer.
As with most deductions:
- you must have spent the money
- the expense must be directly related to earning your income
- you must keep a record to prove it.
If you use the simplified method, you should keep a record of the hours you worked at home using timesheets or diary notes.
If you received an allowance from your employer to cover your expenses when working from home, you must include this as income in your tax return and claim a deduction as outlined above.
Find out more on the ATO website.
Leave or temporary stand down
If you take leave or have been temporarily stood down due to COVID-19, your employer may be continuing to pay you regularly (possibly through the JobKeeper scheme) or make a one-off payment. The ATO treats these payments in the same way as your income from your employer, so you must declare them as salary/wages on your tax return and you will pay tax on them at your marginal tax rate.
Plan for the future
- End of Financial Year is a great time to assess your current financial situation.
- Do you expect anything to change in the next 12 months?
- Did you get a tax refund that you could use to grow your wealth or pay down other debts?
- Should you have put more money aside to pay your tax liability?
The good news is, we have an End of Financial Year every year, so you can always apply any lessons learned. An Accountant or Tax Agent can help you plan ahead, research your options for tax efficiency and try to maximise the amount of money you get back.
Information current as a May 2020. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. Any tax considerations outlined in this document are general statements, based on an interpretation of current tax laws, and do not constitute tax advice. You should seek specific tax advice from a registered tax agent or registered tax (financial) adviser about any liabilities, obligations or claim entitlements that arise, or could arise, under taxation law. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any super law considerations or comments outlined above are general statements only, based on an interpretation of the current super laws, and do not constitute legal advice. This publication has been prepared by BT - Part of Westpac Banking Corporation ABN 33 007 457 141 AFSL & Australian credit licence 233714.