What is important to keep in mind about this COVID-19 pandemic affected financial year, as opposed to previous financial years, when it comes to tax time?
The deductions you usually claim may be different due to COVID-19 – with lower claims for things like work-related travel, car use and clothing and higher claims for working from home.
You might also have different types of income, possibly including JobKeeper, JobSeeker, redundancy payments and income protection insurance payouts.
Remember, about 1 in 4 people who use the ATO’s DIY option myTax have made mistakes with their returns and over half of Australians are unsure of their entitlements.
Those statistics are pre-COVID 19 so with all the unusual features of Tax Time 2021, this is definitely a year to get help with your return. Your tax agent will be able to advise you what deductions you are entitled to and how things like JobKeeper are taxed.
What can I claim that I couldn’t ordinarily claim?
Working from home expenses are the big deductible item this year.
To simplify claims, the ATO has introduced a temporary shortcut method of calculating additional running expenses allowing those working from home to claim a rate of 80 cents per work hour during the coronavirus crisis. This applies for the whole of the 2021/21 tax year.
You will need to keep a record of the number of hours you have worked from home as a result of COVID-19, such as a diary or timesheet.
If you use the 80 cents per hour method, you can make no other claims in relation to working from home. So, items like mobile phone and internet usage are included in the 80 cent rate.
Another option which produces a bigger deduction is to use the 52 cent per hour fixed rate.
Like to 80 cent fixed rate, you need to keep a record of the number of hours worked from home but, unlike the 80 cent rate, you can claim mobile phone usage, home internet and depreciation of computer equipment separately which is why the deduction is bigger.
You can claim the work-related portion of your actual working from home expenses.
Amongst the items you can claim are
- Heating, cooling and lighting bills
- Costs of cleaning your home working area (including cleaning products or payment for a domestic cleaner if required)
- Depreciation of home office furniture and fittings
- Depreciation of office equipment and computers
- Costs of repairing home office equipment, furniture and furnishings
- Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don’t need to be depreciated)
- Computer consumables (like printer ink) and stationery
- Phone (mobile and/or landline) and internet expenses
This generally produces a bigger claim than either the 80 cent or 52 cent rate but the amount of paperwork and calculation involved is much greater.
You’ll need to keep records of expenses and work out the work related part of each expense. You should use a tax agent to help with your claim if you intend to use this method.
Also, if you’re in a job where social distancing is difficult or impossible, you can claim the cost of personal protective items like face masks, hand sanitiser and antibacterial spray.
People who can claim include teachers, hospitality staff, retail staff, medical staff (including ancillary workers like receptionists), hairdressers and beauty therapists.
What most people don’t know they can claim
If the expense relates to your job, chances are it’s claimable, no matter how unusual.
So, if your job is a little unusual you might find your deductions are unusual; musicians can claim the cost of musical instruments or music lessons, actors can claim the cost of stage wigs for performances and adult performers can claim the cost of sex toys!
What should I be careful about claiming?
Don’t try to claim deductions for personal expenses such as personal grooming, non-deductible work clothing (such as business suits) and travel from home to work.
Private and personal expenses aren’t claimable and you can expect a ‘please explain’ letter. Only claim for items for which you have proof of purchase like an invoice or receipt.
Finally, if your employer has paid for an item on your behalf or reimbursed you for an expense, don’t double-dip; you can’t claim a deduction unless you are personally out-of-pocket.
5 simple tips for boosting your tax return this year
- Keep all your paperwork. Remember, no proof = no claim
- Make sure all your income data is correctly included, such as wages, bank interest, etc
- Make sure all you details are correct, including your name and bank account details. Mistakes will delay the processing of your return
- You may be eligible for the low and middle income tax offset this year. This is worth up to $1,080 for people earning between $48,000 and $90,000. But you need to lodge your return to get it, so don’t delay!
- Use a tax agent, like H&R Block Australia. Your fee is also tax deductible! Due to the nature of our world, this year Australians need to visit a tax expert to help them to understand their entitlements, and ensure they are receiving the deductions they are entitled to.
Mark Chapman is the Director of Tax Communications at H&R Block. He is a commercially minded tax adviser, commentator and writer offering plain English solutions to complex problems for clients.