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 $4,000, 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.
- Costs of tools and other equipment. 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? The COVID-19 crisis has caused millions to set up a home office and work full time from home. If you are one of those people, 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)
- Home telephone and internet costs
- Mobile phone costs
- Cleaning costs
The ATO has introduced a temporary “shortcut method” of calculating additional running expenses allowing those working from home to claim a rate of 80 cents per work hour during the coronavirus crisis. This will apply from 1 March 2020 until at least 30 June 2020.
You will need to keep a record of the number of hours you have worked from home as a result of COVID-19.
If you use the 80 cents per hour method, you can make no other claims in relation to working from home. So, items like mobile phone and internet usage are included in the 80 cent rate.
Alternatively, you can claim the ATO’s existing flat rate allowance for working from home of 52 cents per hour. This covers the extra costs of heating, cooling, lighting and the decline in value of furniture. All you need to do to claim this is to keep a diary – note the time you start work each day, the time you finish work each day and any breaks. You can then claim 52 cents per hour for each working hour.
In addition, (and this is what makes this rate different to the temporary 80 cent rate) you can also make separate claims for the work-related proportion of items such as your home internet, mobile phone costs and other expenses that directly relate to your work such as stationery and printer ink.
A further option is to claim the actual costs you’ve incurred. You’ll still need to keep a diary of your work from home hours and you’ll also need to work out the amount of your home (by floor area) that you’re using as your work space. From this, you can then work out the work-related proportion of your household expenses and apply this percentage to the actual amount you spend on electricity, gas, water, phone and internet, etc. You’ll also need to keep all the original bills to prove your claim.
This generally produces a bigger claim than either of the flat rate methods but the amount of paperwork and calculation involved is much greater. You should use a tax agent to help with your claim if you intend to use this method.
Declare all your income
Whether it’s business income, wages from your job or investment income like bank interest or rent from an investment property, all your income needs to be disclosed. If you’ve received JobKeeper payments from your employer, this is taxable income and needs to be included on your tax return, as are JobSeeker benefits paid by Centrelink.
Boost your super and slash your tax bill
You can now make additional 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. 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/).
Don’t rely on pre-filled data from the ATO
These days, with the push of a button, you can pre-fill lots of your income information straight from the ATO’s systems. Take care though and don’t assume that income data is correct or complete. Particularly if you are lodging early, always use your own information as the key source data. Many third parties, such as banks, pass information about you to the ATO late in July or even into August so early lodgers will often find lots of data missing from their pre-fill.
Some people assume that because the data comes from the ATO, it must be right. That’s a dangerous assumption.
If you omit income and get questioned by the ATO, the legal burden will be on you, even though you’ve taken the information straight from the ATO’s pre-filled data.
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.
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.
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