The Aussies who will receive bigger tax refunds this year

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Which Aussie taxpayers and businesses will receive higher refunds this year, and which ones will be disappointed? We find out.

Winners

People earning between $45,000 and $90,000

tax refund winners and losers

The combination of the changes in tax threshold announced in last year's Budget and the extension of the low and middle income tax offset means that if you earn between $45,000 and $90,000, you are probably $2160 better off this year. Not all of that will come back to you through your tax return but the entire low and middle income tax offset ($1080) and about one third of the tax cut due to changing threshold will; the rest will have already been received through your wages or salary. Quite an incentive to get your tax return done and lodged!

"Small companies"

The rate of corporate tax for small companies went down from 27.5% to 26% on July 1, 2020, and has gone down again by 1% (to 25%) from July 1, 2021, which is good for investment and productivity in the economy, at least for those companies that don't pay dividends out of their profits (see below).

To qualify for the tax cut, companies must have an aggregate turnover of less than $50 million and must have 80% or less of their assessable income as "base rate entity passive income", which basically means income like rent, dividends and interest.

People working from home

The ATO expects to see a big increase in working from home deductions this year, spearheaded by the army of workers who have been forced into the spare bedroom or the dining room by COVID-19 lockdown. You can claim a tax deduction for the work-related proportions of such costs as:

  • Heating, cooling and lighting bills
  • Costs of cleaning your home working area (including cleaning products or payment for a domestic cleaner if required)
  • Depreciation of home office furniture and fittings
  • Depreciation of office equipment and computers
  • 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)
  • Computer consumables (like printer ink) and stationery
  • Phone (mobile and/or landline) and internet expenses

Deductions are available using three methods; the 80 cent per hour rate, the 52 cent per hour rate or actual costs.

If you use the 80 cents per hour method, you can make no other claims in relation to working from home. Alternatively, you can claim the 52 cents per hour rate which covers the extra costs of heating, cooling, lighting and the decline in value of furniture. In addition, (and this is what makes this rate different to the 80 cent rate) you can also make separate claims for the work-related proportion of items such as your home internet, mobile phone costs, stationery, printer ink and depreciation of computer equipment.

These additional costs make this a preferred method since the size of the claim is often much larger than using the 80 cent rate.

On average, people who have been working from home all year can expect a deduction of about $1500 using the 80 cents per hour rate.

However, average deductions for those who claim the 52 cent rate plus additional deductions for phone, internet, stationery and depreciation of phone equipment are at least $2,600.

That's a sizeable difference which translates into - on average - a tax saving of over $350! If you use the actual rate, your deduction is often even bigger, averaging over $3000 if you've worked from home all year.

Losers

The shareholders of small companies

If they receive dividends, the cut to the small companies rate of tax means that any dividends which they receive will be franked at a maximum of 26% (or 25% from July 1, 2021), meaning that they have more personal tax to pay.

The sleight of hand of company tax cuts is that while it leads to less tax for the company, it also leads to higher taxes for shareholders - therefore, on balance, its less of a tax cut and more of a tax redistribution.

People who claim for work-related car use, accommodation or travel

The ATO expects to see a reduction in these claims so if you've relied in the past on clocking up the kilometres in your work vehicle to boost your tax refund, you might be disappointed. The COVID-19 pandemic will almost certainly have massively reduced the size of your claim.

When it comes to tax time, this year, many need to realise that there is no one size fits all approach. Every tax return is different, with varying deductions and offsets. Experts are experts for a reason. Due to the ever-changing nature of our world, this year Australians need to visit a tax professional to help them to understand their entitlements, and ensure they are receiving the deductions they are entitled to.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.

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