The last thing we need during these uncertain times is a reduced tax refund or even a tax bill because we did not claim all our legal entitlements.
These days with modern and improved technology we can prepare our own tax return. Unfortunately, it is my experience that when individuals prepare their own tax return they essentially claim the same tax deductions that they claimed the previous year. However, each year there are legislated tax changes and in some cases, our entitlements to tax deductions have increased.
Below are some examples where we can claim more than in previous years.
- Working from home
As a result of COVID-19, we are spending more time working from home, and as such we are entitled to claim a tax deduction from the additional cost we incur from working from home.
These costs include:
- electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
- cleaning costs for a dedicated work area
- phone and internet expenses
- computer consumables (for example, printer paper and ink) and stationery
- home office equipment, including computers, printers, phones, furniture and furnishings. You can claim:
- the full cost of items up to $300
- the decline in value for items over $300
- Work related travel
Many taxpayers use their motor vehicle for business-related travel, but because they have not maintained a motor vehicle logbook for the required period they are unable to claim their full entitlement.
You can choose one of the following methods to calculate deductions for car expenses:
- cents per kilometre method
- logbook method
Note: many taxpayers do not realise that the ‘one-third of actual expenses’ and ‘12% of original value’ methods were abolished from 1 July 2015. So if you do not maintain a logbook in the prescribed form then the only option you have is the ‘cents per kilometre’ method which can result in a massively reduced tax deduction.
Cents per kilometre method
Under the cents per kilometre method:
- A single rate is used. Your claim is based on 68 cents per kilometre
- You can claim a maximum of 5,000 business kilometres per car
- You may need to provide written evidence to show how you worked out your business kilometres (for example, by producing diary records of work-related trips)
- Where you and another joint owner use the car for separate income-producing purposes, you can each claim up to a maximum of 5,000 business kilometres
Under the logbook method:
- Your claim is based on the business-use percentage of the expenses for the car
- Expenses include running costs and decline in value but not capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it and any improvement costs
- You can claim depreciation on the motor vehicle
- To work out your business-use percentage, you need a logbook and the odometer readings for the logbook period. The logbook period is a minimum continuous period of 12 weeks
- You can claim fuel and oil costs based on either your actual receipts or you can estimate the expenses based on odometer records that show readings from the start and the end of the period you had the car during the year
- You need written evidence for all other expenses for the car
- Bring forward your expenses
You can claim a tax deduction for an expense when you incur that expense. Therefore, if you purchase for example stationery, and computer expenses in July 2020 you need to wait until the next financial year in order to claim those deductions. Therefore, if you incur such expenses prior to 30 June you can claim the tax deduction now, this financial year.
You should consider purchasing stationery, laptops and printers or prepaying subscriptions and interest on rental properties for up to 12 months in advance to reduce your income before 30 June.
- Are you operating a small business?
If you are operating a small business you are entitled to the $150,000 instant write-off for new business assets. The threshold will revert back to $1,000 for small businesses with a turnover of less than $10 million. This morning (9th June 2020) it is reported that this instant asset write off will extend until 31 December 2020.
Under instant asset write-off, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.
Instant asset write-off can be used for:
- multiple assets as long as the cost of each individual asset is less than the relevant threshold
- new and second-hand assets
It cannot be used for assets that are excluded from the simplified depreciation rules.
The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business’s eligibility and apply the correct threshold amount depending on when the asset was purchased, first used or installed ready for use.
Should you require more information on legal tax entitlements, contact Peter Quinn to submit an online enquiry or call us on +61 2 9580 9166. We also offer a FREE 45-minute consultation should you have other financial planning, taxation or superannuation issues you may wish to discuss.
The information in this document does not take into account your personal objectives, financial situation or needs, and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.