There’s no point burying your head in the sand with the end of the financial year fast approaching.
Many find tax boring, but this year millions of Aussies are expected to get a bumper return as tax cuts introduced last year can finally be cashed in.
Recent research found that 32 per cent of Aussies believe the Australian Taxation Office will be scrutinising their tax return more closely this year and cracking down on tax refunds, according to H&R Block.
So it’s worth investing time into getting your tax return right, said senior tax advocate Susan Franks from Chartered Accountants Australia and New Zealand.
“Getting ready for the end of the financial year is one of the things that gets harder and worse, the longer you leave it,” she said.
“It is also one of the things with a near immediate benefit. There are actions that you can do this month, that will benefit you next month. A bit of honest and immediate effort will go a long way.”
Find out how to get organised and get the most money back.
1. Make sure your working from home records are up to date
Many Aussies worked from home this year and the good news is that the ATO has extended the simplified method of claiming these expenses.
“You can claim 80 cents per hour for each hour you work from home and this method covers phone and internet costs, gas and electricity costs and the depreciation of office furniture,” explained Ms Franks.
“You cannot make a separate deduction for these costs.”
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But if you have a large expense, such as buying a new computer or office chair and your employer has not reimbursed this cost, you may be entitled to a larger deduction.
This will means spending some extra time documenting all your working from home expenses rather than using the 80 cents per hour short cut method, said Ms Franks.
“If you are using this method to claim work from home expenses you will need to be able to produce a record of your hours worked from home, such as time sheets or a diary,” she noted.
“Be aware that ATO is on the lookout for anyone trying to claim work from home expenses, but in the same return are making lots of claims for travel and uniform expenses.”
2. Give to charity
With the end of the financial year right around the corner, it’s the best time to squeeze in those last couple of donations to your favourite charity, according to Ms Franks.
“Not only are you helping out great causes, but it feels good, it can boost your mental health, and you can claim the donation in your next tax return to give it a real boost,” she said.
But don’t get caught out, she warned.
“You need to make sure that the donation was to a registered charity,” she explained. “Donations for example, through crowd-funding sites, are often not tax deductible.”
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3. Put money into your superannuation
A little-known feature of the tax system is in many cases you can often voluntarily send extra money to your superannuation, then claim a tax deduction for the difference, revealed Ms Franks.
“For example, if you earn the average wage of about $89,000 in Australia, you are paying 32.5 cents in tax for most of the dollars you earn. For most people however, superannuation is only taxed at 15 per cent,” she said.
Depending on your circumstances, this means that for each dollar you voluntarily put in super, above the amount paid by your employer, you will be able to claim a deduction of 17.5 cents.
“This is a highly tax effective investment in your own comfortable retirement, with benefits both now and in the long term,” she said.
Several conditions will need to be met and forms may also need to be completed, she added.
4. Make a tax-deductible purchase
If there’s a course you have been thinking about doing or the purchase of some home office furniture, now is a great time to do it, according to Ms Franks.
“Similarly, if there is a legitimate tax deductible purchase that you know is coming up in August or September, considering pre-paying and that way you can claim the deduction sooner,” she said.
“Be aware that if you are claiming for a course, it needs to be related to your job now – not a job you would like to get in the future.”
5. Declare your side hustle
A growing number of Aussies are part of the gig economy and any income must be declared, but it can also be used to your advantage.
Lots of people turned to the gig economy to make ends meet during Covid-19, said Elinor Kasapidis, senior manager of tax policy at accounting body CPA Australia.
“The ATO is aware of these side hustles and matches data from platforms like Uber, Airbnb and AirTasker against individuals’ tax returns. This means the jig is up on the gig economy this tax time,” she warned.
Gig economy workers often work as independent contractors, but the term broadly includes people who earn income from bartering or sharing as well, she added.
“If you drive people around, do odd jobs or freelance work, rent out your car or storage space, run social media accounts or sell products, you need to declare this income in your tax return,” she explained.
“The good news is that your expenses from earning this income may be deductible.”
Gig workers can claim deductions for most costs incurred in earning their income. Examples can include travel, vehicle, marketing, financing and home-office expenses.
“You can only claim a deduction for the work-related proportion of your use,” she said. “Picking up an Uber fare on the way home from visiting Mum doesn’t entitle you to write off all your car expenses.”
The ATO is cracking down on the cash economy too, warned Ms Kasapidis. The consequences of not declaring cash income from the gig economy may include interest on your tax bill and criminal and administrative penalties.
But you don’t need to declare income from activities that are little more than hobbies or not intended to make a profit, although you can’t claim a deduction for them either.
“Don’t worry, the hundred bucks you earned from selling your designer handbag or off-loading your ‘barely used’ bike on eBay doesn’t need to be reported,” she noted.
6. Organise the rest of your paperwork
It’s no secret that the ATO can call on you to provide receipts and evidence up to five years from the date you’ve lodged a claim.
“Just don’t forget the golden rule – if you can’t prove it, don’t claim it,” Ms Franks warned.
Make an early start on getting your tax records and paperwork in order, she suggested. “It’ll take the stress out of tax time after the end of the financial year,” she added.
“Documents to start herding together include proof of work-related expenses, bank interest statements, and rental property income, to name a few.”
Ms Franks also has a word of warning – the ATO has already flagged heavier scrutiny and penalties for ‘copy/pasting’ claims.
“While the ATO is sympathetic to genuine and legitimate mistakes, anyone deliberating claiming things they are not entitled to will have to suffer the penalties,” she said.