Many Australians invest in property, financial markets and other assets, both here and overseas. In 2016-17, almost 4 million individuals received dividend income of $23.4 billion while 2.1 million reported rental income totalling $44 billion. $20 billion in capital gains were reported by almost 700,000 individuals while more than 900,000 reported capital losses of $27 billion.
Assessable foreign source income of almost $6 billion was reported by 730,000 individuals.
The ATO’s data matching and information exchange capabilities continue to evolve and now cover many capital transactions and investment revenue streams.
It is therefore more important than ever to report investment income including from overseas, maintain accurate records, correctly calculate capital gains or losses on disposal and to ensure you comply with the various rules and concessions available to investors.
INVESTMENT INCOME DEDUCTIONS
You can claim a deduction for expenses incurred in earning interest, dividend or other investment income but not if you receive an exempt dividend or other exempt income.
Examples of deductions include:
account-keeping fees for an account held for investment purposes
interest charged on money borrowed to buy shares and other related investments from which you derive assessable interest or dividend income
ongoing management fees or retainers and amounts paid for advice relating to changes in the mix of investment
a portion of other costs if they were incurred in managing your investments, such as some travel expenses, investment journals and subscriptions and borrowing costs.
If you attend an investment seminar, you are only entitled to claim a deduction for the portion of travel expenses relating to some investment income activities.
RENTAL PROPERTIES
The ATO continues its focus on checking rental deductions and matching reported income against details from AirBnb and other providers. From this year, a multi-property rental schedule for individuals is required to be lodged with tax returns.
COVID-19 has raised a number of tax issues for rental property owners for agents to consider, including:
deductions for properties where tenants are not paying their full rent or have temporarily stopped paying rent as their income has been affected due to COVID-19
reductions in rent for tenants whose income has been adversely affected by COVID-19, to enable these tenants to stay in the property
assessable receipts of back payments of rent or an amount of insurance for lost rent
interest deductions on deferred loan repayments for a period due to COVID-19
cancellation of bookings due to COVID-19 for a property that is usually rented out for short-term accommodation, but has also previously had some private use by the owner
the private use of a rental property owner (e.g. holiday home) to isolate during COVID-19 and adjusting available deductions
changes to advertising and other fees for short-term rental properties during COVID-19 due to no demand for the property.
Owners of rental properties that are being rented out or are ready and available for rent can claim immediate deductions for a range of expenses such as:
interest on investment loans
land tax
council and water rates
body corporate charges
insurance
repairs and maintenance
agent’s commission
gardening
pest control
leases (preparation, registration and stamp duty)
advertising for tenants.
Landlords may be entitled to claim annual deductions for the declining value of depreciable assets (such as stoves, carpets and hot-water systems), and capital works deductions spread over a number of years (for structural improvements, like remodelling a bathroom).
Remember that landlords are no longer allowed travel deductions relating to inspecting, maintaining or collecting rent for a rental property.
Further, deductions for the depreciation of plant and equipment for residential real estate properties are limited to outlays actually incurred on new items by investors in residential real estate properties. For example, for properties acquired from 9 May 2017, landlords can no longer depreciate assets that were in the property at the time of purchase; however, should they purchase a new (not used or refurbished) asset, they can depreciate that asset.
Plant and equipment forming part of residential investment properties as of 9 May 2017 will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.
Ensure that interest expense claims are correctly calculated, rental income is correctly apportioned between owners, claims for costs to repair damage and defects at time of purchase are depreciated and that holiday homes are genuinely available for rent.
DEDUCTIONS FOR VACANT LAND
Changes to legislation to limit deductions that can be claimed for holding vacant land received royal assent on 28 October 2019. These changes apply to costs incurred on or after 1 July 2019, even if the land was held before that date.
Deductions for expenses incurred for holding costs of vacant land can continue to be claimed by corporate tax entities, superannuation plans (other than self-managed superannuation funds), managed investment trusts, public unit trusts and unit trusts or partnerships where all the members are the previous entity types.
There are some entities and circumstances where deductions for vacant land can still be claimed – for example, where the entity holding the land is a company, where you use the land in carrying on a business, or exceptional circumstances apply. Expenses of holding land remain deductible if they are incurred in carrying on a business such as farming or gaining or producing assessable income.
The ATO has produced a flowchart to assist in determining if deductions for expenses related to vacant land are limited.
RESIDENTIAL PROPERTY AND NON-RESIDENTS
A change in law on 12 December 2019 means if you are a foreign resident for tax purposes at the time you dispose of your residential property in Australia, you will not qualify for exemption from CGT unless you satisfy the life events test.
For properties held before 7.30pm (AEST) on 9 May 2017, the CGT main residence exemption will only be able to be claimed for disposals that happen up until 30 June 2020, provided the taxpayer satisfies the other existing requirements for the exemption.
CRYPTOCURRENCIES AND CROWDFUNDING
The ATO is now matching transaction data obtained from digital exchanges so it is more important than ever to ensure cryptocurrency gains and losses are correctly reported. If you are currently, or have been, involved in acquiring or disposing of cryptocurrencies in the past, you need to be aware of the income tax consequences. These vary depending on the nature of your circumstances.
A person involved in cryptocurrency transactions needs to keep appropriate records for income tax purposes. If you have dealt with a foreign exchange and/or cryptocurrency, there may also be taxation consequences for your transactions in the foreign country.
The tax laws which apply to investment and financial activity undertaken in a conventional manner (for example, buying goods and services, buying shares, lending money) apply in the same way to investment and financial activity conducted under crowdfunding.
CAPITAL GAINS TAX PLANNING
Careful planning should be undertaken in planning the timing of the disposal of appreciating assets which may trigger a capital gain. In this context, it is important to recognise that CGT is triggered when you enter into a contract for the sale of a CGT asset rather than on its settlement.
This is particularly important where the entry and settlement of the contract straddle year-end. In these circumstances, it may be preferable from a cash flow perspective to defer the sale of the CGT asset to the subsequent year where other relief may be available, such as a capital loss sold on another asset.
Care should also be taken to ensure that an eligible asset is retained for the 12-month holding period required under the CGT discount, and to recognise that the CGT discount is not available to the extent that any capital gain accrued after 8 May 2012 and you were a foreign resident or temporary resident at any time after that date.
Keep proper records for all of your investments and ensure that you keep them for at least five years after a capital gains tax event occurred.
FOREIGN INVESTMENTS
If you are an Australian resident with overseas assets you need to include any capital gains or capital losses you make on those assets in your tax return and may have to include income you receive from overseas interests in your tax return. You can ‘receive income’ even if it is held overseas for you.
If you receive foreign income or gains that are taxable in Australia and you paid foreign tax on that income, you may be entitled to an Australian foreign income tax offset.
Individual taxpayers may be able to apply the CGT discount to the gains made on the shares with the recent decision in Burton v Commissioner of Taxation [2019] FCAFC 141 clarifying the availability of foreign income tax offsets to apply against the tax on the capital gain.
Be aware that the ATO has information exchange agreements with revenue authorities in many foreign jurisdictions and therefore is likely to receive data on any of your overseas investments and income.
PRODUCT RULINGS
A product ruling is a type of public ruling which gives certainty to participants (or potential participants) on the tax consequences of an arrangement, provided it is carried out as described in the ruling. The ATO publishes product rulings on its legal database.
An ATO product ruling isn’t a sanction or guarantee any product as an investment. Nor does the product ruling give any assurance that the product is commercially viable, that charges are reasonable, appropriate or represent industry norms, or that projected returns will be achieved or are reasonably based.
Potential participants must form their own view about the commercial and financial viability of a product. They need to consider issues such as whether the projected returns are realistic, the ‘track record’ of the management, the level of fees compared with similar products, and how the investment fits an existing portfolio.
If you are considering such an investment, seek independent advice before making a decision.
INVESTMENT PRODUCTS PROMOTED AS TAX EFFECTIVE
The end of the financial year often sees the promotion of investment products that may claim to be tax effective. If you are considering such an investment, seek independent advice before making a decision, particularly from your CPA Australia-registered tax agent.
Tax time is an opportunity to obtain essential business advice from your professional advisor, especially if you’ve been disrupted by the impacts of COVID-19.
Small businesses need to ensure their bookkeeping and lodgments are correct and up to date. You should obtain professional tax advice, especially in areas where more complex tax issues arise. This includes refinanced debt, losses, restructures, capital gains tax, personal services income, trust declarations and distributions, and private company loans.
COVID-19 ISSUES
Losses
Businesses may find themselves in a taxable loss position or seek to use prior year losses when their business operations or structure has changed during the year.
We recommend seeking professional advice on issues like ensuring the loss tests (continuity of ownership and same (similar) business tests are satisfied, the effect of capital injections on continuity of ownership tests and unrealised losses from reductions in asset values.
Bad debts
Businesses should review outstanding debts to assess their likely recoverability with a view to identifying genuine bad debts which could be written off for tax purposes. This includes ensuring that there is little to no prospect of recovery and that the debt is written off prior to year-end.
There may also be Division 7A consequences for the forgiveness of a shareholder’s or associate’s debt.
Trading stock
Many businesses use the simpler trading stock rules as the value of their trading stock doesn’t vary by more than $5000 a year. However, COVID-19 has affected the sales and consequently the inventory levels of some businesses quite significantly and the market selling value or replacement value basis may be more tax-effective. Where COVID-19 has materially reduced the market value of trading stock below its cost, such as for obsolete stock, this may result in your closing stock being valued at an amount less than cost and will effectively generate an allowable deduction.
threshold amount for each asset is $150,000 (up from $30,000)
eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).
The government has also announced an extension of these increased thresholds until 31 December 2020.
JobKeeper
JobKeeper payments are assessable and you can claim deductions for the payments made to employees and business participants. If you have been making JobKeeper claims for your eligible employees and business participants, ensure that your reporting and documentation is up-to-date and correct, and keep this information for five years after the payment was made.
The ATO has identified behaviours of concern including falsifying records or revising activity statements to meet the fall in turnover test or failing to pass on the full $1500 JobKeeper payment to eligible employees. The ATO has signalled a focus on the application of the decline in turnover test, for example where actual and projected turnover have significantly diverged as well as issues identified in PCG 2020/4 Schemes in relation to the JobKeeper payment.
Contact the ATO to rectify any errors or mistakes, as the ATO has limited discretion in relation to overpayments which can be exercised in certain circumstances.
Cash flow boost payments are classified as non-assessable, non-exempt income so no tax will be payable. The cash flow boost is not subject to GST and you are still entitled to a deduction for PAYG withholding paid.
If you distribute the cash flow boost from the business to another entity (for example, making a trust distribution or paying a dividend to shareholders) there may be tax consequences for the recipient.
GST adjustments
Businesses may have had contracts cancelled or had to cancel sales or refund purchases due to the impact of COVID-19. As a result, GST adjustments may be required. ATO guidance is available to assist with adjusting business activity statements and holding adjustment notes.
The ATO has worksheets to assist in calculating GST adjustments for sales, purchases, bad debts, creditable purpose and adjustments summary.
PAYG instalment indexation suspended
The government is in the process of passing legislation that suspends the indexation of PAGY and GST instalment amounts for small businesses in 2020–21. Taxpayers may still vary their quarterly instalments. The changes will apply to instalment quarters commencing on or after 1 July 2020 if the Bill receives Royal assent before 21 August 2020, or otherwise on or after 1 October 2020.
Businesses in financial distress
Unfortunately, COVID-19 has left many businesses facing cash flow difficulties or severe financial distress. Government support such as JobKeeper, rent relief, business grants and temporary changes to the insolvency rules may help some to survive the impacts, however there are other businesses who may need to review their business viability and financial options.
If you think your business is in financial difficulty, it is critical to get proper accounting and legal advice as early as possible.
RECORD-KEEPING TIPS
Record cash income and expenses
Account for personal drawings
Record goods for your own use
Separate private expenses from business expenses
Keep valid tax invoices for creditable acquisitions when registered for GST
Keep adequate stock records
Keep adequate records to substantiate motor vehicle claims.
BE UP-FRONT AND HONEST WITH YOUR AGENT AND THE ATO
Getting the basics right has never been more important – good record keeping, substantiation, correct account codes, properly accounting for private use and declaring all cash transactions are essential to assure yourself, your tax agent and the ATO that your tax affairs are in order.
The ATO is getting smarter with its data and taxpayers are increasingly being contacted regarding their income and expense claims. With a focus on discrepancies in returns when compared against pre-fill data or business benchmarks, and increased resources to deal with the cash economy, the onus is on business owners to correctly report their income, claim their expenses and have the appropriate records.
Your tax agent is required to take reasonable care when preparing your return which means they may ask you detailed questions about your cashflow, business performance, personal use of assets and records.
The end of the financial year also sees the promotion of investment products that may claim to be tax effective, and COVID-19 has also increased promoter activity in relation to tax and financial services. If you are considering such an investment, seek independent advice before making a decision.
If you are seeking advice, have made errors or need to correct your business records, speak with a CPA Australia-registered tax agent who can work with you and the ATO to get things right.
MAXIMISE DEPRECIATION DEDUCTIONS
A key feature for small business is the instant asset write off which the government recently increased to $150,000 as part of COVID-19 stimulus measures.
The write-off amount will depend on the date the asset is first used or installed ready for use for a taxable purpose. For businesses registered for GST, the threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.
Eligible business’s aggregated turnover
Date range for when asset first used or installed ready for use
Threshold
Less than $500 million
12 March 2020 to 30 June 2020*
$150,000
Less than $50 million
7.30pm (AEDT) on 2 April 2019 to 11 March 2020
$30,000
Less than $10 million
29 January 2019 to 7.30pm (AEDT) on 2 April 2019
$25,000
Less than $10 million
1 July 2016 to 28 January 2019
$20,000
Less than $2 million
7.30pm (AEST) on 12 May 2015 to 30 June 2016
$20,000
*For eligible businesses with an aggregated turnover from $10 million to less than $500 million, the $150,000 threshold applies for assets purchased from 7.30pm (AEDT) on 2 April 2019 but not first used or installed ready for use until 12 March 2020 to 30 June 2020.
If you purchase a car for your business, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year. You cannot claim the excess cost of the car under any other depreciation rules.
You can claim a deduction for the balance of your small business pool if it’s less than $150,000 at 30 June 2020 before applying depreciation deductions.
Where the cost of the asset is not available for the instant asset write-off deduction, it will be allocated to the general small business pool and depreciated at the appropriate rate depending on if it is eligible for accelerated depreciation. Where a balancing adjustment occurs during the year, the asset’s termination value must be deducted from the pool.
PAY THE CORRECT COMPANY TAX RATE AND APPLY THE CORRECT RATE FOR IMPUTATION
Most companies with an aggregated annual turnover of less than $50 million will pay tax at 27.5 per cent in 2019–20. However, some companies with a turnover below $50 million will continue to pay tax at 30 per cent, especially companies that earn nearly all their income from passive investments such as rental income or interest income.
To qualify for the lower tax rate:
a company must have an aggregated turnover of less than $50 million where aggregated turnover is the sum of the company’s ordinary income and the ordinary income of any connected affiliate or entity, and
no more than 80 per cent of their assessable income is base rate entity passive income.
As a corollary to the base rate passive entity income rules in determining the tax rate of a company, there have also been changes to the dividend imputation rules that apply to the franking of dividends by a company.
These differential rates create a number of complexities for companies, especially companies holding investments, as well as for the owners of companies. Your CPA Australia-registered tax agent is best placed to assist you with these issues.
SMALL BUSINESS INCOME TAX OFFSET
You will be eligible for the small business income tax offset of up to $1000 for the year ended 30 June 2020 if you carry on business and your aggregated turnover for the 2020 year is less than $5 million. The offset rate is 8 per cent of the income tax payable on the portion of an individual’s taxable income that is their ‘total net small business income’.
The ATO will work out the offset based on the net small business income earned as a sole trader and share of net small business income from a partnership or trust, as reported in the income tax return.
SMALL BUSINESS CGT CONCESSIONS
There are significant capital gains tax savings potentially available to small business where an eligible active asset used in a business is sold for a profit and the taxpayer can satisfy either the $6 million maximum net asset value test immediately before the CGT event or the $2 million CGT small business entity test for the 2019 year.
Additional conditions must now be met when a taxpayer disposes of an active asset being a share in a company or an interest in a trust on or after 8 February 2018.
Small businesses can change the legal structure of their business without incurring any income tax liability when active assets are transferred by one entity to another.
This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.
However, caution must be exercised. Business restructuring is complex, so you should first speak to your CPA Australia-registered tax agent.
REVIEW YOUR PRIVATE COMPANY LOANS
The income tax laws can potentially treat the following as an unfranked deemed dividend for a taxpayer unless an exemption applies:
a payment or a loan by a private company to a shareholder or an associate (like a family member)
the forgiveness of a shareholder’s or associate’s debt
the use of a company asset by a shareholder or their associate, or
the transfer of a company asset to a shareholder or their associate.
The most common exemption is to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term, which may be seven or 25 years depending on whether the loan is secured.
There are various things a private company can do before its 2019–20 income tax return needs to be lodged to minimise the risk of a shareholder or an associate deriving a deemed dividend.
Depending on the circumstances, these strategies may include repaying a loan, declaring a dividend or entering a complying loan agreement before the return needs to be lodged.
COVID-19 may have created issues in relation to Division 7A obligations and the rules around private company loans are complex and changing, therefore you should consult your CPA Australia-registered tax agent on this.
INCREASED ACCESS TO COMPANY LOSSES
The ‘same business test’ for losses has been supplemented with the ‘similar business test’ for losses made in income years starting on or after 1 July 2015. The new test will expand access to past year losses when companies enter into new transactions or business activities.
The similar business test allows a company (and certain trusts) to access losses following a change in ownership where its business, while not the same, is similar, having regard to a number of considerations.
Businesses can only obtain income tax deductions for bad debts when various conditions are met as set out by the ATO in TR 92/18 Income tax: bad debts.
A deduction will only be available if the debt still exists at the time it is written off. Thus, if the debt is forgiven or compromised before it is written off as bad in the accounts, no deduction will be available.
The debt must also be effectively unrecoverable and written off in the accounts as bad in the year the deduction is claimed. The bad debt must have been previously brought to account as assessable income or lent in the ordinary course of carrying on a money-lending business.
Certain additional requirements must be met where the creditor is either a company or trust.
ISSUES FOR TRUSTS
Make trust resolutions by 30 June
As always, trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for the 2019–20 financial year by 30 June.
If a valid resolution is not executed by 30 June, any default beneficiaries under the deed will become presently entitled to trust income and subject to tax (even where they do not receive any cash distribution), or the trustee will be assessed at the highest marginal tax rate on any taxable income derived but not distributed by the trust.
A trustee must be able to show how an effective resolution was made through minutes, file notes or an exchange of correspondence documented before year end. However, the trust’s accounts do not need to be prepared by 30 June.
As a corporate trustee may need time to notify its directors that a meeting must be convened to pass and record a resolution, such a notice should be sent out well before the 30 June deadline.
Document the streaming of trust capital gains and franked dividends to beneficiaries
Broadly, trustees of discretionary trusts can stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts. The trustee must document this resolution before 30 June and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.
Prevent deemed dividends in respect of unpaid trust distributions
An unpaid distribution owed by a trust to a related private company beneficiary that arises on or after 1 July 2016 will be treated as a loan by the company, if the trustee and the company are controlled by the same family group. In these circumstances, the associated trust may be taken to have derived a deemed dividend for the unpaid trust distribution in 2019–20.
However, a deemed dividend may be prevented if the unpaid distribution is paid out, or a complying loan agreement is entered into before the company’s 2019–20 income tax return needs to be lodged.
Alternatively, a deemed dividend will not arise if the amount is held in an eligible sub-trust arrangement for the sole benefit of the private company, and other conditions are satisfied.
Claim deductions for professional advice when starting a business
Professional expenses associated with starting a new business, such as legal and accounting fees, are deductible in the financial year those expenses are incurred rather than deductible over a five-year period as was the case previously.If you established a business during the year, you should speak to your CPA Australia-registered tax agent about claiming professional advice fees as an expense.
Check if the personal services income rules apply
Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual. You can receive PSI even if you’re not a sole trader. If you’re producing PSI through a company, partnership or trust and the PSI rules apply, the income will be treated as your individual income for tax purposes.If the PSI rules apply, they affect how you report your PSI to the ATO and the deductions you can claim.
Paying employee bonuses
If you pay staff bonuses and you want to bring expenses into the 2019–20 year, ensure they are quantified and documented in a properly authorised resolution (e.g. Board minute) prior to year-end to enable a deduction to be incurred for employee bonuses where such amounts are not paid or credited until the subsequent year.
Pay any outstanding superannuation entitlements
Ensure superannuation guarantee payments for employees are up-to-date, and report and rectify any missed payments to the ATO. From 1 April 2019, there are new powers and offence penalties related to the payment of superannuation guarantee obligations.
Employers can also claim deductions for superannuation contributions made on behalf of their employees in the financial year they are made.
Disaster assistance payments
Most one-off assistance payments are tax-free while emergency assistance in the form of gifts from family and friends is not taxable. Regular Centrelink payments however remain taxable, unless specifically exempted by the government.
Australian Government Disaster Recovery Payments are exempt while Disaster Recovery Allowance and Natural Disaster Relief and Recovery Arrangements are generally taxable. The tax treatment of ex-gratia recovery payments depends on the specific circumstances of the payments.
If you use an assistance payment to purchase items for your business, the normal conditions for deductibility apply. The fact that money from a relief fund is used to purchase an item doesn’t affect the deductibility of that item.
Farm management deposits (FMDs)
One of the best tax planning measures available to primary producers is effectively utilising the farm management deposits scheme, or FMDs. They are an effective business and cash flow planning tool.
Primary producers can deposit up to $800,000 in an FMD account, they can have early access to their FMD account during times of drought, and they may be able to offset the interest costs on primary production business debt.
Income averaging
Tax averaging enables primary producers to even out their income and tax payable over a maximum of five years to allow for good and bad years. This ensures that farmers don’t pay more tax over time than taxpayers on comparable but steady incomes.
Primary producers who opted out of income tax averaging for 2009–10 will be automatically reinstated in 2019–20 but can choose to withdraw from averaging and pay tax at ordinary rates for 10 years.
Other primary producer-specific tax specific concessions
Also, don’t forget to consider:
the uncapped immediate write-off for capital expenditure on water facilities and fencing assets
the deduction for the full cost of a fodder storage asset if the expense was incurred or it was first used or installed ready for use on or after 19 August 2018
the outright deduction for capital expenditure for landcare operations and carbon sink forests, and
the accelerated write-off for horticultural plants and grapevines.
Do you know which tax deductions and offsets you might be eligible this financial year? The following tips may help you to legitimately reduce your tax liability in your 2019-20 return.
With so much information being pre-filled into your tax return this year, it’s best to wait until all the data is finalised before lodging. This is usually by the end of July but can take up until mid-August.
Check that your income statement from your employer says ‘tax ready’ and your private health insurance, dividend and interest information is available before visiting your tax agent. Otherwise, you’re potentially lodging your return with unfinalised data and may need to amend your tax return and pay additional tax.
If you’ve used the myDeductions tool in the ATO app, you can email your data or upload it to prefill your tax return. If you use a tax agent, they can access your uploaded data through their practice management software.
DECLARE YOUR INCOME
Your income statement will show as ‘tax ready’ when finalised by your employer. Employers need to make a finalisation declaration by Tuesday 14 July if they have 20 or more employees, or Friday 31 July if they have 19 or fewer employees.
JobKeeper payments are treated the same as your usual salary or wages from your employer. If you receive JobKeeper as an employee, it will be included on your income statement as either salary and wages or as an allowance, depending on your circumstances. JobKeeper and JobSeeker payments will be included automatically by the ATO in your tax return by the end of July.
You also need to include income protection, sickness or accident insurance payments, redundancy payments and accrued leave payments in your tax return.
If you take leave, are temporarily stood down or lose your job and receive a payment from your employer, there are different tax rules that may apply for the different payments.
If you have received access to your superannuation due to COVID-19, you will not need to pay tax on these amounts and will not need to include these amounts in your tax return.
REPORT INCOME AND EXPENSES FROM THE CASH OR ONLINE ECONOMY
If you drive people around, do odd jobs, rent out your possessions, run social media accounts or sell products, your income from such activity may be assessable and your expenses deductible. This can include barter and cryptocurrency payments as well.
The ATO is receiving data from a range of websites including AirTasker, Uber, AirBnb and eBay which is matched against tax returns. Make sure you keep records and report correctly.
For some activities such as online selling, you’ll need to first determine whether you are in business.
CLAIM YOUR EXPENSES
Work-related deductions
Claiming all work-related deduction entitlements may save considerable income tax. Typical work-related expenses include employment-related mobile phone, internet usage, computer repairs, union fees and professional subscriptions that the employee paid themselves and for which they were not reimbursed.
Be aware that the ATO continues to check work-related expense claims and expects to see a substantial increase in deductions for working from home or protective items required for work, and a reduction in claims for laundry expenses or travel expenses. You cannot claim the cost of travelling to and from work and working from home as a result of COVID-19.
If your usual pattern of work has changed during the year due to COVID-19 or other circumstances, you may need to complete an additional record for the period your work pattern changed, especially where claims are calculated using representative periods.
Just remember that for an expense to qualify:
you must have spent the money yourself and weren’t reimbursed
it must directly relate to earning your income, and
you must have a record to prove it.
Work from home and home office expenses
When you are an employee who regularly works from home and part of your home has been set aside primarily or exclusively for the purpose of work, a home office deduction may be allowable. Typical home office costs include heating, cooling, lighting and office equipment depreciation.
The ATO is also allowing the use of a shortcut method for working from home claims between 1 March 2020 and 30 June 2020 which enables you to claim a deduction of 80 cents per hour. You can use this method if:
are working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls, and
have incurred additional running expenses as a result of working from home.
The shortcut method doesn’t require you to have a dedicated work area, such as a private study. If this method is chosen, no other expenses for working from home for that period can be claimed.
You must keep a record of the number of hours you have worked from home. This could be a timesheet, roster, diary, or similar document that sets out the hours you worked.
If you use the other methods, you must also keep a record of the number of hours you worked from home along with records of your expenses.
Self-education expenses can be claimed provided the study is directly related to either maintaining or improving current occupational skills or is likely to increase income from your current employment. If you obtain new qualifications in a different field through study, the expenses incurred are not tax deductible.
Typical self-education expenses include course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers, tablets and printers.
Higher Education Loan Program (HELP) repayments are not deductible. You must also disallow $250 of self-education expenses, which can include non-deductible amounts such as child-care costs.
Motor vehicle deductions
If you use your motor vehicle for work-related travel, there are two choices of how you can claim.
If the annual travel claim does not exceed 5000 kilometres, you can claim a deduction for your vehicle expenses on the cents-per-kilometre basis. This figure includes all your vehicle running expenses, including depreciation.
You do not need written evidence to show how many kilometres you have travelled, but the ATO and therefore your tax agent may ask you to show how you worked out your business kilometres. The ATO has flagged concerns that taxpayers are automatically claiming the 5000-kilometre limit regardless of the actual amount travelled.
If your business travel exceeds 5000 kilometres, you must use the log book method to claim a deduction for your total car-running expenses.
Immediate deductions can be claimed for assets that cost under $300 to the extent the asset is used to generate income. Such assets may include tools for tradespeople, calculators, briefcases, computer equipment and technical books purchased by an employee, or minor items of plant purchased by a landlord.
Assets costing $300 or more that are used for an income producing purpose can be written off over a period of time as a tax deduction.
The amount of the deduction is generally determined by the asset’s value, its effective life and the extent to which you use it for income-producing purposes.
Donations
The ATO will pre-fill your tax return with the gifts and donations information they have received. Make sure to add in any donations not included where the receipt shows your donation is tax deductible.
If you made donations to an approved organisation through workplace-giving, you still need to record the total amount of your donations at this item.
Your payment summary, or other written statement from your employer showing the donated amount, is sufficient evidence to support your claim. You do not need to have a receipt.
Claim a tax deduction for your superannuation contributions
Claiming a tax deduction for personal superannuation contributions is no longer restricted to the self-employed. The rules changed on 1 July 2017 and anyone under the age of 75 will be able to claim contributions made from their after-tax income to a complying superannuation fund as fully tax deductible in the 2018-19 tax year.
Any contributions you claim a deduction on will count towards your concessional contribution cap. Such a deduction cannot increase or create a tax loss to be carried forward.
If you’re aged 65 or over, you will have to satisfy the work test to contribute and if you’re under 18 at 30 June you can only claim the deduction if you earned income as an employee or business owner. Other eligibility criteria apply.
Watch your superannuation contribution limits. You may wish to consider maximising your concessional or non-concessional contributions before the end of the financial year but keep in mind the contribution caps were reduced to $25,000 from 1 July 2017.
Concessional contributions include any contributions made by your employer, salary sacrificed amounts and personal contributions claimed as a tax deduction by self-employed or substantially self-employed persons.
If you’re making extra contributions to your super, and breach the concessional cap, the excess contributions over the cap will be taxed at your marginal tax rate, although you can have the excess contribution refunded from your super fund.
Similarly, the annual non-concessional (post-tax) contributions cap is only $100,000 and the three-year bring forward provision is $300,000. Individuals with a balance of $1.6 million or more are no longer eligible to make non-concessional contributions.
High-income earners are also reminded that the contributions tax on concessional contributions is effectively doubled from the normal 15 per cent rate to 30 per cent if their combined income plus concessional contributions exceeds $250,000.
Importantly, don’t leave it until 30 June to make your contributions as your super fund may not receive the contribution in time and it will count towards next year’s contribution caps, which could result in excess contributions and an unexpected tax bill.
Consider the superannuation co-contribution
An individual likely to earn less than $53,564 in the 2019-20 tax year should consider making after-tax contributions to their superannuation to qualify for the superannuation co-contribution if their circumstances permit.
The government will match after-tax contributions 50 cents for each dollar contributed up to a maximum of $500 for a person earning up to $38,564. The maximum then gradually reduces for every dollar of total income over $38,564 reducing to nil at $53,564.
Consolidate your super
For most employees, it makes a lot of sense to have your entire super in one place. You’ll reduce the amount of fees you’re paying, only receive one lot of paperwork and only have to keep track of one fund.
Consider consolidating the super funds you do have into one fund. Compare your funds to work out which best suits your needs. Important things to look at are fees and charges, the investment options available and life insurance cover.
In particular, if you have insurance cover in a fund check you can transfer or replace it in the new fund so you don’t end up losing the benefit altogether. You can look at past investment performance as well but remember it is no guarantee of how the fund will perform in the future.
Once you’ve chosen the fund you want to keep, contact them and they can help transfer the money from your other super funds.
From November 2019, the ATO has been proactively consolidating these unclaimed super monies into eligible active super accounts, if an individual hasn’t requested a direct payment or for it to be rolled over to a fund of their choice. You will be notified by the ATO if this has been done.
If you’ve moved around or changed jobs occasionally, your old super fund may have lost track of you and you may miss out on some of your super when you need it. To find your lost super check out SuperSeeker on the ATO website at www.ato.gov.au.
CONSIDER SALARY SACRIFICE ARRANGEMENTS
You may wish to review your remuneration arrangements with your employer and forego future gross salary in return for receiving exempt or concessionally taxed fringe benefits and/or making additional superannuation contributions under a valid salary sacrifice arrangement.
You should consult a licensed CPA Australia financial planner to consider the merits of exploring these options.
TAX RESIDENCY AND COVID-19
The tests used to work out residency status for tax purposes are not the same as residency tests used for other purposes such as immigration. The ATO publishes information on residency and the relevant tests.
For non-residents temporarily in Australia as a result of COVID-19, the ATO has advised that if the client is in Australia temporarily for some weeks or months then they will not become an Australian resident for tax purposes as long as they usually live overseas permanently and intend to return there as soon as they are able.
FIRST HOME SUPER SAVER SCHEME
The First Home Super Saver (FHSS) Scheme allows you to save money faster for your first home with the concessional tax treatment of super. You can make additional voluntary salary sacrificed superannuation contributions up to $15,000 per year (and $30,000 in total) into your complying superannuation fund which can be withdrawn to help finance a first home deposit.
Compulsory superannuation employer contributions and contributions in respect of defined benefit funds are not eligible for the FHSS scheme. Various other eligibility conditions must be satisfied.
Tax offsets directly reduce your tax payable and can add up to a sizeable amount. Eligibility for tax offsets generally depends on your income, family circumstances and conditions for particular offsets.
Taxpayers should check their eligibility for tax offsets which include, amongst others, the low and middle-income tax offset, senior Australians and pensioners offset and the offset for superannuation contributions on behalf of a low-income spouse.
From 1 July 2019, the tax offset for net medical expenses for disability aids, attendant care or aged care is no longer available.
BEWARE OF BIG PROMISES AND VERY LOW FEES
Like most things in life, you tend to get what you pay for and tax is no different. You should be careful about who you ask to prepare your return to ensure that your tax affairs are reported correctly and that you are able to prove your claims if the ATO ask any questions. If your refund is too good to be true, then you – or your agent – have probably broken the law.
Firstly, check that your tax agent is registered with the Tax Practitioners Board. It’s also recommended that they’re a member of a professional accounting organisation such as CPA Australia so that you know they’re abiding by professional and ethical standards.
A registered tax agent will never ask you for your myGovID credentials or seek to lodge your tax return through myTax.
Every tax agent is legally obliged to take reasonable care. This means checking your tax history, ensuring you have documentation such as receipts, and asking questions about your income, expenses and assets. They should provide a tailored service and only include information that you have provided to them.
Things you should watch out for include agents who:
offer a very low fixed fee
promise large refunds
charge a percentage of your refund as a fee
spend very little time with you or on your tax return
don’t ask for receipts
don’t ask questions or enter information that you can’t substantiate
ask you to sign blank or incomplete returns, or blank voluntary disclosure forms, or
ask to lodge your tax return through myTax.
Make sure that you check the tax return in detail before signing. All of your assessable income should have been reported and your deductions correctly recorded. Ensure that you can back up every dollar of the claims.
Remember that ultimately, it’s your responsibility what gets lodged and you are the one who has to pay the extra tax plus penalties and interest if anything is wrong on your tax return.
BE CAREFUL OF SCAMS AND PROTECT YOUR IDENTITY
There has been a significant increase in Australians being targeted with COVID-19 scams, fraud attempts and deceptive email and SMS schemes. If you’re unsure whether an ATO interaction is genuine, do not reply. If you receive an SMS or email claiming to be from the ATO, check with the ATO first to confirm it’s genuine.
During this time of heightened scam activity, the ATO encourages individuals to:
run the latest software updates to ensure operating systems security is current
update antivirus software
always exercise caution when clicking on links and providing personal identifying information
never share personal information on social media, such as your TFN, myGov or bank account details.
avoid accessing online government services via a hyperlink in an email or SMS – only via an independent search
always access the ATO’s online services directly via ato.gov.au or my.gov.au or the ATO app
call the ATO on an independently sourced number to verify an interaction if in doubt
don’t click on a link, open an attachment or download a file if in doubt.
Thieves only need some basic details such as name, date of birth, address, myGov details, or tax file number (TFN) to commit identity crime. If criminals steal your identity, it can take a long time to fix. It may be difficult for you to get a job, a loan, rent a house, or apply for government services or benefits.
Ensure your digital identity, such as your myGovID, is secure. Your digital identity is unique to you and shouldn’t be shared, as this will enable others access to your personal data across services such as tax and health.
If you suspect your TFN or ABN has been stolen, misused or compromised, phone the ATO as soon as possible on 1800 467 033 between 8.00am and 6.00pm Monday – Friday so they can investigate and place additional protective measures on your account.