Eager to get your hands on your tax refund? Now is the time to prepare
It has been an extraordinary year so far but one thing that hasn't changed is that, with end of financial year fast approaching, now is a good time to take action in order to minimise tax bills this financial year or, even better, get a refund.
One of the basic rules of tax planning is to lodge a tax return early if a refund is expected - and some people may find themselves in a position of getting a refund this financial year if they have seen their income reduce in the past few months.
Lodging the return early means that any refund is received more quickly, and an early tax refund could be very useful. In addition, it may help reduce any ongoing quarterly tax instalment payments.
Claiming expenses on tax
A big change for many people this financial year is that any expenses that have been incurred because people are working from home following the lockdown can potentially be claimed as a tax deduction.
This will be very useful as many workers will notice a big increase in expenses such as their electricity and gas bills, or may have had to buy a desk or printer in order to work from home.
Deductible running expenses include:
- Utilities such as heating and lighting
- Cleaning costs for the work area
- Mobile or landline phone expenses for work calls
- Internet connection
- Stationery and computer accessories such as print cartridges
- Repair costs for home office equipment and furniture
- Depreciation of home office equipment, computers, furniture and fittings
Small capital items such as a computer (purchased for the purpose of working from home) can be claimed if they cost under $300. If the cost exceeds $300, the decline in value can be deducted.
In order to calculate the tax deduction available to them on expenses, there are a few methods to choose from.
Perhaps the most straightforward is the one recently introduced by the ATO, where people can claim expenses at a rate of 80 cents for each hour worked from home as a result of the lockdown. This will apply from March 1, 2020, to June 30, 2020.
To use this method, people will need to keep a record of hours worked, such as timesheets or rosters.
Alternatively, people can also use the pre-existing methods to deduct working from home expenses, but may find these more time-consuming.
The 'actual cost' method involves keeping a diary to record the work portion of household running expenses, while the 'fixed rate' method allows 52 cents per hour worked to be claimed; however the actual work-related portion of phone and internet costs must be calculated, as well as the depreciation of equipment.
The end of the financial year is always a good time for people to reassess how their super accounts are structured and managed. This year, it will be more important than ever.
Most people will have incurred capital losses in their superannuation fund as a result of the market downturn, which they many choose to realise in order to offset any capital gains from earlier in the financial year.
They may also need to reconsider some of their strategies such as making concessional contributions or, for those already in retirement, reducing drawdowns, to try to rebuild their balance.
Some people may also be considering taking advantage of the opportunity to access their super early, however people should treat this measure as a last resort.
There are other government financial relief measures available that should be used first, as accessing super early will have a seriously detrimental effect on savings upon retirement. In addition, taking money out of superannuation now may affect insurance cover.
For those who can afford to make additional contributions to superannuation, they should make sure they do so well before the end of financial year.
Any super contributions won't count for this financial year unless the payment is received by the super fund before June 30.
Also, this year is the first year in which people can make catch up contributions and use up any unused concessional contributions cap from the 2018/2019 financial year. This option is available to those whose total super balance is less than $500,000 on June 30, 2019.
As mentioned earlier, if large capital gains were realised earlier in the year, it could be useful to realise some capital losses - subject to the appropriate investment advice.
This applies equally to investments held outside superannuation as it does to super fund investments.
Despite the unusual circumstances, some tax tips remain the same. There are a few standard tax strategies that everyone should consider every year - even this year.
- Income splitting with a spouse
- Reviewing deductible versus non-deductible debt
- Prepaying deductible expenses
- Reviewing health insurance arrangements.
We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.