Tax Tips and Key Changes – Individuals 2020

Do you know the tax deductions and offsets for which 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.

For example, check that your income statement from your employer says ‘tax ready’ and your private health insurance statement is available before visiting your tax agent. Otherwise, you’re potentially lodging your return with unfinalised data and due to this you may need to amend your tax return and pay additional tax.

Just remember that for an expense to qualify:

  • you must have spent the money yourself
  • it must be directly related to earning your income
  • it must not have been reimbursed
  • you must have the relevant records to prove it.

Claim 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 has received a large boost in funding that enables a stronger focus on ensuring taxpayers claim only the work-related expenses to which they are entitled. Some of this additional funding will go to improving the checking of claims in real time, additional audits and prosecutions.

Claim 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. You can also claim home office expenses at a set rate per hour of 52c. To claim this deduction, you must have kept a diary of the hours you worked at home for at least four weeks.

Due to COVID-19 the ATO have advised that from 1 March to 30 June 2020, 80 cents per hour will be the higher rate available for this deduction.

In most cases, if you are working from home as an employee, there will be no capital gains tax (CGT) implications for your home.

Claim self-education 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.

Claim depreciation

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.

Maximise 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.

Claim 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.

Report income and expenses from the gig economy and any side hustles

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 will need to first determine whether you are in business.

Superannuation contribution limits

Watch your superannuation contribution limits. You may wish to consider maximising your concessional or non-concessional contributions before the end of the financial year.

The concessional contribution cap for the 2019-20 financial year is $25,000. 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.

COVID-19 measures and support – individuals

Specific measures and support available for individuals impacted by COVID-19:

  • early access to superannuation which is not assessable income • the introduction of an optional simplified method (from 1 March 2020 to 30 June 2020) to claim 80 cents for each hour you work from home to cover all deductible running expenses
  • specific advice on the tax treatment of employment payments made because of COVID-19 (for example, if you take leave, are stood down or lose your job)
  • specific advice on the tax treatment of residential rental property income and expenses

Changes to payment summaries

You may not receive a payment summary from your employer this year.

Many employers are now required to report their employees’ income, tax and super information directly to the ATO each payday, so you can find all your information in one place when you need it.

If you use Moran Accountants to prepare your income tax return, you don’t need to do anything. We have a direct link to this information so we are fully equipped to lodge your tax return as usual.

You can access your payment summary information or income statement at any time through ATO online services in myGov. If you don’t have a myGov account, creating one is easy.

If you can’t access your information through myGov, you can contact us for a copy of your income statement.

Private health insurance statement

From 1 July 2019, health insurers are no longer required to send their members a private health insurance statement. It is optional for them to send you this information.

Your health insurance tax information should be pre-filled in your tax return by 20 July. We pre-fill this information to save time and help you to get your tax return right.

If your health fund details are not pre-filled by 20 July or you lodge a paper tax return, you may need to contact your health insurer to get a private health insurance statement so you can complete your income tax return. If you request a statement, your fund is required to send it to you within 14 days.

Capital gains tax changes for foreign investors

If you’re a foreign resident for tax purposes, new rules proposed in the 2017–18 Budget take effect from 9 May 2017. You will no longer be able to claim the CGT main residence exemption when you sell property in Australia unless certain circumstances apply.

If you already held property on 9 May 2017, you will be able to claim the CGT main residence exemption if the CGT event (disposal) of the property occurred on or before 30 June 2020.

For property acquired at or after 9 May 2017, you will no longer be able to claim the CGT main residence exemption from that date. That is unless certain life events occur within a continuous period of six years of you becoming a foreign resident for tax purposes.

Personal Income Tax Plan

The government’s Personal Income Tax Plan, as announced in the 2018–19 Budget, has been passed by parliament.

The changes introduced taking effect from the 2018–19 income year include:

  • an increase to the top threshold for the 32.5% bracket from $87,000 to $90,000
  • delivering a new low and middle income tax offset (LMITO) for those who are eligible
  • you don’t have to do anything to receive this offset – when you lodge your income tax return, it will be calculated and applied on your income tax assessment
  • it won’t reduce the amount of tax withheld from your pay
  • if you are eligible for the existing low income tax offset, you will also receive this new LMITO.

There has been a further expansion to the Personal Income Tax Plan, announced in the 2019–20 Budget and it is now law. This means the LMITO has increased from a maximum amount of $530 to $1,080 per year, and the base amount has increased from $200 to $255.

The amount of the offset you may be entitled to and the amount of any refund will differ for everyone depending on your individual circumstances, such as your income level and how much tax you have paid throughout the year.

When lodging your tax return, there’s nothing you need to do. The new offset amounts will be factored in to your assessment even if you have already lodged your return.

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