2020! A brand new year, a brand new decade! Normally this would be a period of new beginnings, planning and growth, but things certainly went pear shaped pretty quickly. 2020 will certainly be a year that will be remembered for generations to come, and while we can easily get bogged down with the situation that we are currently in, with 30 June fast approaching it is now time to start looking towards ensuring that you are in a good tax position and that your financial affairs are in order. I have prepared a summary of things that you should take into account.
Concessional Superannuation Contributions
If you presently have sufficient cash flow you could think about making a contribution to your superannuation fund in order to maximise your superannuation contributions for 2020.
By doing so you also receive a tax deduction on contributions up to $25,000 if you are under the age of 75. (If you are over 65 years of age you will need to pass a work test.)
When you claim a tax deduction for the amount contributed to your superannuation fund you receive a tax deduction at your highest marginal tax rate. This compares to the 15% contributions tax paid by your superannuation fund on the contribution.
The net tax benefit from making a superannuation contribution as you’re your income is as follows:
Taxable income less than $18,200 -15.0%
Taxable income between $18,200 and $37,000 6.0%
Taxable income between $37,000 and $90,000 19.5%
Taxable income between $90,000 and $180,000 24.0%
Taxable income between $180,000 and $250,000 32.0%
Greater than $250,000 17.0%
Work Related Tax Deductions
Home Office Expenses
Because of COVID-19 there are two components to working out your home office expenses;
- pre COVID-19
- the period in which you have worked from home due to COVID-19 lockdown restrictions.
Home office expenses that you can claim include:
- Utility costs associated with running items that require you to perform your work duties. For example; electricity associated with heating, cooling and lighting.
- Cleaning costs for your work area
- Phone and internet
- Computer consumables (e.g. paper for the printer, ink cartridges, computer cables etc)
- Depreciation of home office equipment (e.g. computers, printers, phones, furniture, furnishings etc).
For the COVID-19 lockdown period, the ATO will allow you to calculate your home office deduction between 1 March 2020 and 30 June 2020 using one of three methods.
- Simplified method: claiming your home office expenses at a rate of $0.80 per work hour.
- Fixed rate method: allows you to claim the following:
- $0.52 per work hour for heating, cooling, lighting, cleaning and depreciation of office furniture; plus
- work related portion of the cost of phone and internet expenses, computer consumables and stationery; plus
- work related portion of the depreciation of your computer, laptop or similar device
- Actual cost method: Under this method you are able to claim the actual work related portion of all of the above mentioned expenses. The calculation must be made on a reasonable basis.
With both the fixed rate method and the actual cost method you are required to keep a record of the number of hours you have worked from home as well as a record of the expenses incurred and the proportion being claimed.
Whilst the fixed rate and actual cost methods require more record keeping, the calculations usually result in a greater tax deduction than the simplified method
Motor Vehicle Expenses
Due to COVID-19 you will need to keep in mind that movement has been restricted for the best part of 4 months to the end of June so you will need to be able to justify the number of work related kilometres being claimed under the set rate per kilometre method for this financial year.
Claiming motor vehicle expenses are done one of two ways:
- Cents per kilometre: You can claim up to 5000 business travel kilometres at a set rate of $0.68 per kilometre. The maximum deduction for this is $3400.
- Log book method: If you wish to claim actual motor vehicle expenses you must maintain a log book. Your log book must be maintained for 12 consecutive weeks, not be more than five years old and must be representative of your normal business travel.
Subscriptions & Memberships
You are able to claim the cost of any memberships or subscriptions that has a direct connection to your occupation.
Seminars, Conferences & Education Workshops
You can claim the cost of attending any seminar, conference or education workshop provided that there is a connection between your employment and the seminar, conference or workshop attended. Note that if your employer has paid for your attendance then you cannot claim a tax deduction.
Clothing, Laundry & Dry Cleaning Expenses
You can only claim a tax deduction for the cost of buying and cleaning occupation specific clothing, protective clothing and unique or distinctive uniforms. Normal everyday clothing will generally not qualify as being tax deductible.
The ATO will allow you to claim $1.00 per load if the load is only work-related clothing or $0.50 per load if you include other laundry in the same load. Where you use a dry-cleaning service, you will need to provide evidence that shows that you incurred the expense.
Prepayment of Expenses
Individual taxpayers are able to claim a deduction for prepaying deductible expenses. To be eligible for this the expenditure must:
- be prepaid for a period of no more than 12 months. Examples of deductible expenses would be:
- prepaying interest on an investment property loan
- prepaying interest on a margin loan
- paying an annual premium for an income protection policy (as opposed to paying monthly)
- Prepaying for travel, accommodation and registration fees to attend a seminar or conference
A capital gain happens where you sell an asset for more than what you paid. That capital gain is the offset against any carried forward capital losses you may have incurred in prior tax years and any current year capital losses.
If your capital gains are greater than the combined current year capital losses and the carried forward capital losses, then the net capital gain is included in your income tax return. If you have owned the asset for more than 12 months, the capital gain will be subject to a 50% discount so that only 50% of the capital gain will be included in your assessable income and be subject to tax.
If you had a capital gain during the 2020 year, you could review your portfolio to see if by selling any investments you can realise a capital loss to utilise.
If you have any questions regarding tax planning for 2020 please contact JHL Accounting.