Are you missing out on your hard-earned money? When you are trying to maximise your tax return, many people fail to take advantage of potential deductions either through not knowing or being disorganised. With the average tax return in Australia being around $2,574, learning how to increase the amount in your pocket is a great way to make the most of your refund.
How do you get started, especially if you’re not a tax professional? Getting tax-time ready nowadays is a lot easier than it used to be. By using a few simple apps and getting familiar with the basic deduction rules, you’ll significantly reduce the stress (and time) that goes with getting your financial life together.
The Australian Taxation Office (ATO) said it recognised the challenges COVID-19 had brought upon workers and wanted to make this year’s return as easy as possible.
ATO Assistant Commissioner Karen Foat said the tax office had a range of different approaches to support taxpayers and the community through this tax season.
“We know many of our clients and their agents will have questions about how different types of income and expenses may affect their obligations this year,” Ms Foat said.
“We’re helping to make sure people know how to get it right.”
“We have published information on our website to help you get it right when lodging this year, including the ‘Tax Time Essentials’ page which is a one-stop-shop for the things that are a little different this year and how they impact your return.”
ATO linking: Don’t leave till too late
Foat advised first-time taxpayers to connect their myGov account to the ATO before July 1, 2020.
Taking this step will enable you not only to lodge your return online but also keep track of refunds and access past tax records.
To link up the services, you’ll need to answer two questions to confirm your identity. They will be based on personal information, such as your bank account details, or an income statement or a Centrelink payment summary from the past two years.
However, if you aren’t able to provide enough information, then you’ll need to get in touch with the ATO to grab a unique linking code, which can be entered instead of answering the questions. Just be sure to have your Tax File Number and driver’s licence or Medicare card at the ready before you call.
“Needing a linking code was the number one reason that people called us last July,” Foat said. “If you need a linking code, June is a great time to get that sorted.”
Income statements: Get tax ready first
Foat said another big cause of delay at tax time each year was 1 in 5 people lodged before they had all of their income information. So she advised Aussies to wait until the end of July to do their taxes.
“It’s important to check that your employer has finalised the information in your income statement and it is marked as ‘tax ready’ before you lodge,” she said.
Income statements contain information such as your salary or wages, Pay As You Go (PAYG) withholding tax and any employer super contributions. Employers have until July 31 to finalise those statements, which are then provided directly to the ATO and automatically included in your tax return.
“Other information from banks, health funds and government agencies will also be automatically inserted into your tax return. For most people this will happen by the end of July,” Foat added.
She said lodging once your prefill data becomes available makes the tax process a whole lot easier.
But if you are filling in the blanks yourself, double-check that the information you’ve provided is “complete, accurate, and up to date”, to avoid delays or debt down the track.
What happens if I make a mistake on my tax return?
Forgotten to include income from a previous job, or claim a deduction you were entitled to? Don’t panic! You can correct your mistake by requesting an income tax amendment, which can be done online via myGov or submitted to the ATO as a form or letter.
Typically, you’ll have two years from the date of assessment to lodge your amendment. But if you don’t make the two-year cut-off, then you should submit an objection form instead.
Wondering how much tax you may be paying this year? Head over to our income tax calculator, and we’ll crunch the numbers for you.
Must-Have Tips to Maximise Tax Return Every Year
Determine Your Tax Bracket
The first way to maximise your tax return is to make sure you work out your tax bracket accurately. Without knowing your tax bracket, you won’t understand the full extent of your tax obligations.
The tax brackets aren’t always the same year-to-year. Take a few minutes to review the individual and married income tax rates from the Australian Taxation Office to get an understanding of where you stand. Once you know your tax bracket, you’ll also be in a better place to review your deductions.
Create a Receipt System
If you’re stuffing your receipts into a hidden drawer or a giant envelope, you’re not alone. That being said, there is a better way. Receipts are very easy to lose, so you have to establish a system. Also, sometimes the ink can fade over time, and you end up with a blank piece of paper!
Tracking and saving receipts is one of the best ways to save money during tax season. You’d be surprised just how many things you can claim that you might not have even known about.
Moving forward, you should try to file away every relevant receipt and talk to your accountant to find out exactly what you’re able to claim. Thankfully, there are now apps available that help you to digitise receipts if you prefer a modern solution to keep them safe.
Make a Charitable Payment
Doing good is always something to be proud of, but did you know it could also pay off during tax season? Making a charitable payment is a great way of reducing your taxable income and doing a good deed at the same time.
To help you get ahead in the next EOFY, you could always consider setting up a monthly donation to a charity of your choice. It feels great to give back!
Review Your Deductions
Although this seems like one of our more obvious tax return tips, it’s surprising how many Australian workers fail to claim their deductions. There are all kinds of things that you can claim during tax season, such as:
- Business travel
- Work training events
- ATO interest
- Educational courses
- Work-related supplies
The list goes on, so be sure to check with ATO to see what you qualify for. Also, working with a tax specialist can help you claim all of your possible deductions.
Home and Car Expenses
If you drive your car to work or have a home office, there are some additional expenses you can claim. Why is this? When you use your car for work or dedicate a room in your home for your office, you’re taking on a cost of running or working for a business.
First, you’ll need to create a strategy for calculating your car allowance. The most common method is to use a mileage tracker app to calculate costs and distance throughout the year. Also, you might be entitled to claim a number of your home office expenses such as equipment, utilities, and so on. Again, tracking and keeping receipts is key.
While you can’t write off your family trip to the beach, you might be able to qualify some of your travel expenses. Mainly, we’re talking about work travel. If your employer requires you to travel for work, you can deduct several expenses, especially if you stay overnight. You can even deduct meals as long as your employer isn’t also reimbursing you.
Get Paid to Read News and Magazines
Do you read an industry magazine or journal online? You might be entitled to a deduction. If you subscribe to an online or offline publication that helps you stay up to date in your line of work, and you can show a direct link to the subscription and your assessable income, then it’s highly likely you can claim a deduction.
For example, a chef or Maître d’ subscribing to a food magazine, or a writer or journalist subscribing to online news sites would both cut. The good news is if the subscription cost you less than $300, you can claim an immediate deduction.
Put Your Money in a Super Fund
Super contributions might be one of the best ways to make the most of your tax return. This is especially true for workers who earn less than $52,000 a year. For each 1$ put into your super, the government will contribute 50 cents.
Also, if you’re married and one partner makes less than $40,000, the higher-earning partner can contribute up to $3000 to the lower-earning partner’s super fund. This results in a tax offset of 18 per cent. This is a saving that pays off in the long run!
Don’t file late
Missing that October 31 lodgement deadline can give rise to financial penalties. Also of note is the tax payment due date – three weeks after lodgement deadline, i.e. by November 21. Paying your tax liability late is likely to give rise to interest charges being imposed by the ATO.
Most taxpayers lodge their return online via their myGov account. It helps streamline the process as most information from your employer, banks, government agencies, health funds and other third parties is prefilled by late July.
If you are expecting a tax refund, lodging online should expedite receiving the money. The ATO usually issues refunds within two weeks where the return is lodged online. Paper returns are processed manually and can take up to 10 weeks.
This year, employers have reported through Single Touch Payroll, which refers to direct payroll reporting to the ATO on a real-time basis. This means you will not receive a payment summary from your employer, and instead, an income statement will be available via your myGov account by July 31.
How to maximise your refund
In recognition of the changes to many employees’ working arrangements due to COVID-19, the ATO has introduced a shortcut method for claiming working-from-home related tax deductions.
From March 1 to June 30, you can claim a deduction of 80 cents for each hour you work from home, provided that you are carrying out your ordinary employment duties and have incurred additional running expenses as a result.
Tip: It is important to keep a record of the hours you have worked from home.
Trap: If you elect to use this method, you will be unable to claim any other expenses for working.
You may elect to continue to use the existing methods available to calculate your deduction (e.g. the fixed-rate method of 52 cents per hour, or the actual cost method). You can choose whichever of the three ways that provide the most beneficial tax outcome.
If you own a rental property, claim appropriate capital works and capital allowances (depreciation) deductions. Be aware that the rules changed from July 1, 2017, which limits capital allowance deductions for second-hand assets acquired after May 9, 2017. Investors who purchase new plant and equipment will continue to be able to claim depreciation expenses on these assets.
Tip: Get a quantity surveyor to make an assessment and prepare a depreciation report to outline amounts to be claimed in your tax return each year. The cost of having a depreciation report prepared is also deductible.
You no longer need to “salary sacrifice” super contributions to reap tax savings. All individuals under 75 years (including those aged 65-74 years who meet the prescribed work test) are now eligible to claim a tax deduction for super personal contributions made into an eligible fund.
To claim a deduction, you need to provide your super fund with a “notice of intent to claim” on or before the day the 2019-20 tax return is lodged, or June 20, 2021, whichever is earlier.
Trap: Be aware of the concessional contributions cap – currently $25,000 – and limit deductible contributions to the cap amount to avoid paying excess concessional contributions tax.
Ensure you have picked up all donations made during the year to deductible gift recipients. Taxpayers often forget to claim them because they forget to keep a record. With the increased use of electronic receipts via email, the ability to locate these receipts has become easier.
COVID-19 impacted work-related expenses
This tax time the ATO expects to see a substantial increase in people claiming deductions for working from home or for protective items required for work.
Working from home expenses
The ATO has already announced a temporary ‘shortcut method’ that applies from March 1, 2020, to June 30 2020.
The shortcut method allows you to claim 80 cents for each hour you work from home and covers all deductible running expenses.
Multiple people living in the same house can claim this new rate. For example, a couple living together could each individually claim the 80 cents per hour rate.
People claiming their working from home expenses using the shortcut method should include the amount at the ‘other work-related expenses’ question in your tax return and include ‘COVID-hourly rate’ as the description.
If you use the shortcut method, all you need to do is keep a record of the hours you worked from home as evidence of your claim. But it is all-inclusive, meaning you can’t claim for any other working from home expenses.
Taxpayers can still choose to use one of the other existing methods to calculate their expenses for working from home if they prefer.
With a far greater emphasis on hygiene, you could claim protective items required for work due to COVID-19.
Taxpayers working in jobs that require physical contact or proximity with customers or clients during COVID-19 measures may be able to claim a deduction for items such as gloves, face masks, sanitiser or anti-bacterial spray if they have paid for the items and not been reimbursed.
“This includes industries like healthcare, retail and hospitality.”
Home to work travel
Travel to and from work remained a non-deductible expense.
Generally, most people cannot claim the cost of travelling to and from work and working from home as a result of COVID-19 does not change this.
For example, if you are working from home because of COVID-19 but need to go to your regular office one day per week, your home to work travel is still private travel and cannot be claimed.”
Reduce irrelevant claims for part of the year
Ms Foat said with people working from home, the ATO expected claims for travel expenses and laundry expenses to decline.
If you aren’t travelling for work, you can’t claim travel expenses. If you aren’t wearing your work uniform, you can’t claim laundry expenses.
It’s still important to meet the three golden rules:
You must have spent the money and not have been reimbursed.
- It must relate directly to earning your income.
- You must have a record to prove it.
Private health cover
Private hospital insurance coverage will ensure you are not liable for the Medicare Levy Surcharge (MLS). Having “extras” or “ancillary” cover only is not sufficient.
The MLS will apply where a taxpayer’s income is above $90,000 (singles) or $180,000 (families).
From July 1, 2019, health insurers do not have an obligation to send members a private health insurance statement. If you are lodging your return online, your health fund details should be prefilled online via myGov.
You may need to reach out to your provider to obtain a statement directly if the details are not flowing through by July 20.
For more information, the ATO has provided helpful answers to a range of frequently asked questions on its website regarding COVID-19 and the preparation of 2019-20 tax returns, including claiming of tax deductions.
Finally, if you are experiencing difficulty paying your tax on time, you should get in touch with the ATO to explore options for payment.