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Home office or Tax Haven?

Home office or Tax Haven?

Think back to this time last year. Who would have believed that gyms and restaurants would close, movies would stop, personal trainers and teachers would be virtual and going to work would resemble getting out of bed and turning on your computer?

Working from home is the new normal and for many, it may remain that way for some time. Now with tax time upon us, there may inadvertently be a silver lining, with many items now tax deductible. 

Whether you run a small business, use a tax agent or lodge your own return, whether you’ve been on job seeker or job keeper, we’ll help you understand how you may be entitled to a lot more than you realise, this tax year. 

Helping you navigate this tax year.

The pandemic has changed many taxpayers’ circumstances, one way or another, and this should be reflected in our tax returns this year. To help, the ATO has created a new simplified system – a shortcut which allows taxpayers to claim 80 cents for each hour we’ve worked from home, rather than needing to calculate costs for specific running expenses.

We can now claim internet costs, cleaning bills, stationery, phone costs and other expenses.  While still under the previous fixed rate method of 52 cents an hour, we can claim for things such as heating, cooling, lighting and a decline in office furniture value.

If we have multiple people living in the same house, we will be able to claim the new rate and the requirement to have a dedicated work-from-home area has been removed.

The change will apply from March 1 until the end of the financial year on June 30. It will also be extended from July 1 to September 30 for the 2020-21 income year.

Keep in mind the new arrangement doesn’t stop people from making a working-from-home claim under existing arrangements, where you calculate all or part of your running expenses. So, if you keep a timesheet of the number of hours you work from home, you may be able to claim a higher amount by crunching the numbers.

What can and can’t I claim?

For those prepared to crunch the individual numbers, you may receive a bigger deduction this year, provided you have receipts, the deductions you can claim include:

  • A portion of your internet, phone, electricity and gas bills
  • Car expenses
  • Clothing, laundry and dry-cleaning expenses
  • Donations and gifts
  • Handbags, briefcases and satchels
  • Home office expenses like stationery, paper, ink, filing cabinets, bookshelves, computers and electronics
  • Industry-related deductions
  • Investment income if you’ve received interest payments on your savings, dividends from your investment shares or rental payments from an investment property
  • Overtime meals
  • Protective gear such as face masks, gloves, hand sanitiser, anti-bacterial spray, hard hats, safety glasses, sunglasses and cosmetics containing sun protection
  • Self-education expenses
  • Subscriptions used for work, such as Foxtel, Netflix, Stan, Disney+ or industry subscriptions in print and broadcast
  • Travel expenses between workplaces
  • Tools and equipment necessary for you to complete your work
  • Union fees and subscriptions to associations

The ATO warns there are a number of expenses you can't claim, such as:

  • Coffee, tea, milk, toilet paper and other general household items your employer may otherwise have provided you with at work
  • Items provided by your employer or any expenses that have been reimbursed
  • Items related to your children and their education, including setting them up for online learning, teaching them at home or buying equipment such as iPads and desks
  • Items you're reimbursed for, paid directly by your employer or the decline in value of items provided by your employer – like a laptop or a phone
  • Your own occupancy expenses like rent, mortgage interest, water and rates

The group certificate goes online. 

This year, the paper group certificate is gone, and tax has now turned digital. Accessing your income statement online is simple – your payment summary information will be available in ATO online services through myGov and is now called an ‘income statement’.

If you don’t have a myGov account, it’s easy to set one up. Once you create an account, you can securely access a range of government online services including:

  • Australian JobSearch
  • Australian Taxation Office
  • Centrelink
  • Child Support
  • Department of Health Applications Portal
  • Department of Veterans’ Affairs
  • HousingVic Online Services
  • Medicare
  • My Aged Care
  • My Health Record
  • National Disability Insurance Scheme
  • National Redress Scheme
  • State Revenue Office Victoria

If you’d rather not create a myGov account, you can phone the ATO on 13 28 61 and request for a copy of your income statement.

If you use a registered tax agent, they’ll have access to your income statement so they can complete your tax return.

  • Items you're reimbursed for, paid directly by your employer or the decline in value of items provided by your employer – like a laptop or a phone
  • Your own occupancy expenses like rent, mortgage interest, water and rates

What if I was forced to take leave or I was temporarily stood down?

Your employer may have paid you regularly or made a one-off payment if you were forced to take leave or were temporarily stood down. Your employer might have given your payment a special name such as:

  • COVID-19 payment
  • pandemic allowance
  • stand-down payment

Regardless of what your employer calls these payments, the ATO treats them the same as any other ordinary payments from your employer, meaning you will have to pay tax on them at your normal marginal tax rate and declare them as wages and salary on your tax return.

What about JobKeeper or JobSeeker payments?

If you received the JobKeeper payment on behalf of your business as a sole trader, then be sure to include the payments as assessable income for the business.

When it comes to JobSeeker, if you’ve received these allowances the ATO will include this information into your tax return at the Government Payments and Allowances question once it’s ready. Be mindful that if you’re lodging your return before this information is included for you, you’ll need to make sure you mention it in your lodgement. This is because leaving out income can slow down your return or even result in a surprise bill later, so it’s best to do the right thing to avoid any future drawbacks.

The ATO also states that the following government payments must be declared on your tax return:

  • Age pension
  • Austudy
  • Carer payments
  • JobKeeper payments
  • JobSeeker payments
  • Newstart
  • Youth Allowance 

Although some government payments are exempt from income tax, you still need to declare them.

What about tax-deductable rental property expenses?

If you own a rental property that you receive an income from, you can claim any expense associated with earning that income.

For example, if you pay Landlord Insurance on your rental property, it’s an expense you pay to earn income from the property – because if you didn’t own the property you wouldn’t incur the expense.

Rental property expenses include:

  • Advertising for tenants
  • Bank charges
  • Body corporate fees
  • Cleaning
  • Council rates
  • Electricity used while rented or available for rent
  • Gas used while rented or available for rent
  • Gardening and lawn mowing
  • In-house audio/video service charges
  • Insurance – building, contents, landlord
  • Interest on loans
  • Land tax
  • Mortgage discharge expenses
  • Property agent’s fees and commissions
  • Property related purchases less than $300
  • Quantity surveyor’s fees
  • Repairs and maintenance
  • Secretarial and bookkeeping fees
  • Security patrol fees
  • Servicing costs e.g. smoke alarms and pest control
  • Stationery and postage
  • Telephone calls and rental
  • Tenant related legal expenses
  • Tax agent fees
  • Water charges

If you rent out property, you need to:

  • consider the capital gains tax implications if you sell
  • declare all rental-related income in your tax return
  • keep records right from the start
  • work out what expenses you can claim as deductions
  • work out if you need to pay tax instalments throughout the year

If you have an investment property that isn’t rented or available for rent – like a holiday home – then you generally can’t claim deductions because it doesn’t generate rental income.

Keep in mind your entitlement to claim a tax deduction for particular expenses will depend on your personal circumstances.

To help you get it right when lodging your tax return this year, visit the ATO for more 2020 tax time essentials and be sure to have all the appropriate documents on hand before lodging your end of financial year tax return.

Remember, if you’re an NRMA Insurance customer you can access all your Tax documents online here

Disclaimer: This is not financial or professional advice. We recommend you obtain independent advice before making any financial decisions.

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