Article attributed to: H&R Block’s Director of Tax Communications, Mark Chapman.
It’s less than a month to tax time and from 1 July, millions of Australians will be going through the arduous ordeal of preparing their tax return in the hope of a speedy and substantial tax refund.
With 84% of taxpayers expecting a refund, and the average size of refunds last year reaching over $3,500, it pays to spend a little time and effort ensuring you’ve got every detail of your return right.
So what are H&R Block’s top tips for maximising your refund this year?
Claim what you’re entitled to
You’re entitled to claim a deduction for any expense which you incurred in earning your income. So, if you have incurred a work-related expense, and you have the paperwork to prove it, don’t hesitate to claim it. Amongst the common deductions many taxpayers claim are:
- Costs of using your own car for work. This doesn’t include driving to and from work but it does include visiting clients or suppliers, and driving from one work-site to another
- Costs of travelling for work. If you are required to work away from home, and you incur costs on meals and accommodation, those costs are deductible up to the amount you actually spent. If your employer pays you an allowance to cover your traveling costs, that allowance is taxable.
- Costs of tools and other equipment. Whether it’s the cost of tools if you are a tradie, or the cost of a new computer, laptop or mobile phone if you are office-based, if you spend it, you can claim it, provided it’s used for work purposes (if it’s used partly for work and partly for private use, you can only claim the work-related proportion). Items costing $300 or less are deducible in full, immediately. Items costing more than $300 are deductible over several years.
- Do you work from home? With many employees putting in extra hours in the evening and at weekends, and many employers moving to flexible working environments where an office space isn’t necessarily provided, it’s becoming increasingly common for people to work either partly or wholly from home.
If you’ve set up a home office in your study or converted a spare bedroom into a work space, you need to be aware of the potential tax deductions you can claim including the work-related portions of costs such as:
- Heating, cooling, lighting and water bills
- Depreciation of home office furniture and fittings
- Depreciation of office equipment and computers
- Computer consumables (like printer ink)
- Telephone and internet costs
- Cleaning costs
A good tax accountant will be able to tell you exactly what you can and can’t claim, minimising the chances of an audit at a later date.
Don’t embellish deductions….
You can only claim what you’ve spent. So, don’t inflate deductions in order to get a bigger refund and only claim for costs you can prove you spent, by producing an invoice, receipt or bank statement for instance.
This year, self-lodgers using the ATO’s myTax program will be monitored as they prepare their return by the ATO’s computer systems to ensure they’re not over-claiming. The ATO will compare your claims to those of others like you and if your claim rings alarm bells, myTax will give you a stern warning inviting you to rethink that deduction. Ignore that message, and you could be headed for an audit!
Boost your super and slash your tax bill
You can now make additional payments to your super and claim an income tax deduction for doing it. That means that for every dollar you pay into super, you can claim a deduction that will save tax at your marginal rate. Each year, you can contribute up to $25,000 into super at the concessional rates. Part of that will be the amount your employer pays into super as part of your remuneration, plus any amounts you salary package. Once you’ve added those figures together, if the total is less than $25,000 you can pay the difference into super as a tax deductible contribution. If you’re a high income earner, that means that you could reduce your taxes by 45 cents for every dollar extra you pay into super to get to that $25,000 threshold.
If you want to claim a tax deduction for your super payment in this year’s tax return, it must be made by June 30th and you need to advise your super fund that you’ve made the payment by the time you lodge your tax return (H&R Block or your super fund can give you guidance on how to complete the form and there’s a standard form on the ATO website here: https://www.ato.gov.au/forms/notice-of-intent-to-claim-or-vary-a-deduction-for-personal-super-contributions/).
TIP: As well as making super contributions from your employment income, it is also possible to make super contributions from investment income (including dividends or rental income) and capital gains. And if you’re self-employed and have got out of the habit of paying into super, now is the time to start catching up!
Do your kids need to lodge a return?
If your children have taxable income, they may need to lodge a tax return.
As children get older, many teenagers will get a part-time evening or weekend job. Whilst it’s unlikely that they will earn more than the tax-free amount of $18,200, if their employer deducts even $1 in tax from their pay, they will need to lodge a return in order to get a refund.
If your children receive income in the form of interest on a savings account or dividends on shares, they may also need to lodge a tax return to disclose that income but only if the income really does belong to the child.
If you or another adult (such as a grandparent) provides the original funds which are used to make the investment and then receives the investment income to use as you wish (even if you decide to use it for the benefit of your child), the income is treated as belonging to you or the other adult and must be disclosed on your tax return. Similarly, any capital gains or losses (on share disposals for instance) must be reported by you.
Any other tax benefits to being a parent?
Sadly not. These days, there are no tax breaks directly linked to being either a parent or part of a couple.
There’s a reason 74% of Australians use a tax agent to prepare their tax return; tax is complicated! Get your tax return wrong and the comeback is on you, either with a lower refund or ATO penalties.
Most people find it far less stressful to simply pass on all their information to a tax agent and leave it to the agent to complete their return, safe in the knowledge that the return will be accurate and complete. An experienced agent will usually be good at sniffing out those obscure tax deductions you didn’t know you could claim so they can often pay for themselves several times over. Best of all, the tax agent’s fee is also tax deductible!
Don’t miss the deadline!
If you’re a self-lodger, you must lodge your return by 31 October 2019.
If you use a tax agent, you can lodge later, possibly as late as 15 May 2020. To take advantage of those extended deadlines, you need to be registered as a client of the agent by 31 October 2019.
Once you’ve lodged your return, typically allow up to 2 weeks for the ATO to process and pay your refund.
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