What you need to know when it comes to your tax return: COVID-19 and important concessions

The end of the financial year is fast approaching and it’s time to start collating all of your information to ensure that you get your tax return sorted, and ensure you pay the right amount of tax.

This year, given the COVID-19 shutdown, is unlike any other and it’s important for PAYG employees to be across their obligations and some new changes that have been implemented by the Australian Tax Office in response to the crisis. Some issues though remain perennial.

Should I get tax agent assistance or go it alone?

The first question is whether you prepare your tax return yourself or get some help with it. Where a taxpayer lodges their tax return via a tax agent, an extension of time to lodge and pay may be available. However, this is only the case if all of your prior year tax returns have been lodged – no FY20 lodgement extension will be granted beyond 31 October if there are outstanding prior year returns as at that date.

The deferred lodgement due dates available for clients of tax agents are:

  • 31 March 2021 if the taxpayer’s last lodged tax return resulted in a tax liability of $20,000 or more; OR
  • 15 May 2021

Not only do you gain more time, but crucially professional expertise and guidance. Qualified tax agents have experience in dealing with the ATO on all matters pertaining to tax returns. As outlined in the ATO’s Compliance Program, they are aware of the particular audit focus areas. Tax agents are also aware of any current ATO questionnaires/notices and increasing focus on ATO data matching activity, and the impact that these have on the taxpayer.

Tax filing process and important deadlines

For those who have reasonably straightforward tax affairs and choose to do their own tax return, what are the main points that you need to be aware of?

Firstly, don’t be late!

Missing that 31 October deadline can give rise to late lodgement penalties. The second key item to note is the tax payment due date – 3 weeks after lodgement, i.e. 21 November 2020. Paying your tax liability late is likely to give rise to interest charges being imposed by the ATO.

Most taxpayers lodge their tax return online via myTax by linking a myGov account with the ATO. It is not mandatory but it can certainly help streamline the process as most information from your employers, banks, government agencies, health funds and other third parties is pre-filled by late July. You can also upload your myDeductions data to pre-fill your tax return. If you are expecting a tax refund, lodging online should expedite receiving the money. The ATO usually issues tax refunds within two weeks where the tax return is lodged online. You can track your refund and outcome of your tax return by logging in to the ATO’s online services via myGov. Paper returns are processed manually, taking up to 10 weeks.

This year there will be a difference – and this one is not COVID-19 related. Employers will now 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 PAYG payment summary and instead an income statement will be readily available for you to access via your myTax account after 31 July.

How to maximise your tax refund?

In recognition of the changes to many employees’ working arrangements due to COVID-19, the ATO has introduced a handy shortcut method for claiming working-from-home related tax deductions.

For the period from 1 March 2020 to 30 June 2020, you can claim a tax deduction of 80 cents for each hour you work from home provided that you are working from home to carry out your ordinary employment duties and have incurred additional running expenses as a result.

Tip: It’s important to keep a record of the hours you have worked from home during this period.

Trap: Noting in particular if you elect to use this method, you will be unable to claim any other expenses for working from home during that period.

Of course, you may 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 methods that provides the most beneficial tax outcome

If you are a Pay-As-You-Go (PAYG) instalment payer and need assistance with cash-flow due to facing financial difficulty as a result of COVID-19, you can opt to vary your PAYG instalments on your activity statement to zero with no penalties or interest charged on varied instalments for FY20.

Further, once you have applied to vary your instalment, you may also be able to claim a refund for any instalments made during FY20.  If you decide not to vary your instalments, any overpayments will be reconciled upon tax return filing.

If you have a rental property, claim appropriate capital works and capital allowances (depreciation) deductions. Be aware that the rules changed from 1 July 2017 which limits capital allowance deductions for second hand assets acquired after 9 May 2017. Investors who purchase new plant and equipment will however continue to be able to claim depreciation expenses on these assets. Tip: engage 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.

The ATO has provided answers to a range of FAQ relevant to individual taxpayers on its COVID-19 website regarding the preparation of FY20 tax returns and claiming of tax deductions, including in relation to work-related car expenses and residential and short-term rental properties.  It is worthwhile taking a look at this information on the ATO website as it may be helpful in preparing your tax return.

Super contributions

You no longer need to ‘salary sacrifice’ super contributions in order to reap tax savings. From 1 July 2017 all individuals under 75 years (including those aged 65 to 74 years who meet the prescribed work test) are now eligible to claim a tax deduction for personal super contributions made into an eligible super fund. In order to claim a deduction, taxpayers need to provide their super fund with a ‘notice of intent to claim’ notice of intent to claim on or before the day the 2020 tax return is lodged or 30 June 2021, whichever is earlier.

Trap: taxpayers should ensure to observe the concessional contributions cap (currently $25,000) and limit their deductible contributions to the cap amount if they want to avoid paying excess concessional contributions tax.

Ensure you have picked up all donations made during the year to deductible gift recipients. Taxpayers may make donations over the course of the year but often forget to claim them because they forget to keep a record. With increased use of electronic receipting via email, the ability to locate the receipts in the digital world has become easier.

Finally, ensure you have adequate private hospital insurance coverage with an Australian registered health fund so that you are not liable for the Medicare Levy Surcharge (MLS). Having “extras” or “ancillary” cover only will not be sufficient. At present, the MLS will apply where a taxpayer’s “income for surcharge purposes” is above $90,000 (singles) or $180,000 (families). From 1 July 2019, health insurers do not have an obligation to send members a private health insurance statement. If you are lodging your return online or via a tax agent, 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 20 July or where you choose to lodge a paper tax return.

Finally, if you are experiencing difficulty paying your tax on time, you should get in touch with the ATO to explore options for payment.

Good luck and I wish you a happy and healthy new financial year.

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