Despite the current COVID-19 world in which we live, the procedures for completing and lodging tax returns remains pretty much the same.
So, before we talk about your tax return, certain information will be needed. Of course, these days the Tax Office pre-filling takes care of a lot of the “paperwork”, and if you wait until late-July or mid-August the ATO’s systems will most likely be able to provide most of the information from employers, banks, government agencies and other third parties.
We will then be able to double-check the information is correct and enter any deductions you want to claim. However to be thorough, before booking your tax appointment here are the sorts of information needed to enable us to complete your tax return:
- Income statements:
- Previously called PAYG Payment Summaries (or group certificates, in the olden days)
- These outline the income you have received from your employer, super fund or government payments such as from Centrelink or the Department of Veterans Affairs.
- Bank statements
- Details any interest you have earned during the period and fees you have paid.
- Show interest paid on loans for income-generating assets (e.g. rental properties and shares)
- Used to reconcile accounts receivable for annual business income
- Shares, unit trusts or managed fund statements:
- Information on dividends or distributions you’ve received
- Note: dividends that you’ve elected to reinvest must be declared as income.
- Buy and sell investment statements:
- Needed to calculate capital gains and losses.
- If you bought or sold any shares you can access the details on your online broking account or you can get them from your investment adviser or stockbroker.
- Records from your rental property:
- If you use a property manager you will probably get an annual tax statement that details most income and expenses.
- Otherwise you will need to gather details of income received and expenses paid.
- Collect bank loan statements for interest paid; be sure to flag any redraws or refinancing
- Gather all cost-base records for any capital gains or capital losses from the sale of property.
- Foreign income:
- Details of foreign pensions or other foreign income.
- Documented evidence of tax paid for any foreign income tax offsets
- Private health insurance policy statement:
- Information needed to complete the private health insurance section of your tax return.
- Superannuation contributions:
- Acknowledgment letter from your super fund, after sending them your Notice Of Intention form to claim a deduction
Income that must be declared
The taxability of some forms of income may seem obvious, but in keeping with our objective of being thorough, here is a list of common types of income that must be declared on your tax return. (This remains the case even if the amount of income has been affected by the COVID-19 crisis.)
- Employment income (including any JobKeeper payments)
- Super pensions, annuities and government payments
- Investment income (including interest, dividends, rent and capital gains)
- Business, partnership and trust income
- Foreign income
- Income from crowdfunding (for example donations received for a venture in which you intend to make a profit)
- Income from the sharing economy (for example Airtasker, Uber or Airbnb)
- Other income, including compensation and insurance payments, discounted shares under employee share schemes, some prizes and awards.
- JobSeeker or other relevant welfare payments
Check with us if you are unsure about any of these payments.
When completing your tax return, you’re entitled to claim deductions for some expenses, most of which should be directly related to earning your income (called “work-related expenses”). Naturally, a deduction reduces your taxable income, and means you pay less tax.
To claim a deduction for work-related expenses:
- you must have spent the money yourself and not been reimbursed
- it must be directly related to earning your assessable income
- you should have a record to substantiate your claim.
When your expenses meet these criteria, here’s a list of the things you may be able to claim.
- Vehicle and travel expenses: This does not normally include the cost of travel between work and home, but if you use your car for work or work in different locations then you may be able to claim a deduction.
- Clothing, laundry and dry-cleaning expenses: To legitimately claim the cost of a uniform, it needs be unique and distinctive, for example it contains your employer’s logo, or is specific to your occupation, like chef’s pants or coloured safety vests.
- Gifts and donations: Only claim for contributions to organisations that are endorsed by the ATO as “deductible gift recipients”.
- Home office expenses: Costs could include your computer, phone or other electronic device and running costs such as an internet service. There may be scope for depreciation, and you can only claim the proportion of expenses that relate to work, not private use. There is also an alternative “80 cents per hour” method that can be used for claiming expenses if you worked from home during the COVID lockdown (only from 1 March).
- Interest, dividend and other investment income deductions: Examples include interest, account fees, investing magazines and subscriptions, internet access, depreciation on your computer.
- Self-education expenses: Providing the study relates to your current job, you may be able to claim expenses like course fees, student union fees, textbooks, stationery, internet, home office expenses, professional journals and some travel.
- Tools, equipment and other equipment: If you buy tools or equipment to help earn your income, you can claim a deduction for some or all of the cost. The type of deduction you claim depends on the cost of the asset. For items that don’t form part of a set and cost $300 or less, or form part of a set that together cost $300 or less, you can claim an immediate deduction for their cost. For items that cost more than $300, or that form part of a set that together cost more than $300, you can claim a deduction for their decline in value.
- Other deductions: Other items you can claim include union fees, the cost of managing your tax affairs, income protection insurance (but not if it’s through your super fund), overtime meals, personal super contributions (that is, after tax) and other expenses incurred in the course of earning an income.
Of course, we may have some more ideas once we have seen what you have kept records for. Sometimes one’s circumstances will define what can and generally cannot be claimed as a deduction, so even if some of the above seem to fit your situation, it may pay to check with us first.
Off the deduction menu
The ATO is focused on helping taxpayers get their deductions right, but it’s also on the lookout for red flags that identify people who are doing the wrong thing. Here’s a list of deductions you usually can’t claim on your tax return.
- Travel between home and work, which is generally considered private travel.
- Car expenses, unless you are transporting bulky tools or equipment that you need to do your job, and that your employer requires you to transport (and there is no secure area to store the equipment at work).
- Car expenses that have been salary sacrificed.
- Meal expenses, unless you were required to work away from home overnight.
- Private travel, including any personal travel portion of work-related travel.
- Everyday clothes you bought to wear to work (for example, a suit or black pants), even if your employer requires you to wear them.
- Self-education expenses where there is no direct connection to your current employment.
- Phone or internet expenses that relate to private use.
Be aware of the records you need to keep to show evidence of purchases and how you calculated your claims.
Make sure that your representative 4 week diaries and 12 week logbooks are properly completed in order to substantiate your working from home, travel and car usage claims. Otherwise, these deductions may be disallowed.
Tax Office visibility with granular data
In order to target incorrect claims more easily, the Tax Office is using granular data technology. They will be able to “read” more from your 2020 tax return than in previous years.
- deductions schedules
- income details schedules
- rental property schedules
- capital gains schedules
- non-resident foreign income schedules.
The level of detail required in the tax return schedules has increased which means we may need to ask you for more information to satisfy the granular data requirements in our ATO-compliant software. We may also spend more time on carefully describing your claims so that your tax return is not flagged for audit, so please be patient if your tax return is not completed as quickly as initially expected.
Small Business Expenses
Many of the rules above pertaining to income, expenses, deductions and substantiation apply to businesses as well as to individuals.
This past year has been unprecedented, with bushfires, drought and COVID-19 making things more difficult for many people in small businesses. So the Tax Office have announced a special Small business tax time toolkit this year, and a Directory for further support.
The Tax Office’s handy directory and guides have info on:
🏠 home-based business expenses
🚚 motor vehicle expenses
🧳 travel expenses
💰 using your company’s money or assets
🏬 pausing or closing your business due to COVID-19
Please be aware that any information from the Tax Office website is general in nature, and their public servants are not in a position to give you reliable tax law advice over the phone. Their guides are useful to bone up on the basics before discussing your individual situation with an accountant.
To avoid confusion, we encourage our business clients to contact us instead of phoning the Tax Office. We phone the Tax Office on our clients’ behalf to speak with specialists if there is any problem to sort out.
We hope this was helpful. Please contact us for tax advice specific to your circumstances.
Note: We are only available to prepare 2020 tax returns for our existing clients, and any new business clients that sign up to our annual packages for 2021.
The material and contents provided in this publication are general and informative in nature only. This article is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required with your own affairs, professional advice should be obtained.