This is an end of financial year like no other. To help you prepare we have put together an end of financial year checklist to maximise your tax deductions for the 2019-20 financial year by planning and reviewing your records.
It is best to be prepared, review your super contributions and submit your return on time, but the shadow of COVID-19 means many of us face unexpected pressure in a changing economic environment.
Here are our top tips for businesses and individuals when it comes to year-end tax planning:
Working from home deductions
If you have worked from home this year, the government has recently released guidance on claiming working from home expenses as a tax deduction. The ATO will now accept a ‘shortcut method’ for calculating running expenses from 1 March to 30 June. You can now claim a deduction of 80 cents for each hour you work from home due to COVID-19. Therefore, you only need to keep track of the hours you work from home, along with proof of your expenses.
There are three golden rules for deductions that still apply:
- You must have spent the money yourself and not have been reimbursed
- The claim must be directly related to earning income
- There must be a record to substantiate the claim
It is important to remember that this ‘shortcut method’ may not be suitable for your circumstances and the ATO will still accept the old method of calculating your expenses. For more information on working from home deductions, visit the ATO’s website.
Some individuals impacted by COVID-19 chose to withdraw up to $10,000 of their super in this financial year. Wherever possible, it’s important to try and add to your super instead – it can really add up over time and make a huge difference to your retirement outcome.
Here are a few ways you may consider boosting your super tax-effectively before 30 June:
- Make tax deductible contributions, or salary sacrifice via your pre-tax pay, up to your $25,000 annual cap.
- Make a contribution to your spouse’s super – you may be able to claim an 18% offset (maximum of $540 offset) on contributions up to $3,000, that you make on behalf of your non-working or low-income-earning partner.
- Make a personal (after-tax) contribution of up to $1,000 and receive the maximum $500 government co-contribution if you earned up to $38,564, or a pro-rata amount if your earnings were less than $53,564, in the 2019/20 financial year.
- The low income super tax offset is available to those who earn $37,000 or less a year, and means that if you or your employer contribute to your super, you may be eligible for a tax offset of up to $500 per year.
Bring forward expenses and defer income
If you think you might earn less next year, or simply to have a bigger refund, you could bring forward tax deductible expenses and deferring assessable income.
You can pre-pay up to 12 months of expenses such as interest on an investment loan. This applies to deductible work-related expenses like insurance premiums for income protections policies too.
Deferring income can be problematic, but worth considering if you are certain that you’ll earn less next financial year.
As many are working from home now may be a good time to upgrade your home computer or invest in some better office furniture. You may also be able to take advantage of the EOFY sales for any purchases made before the end of the tax year.
Pay super monthly
Businesses can even out their cashflow and increase their business expenses in the current financial year by paying their employees’ Super Guarantee contributions monthly – rather than paying the April-June quarter contribution in July.
Review capital expenditure
The instant asset write-off allows eligible businesses to instantly deduct assets costing up to $150,000 (an increase from the normal $30,000) on their upcoming tax return.
Small business CGT concessions
Small businesses may be eligible for capital gains tax (CGT) concessions on the sale of business assets if your aggregated turnover is less than $2 million or on business assets less than $6 million. You can apply as many concessions as you’re entitled to until the capital gain is reduced to nil. For more information visit the ATO website here.
We are here to help
This guide is merely a starting point, designed to help you identity areas that might have significant impact on your personal and business tax planning.
Contact your adviser on 02 9232 6800 to discuss your needs.