MANY OF YOU will now be accustomed to claiming expenses incurred whilst working from home (WFH), a lot of this largely due to the lockdown measures put in place during the early years of the pandemic.
With much of the workforce WFH, the Australian Taxation Office (ATO) instigated an $0.80 per work hour “shortcut method” for claiming home expenses from March 1, 2020, to June 30, 2022.
The shortcut method has been very popular, as the expenses included could be claimed based on the production of a timesheet or work diary — much simpler than the Fixed Rate Method or Actual Cost Method.
New guidelines in development
The ATO is in the final stages of updating the methods available to claim WFH expenses for the 2022/23 tax year and beyond.
The Claiming a deduction for additional running expenses incurred while working from home — ATO compliance approach PCG 2022/D4 document is a good indicator of what taxpayers looking to claim WFH expenses in the 2022/23 financial year can expect.
I have reproduced key points from this document; these new guidelines will likely take effect from July 1, 2022.
The draft guidelines indicate that from July 1, 2022, the $0.80 method and its predecessor, the $0.52 per hour rate, will no longer be available and will be replaced with the Revised Fixed Rate of $0.67 per hour.
The ATO will allow taxpayers to continue to claim their actual expenses or use the Revised Fixed Rate Method, as explained below:
You do not need to have a separate home office or dedicated work area set aside in your home in order to rely on the information in this guideline.
If more than one taxpayer in your household is working from home at the same time, each taxpayer will be able to rely on the guideline provided that each taxpayer meets the requirements for deductibility.
Taxpayers working in the same household at the same time can choose to use either the revised fixed rate or actual expenses method.
If you do not use the revised fixed rate method, you will need to use the actual expenses method.
The information should be interpreted to be in effect from July 1, 2022
The Revised Fixed Rate Method covers the following additional running expenses you incur on a fair and reasonable basis by using the revised fixed rate of $0.67 per hour worked from home.
Energy expenses (electricity or gas) for lighting, heating/cooling and electronic items used while working from home.
Internet expenses
Mobile and/or home phone telephone expenses, and
Stationery and computer consumables
To calculate your total deduction for running expenses using the Revised Fixed Rate Method you:
a) Calculate the number of hours you worked from home during the income year based on your records.
For only the 2022/23 income year, you need to keep:
A record representative of the total number of hours worked from home from July 1, 2022, to December 31, 2022.
A record of the total number of actual hours you worked from home for the period January 1, 2023, to June 30, 2023.
Note, for 2023/24, and later years, you must keep a record for the entire income year of the actual number of hours you worked from home during that income year.
b) Multiply the total number of hours you worked from home during the income year by 67c per hour.
c) Calculate the work-related decline in the value of any depreciating assets that you used to work from home during the income year and any other running expenses incurred and not accounted for in the 67c per hour rate.
d) Add the amounts calculated from b) and c) above, and this total will be the amount you claim as your deduction for working from home at D5 in your Work Related Expenses Schedule of your tax return.
Further information can be obtained from the Draft Practical Compliance Guideline PCG 2022/D4; it can be found on the ATO website or by entering the above title into your search engine.
Note that the document is still in its draft form but is indicative of what will be legislated; please check the ATO website or ask your financial advisor for details when it reaches its final form.
The content of this article is not intended to be relied upon as professional advice and should not be used as such. If you have any questions, you should consult a registered tax agent. Brian Spurrell B A, B Com, Dip Ed, FCPA, Registered Tax Agent. Director, Personalised Taxation & Accounting Services Pty Ltd PO Box 143 Warrandyte 3113 0412 011 946 www.ptasaccountants .com.au
THIS MONTH’S article moves away from the customary focus on tax tips and tax information and is dedicated to my readers who may be struggling to cope with the pressures and uncertainties we are experiencing under the ravages of COVID-19.
Resilience and wellness are key concepts I explore in the holistic life-planning sessions I usually hold with my clients.
Good financial planning is about having a holistic approach, and the lessons we learn from holistic life-planning can be applied to surviving the challenges of COVID-19.
The tasks we face of surviving both the financial and health impacts of COVID-19 are more likely to be successful if we focus on and accept the importance of building up our resilience and our wellness.
Resilience and wellness
I will define resilience as simply the degree of willingness to overcome obstacles.
Resilience develops from the knowledge and experience of how to cope in spite of setbacks, barriers or limited resources and the ability to bounce back when things do not go to plan.
It also requires good mental health, sustained positive emotional strength, good physical fitness and physical health.
Obviously, there is no magic drug to take in order to develop resilience, but developing a history of surviving challenges helps.
Those who have coped with disasters, such as the loss of their home through a bushfire, the death of a child or life partner, or overcome severe physical or mental disabilities, will understand what resilience is.
Those who have survived wartime and recessions/depressions will also understand the importance of resilience.
Wellness could be viewed as a pathway to — or the process of — becoming aware of and making choices toward a healthy and fulfilling life.
Once achieved, it is a state of complete physical, mental, and social wellbeing supported by beliefs, principles, and values that give meaning, purpose, and direction to our lives.
Walking the road
As is the case with world wars, financial depressions and recessions, bushfires, droughts, floods and plagues, we can be certain that it will end, so instead of asking “how long will it take?” we should be asking “how can we manage the journey?”.
There is only one road out, and we are all on the same road, but how we walk this road is important.
We can walk it reactively, or proactively.
If you choose to travel reactively, you will sit and wait and when the situation affects you in whatever shape or form, you then react to it by borrowing money, calling your accountant, calling on a friend or family member, visiting a medical practitioner or a psychiatrist or simply panicking.
If you choose to travel proactively, you will be thinking ahead, planning what outcomes or goals you want, thinking through how you are going to get there, and when and how it will occur.
Planning in proactive mode
Most successful businesses and entities have a plan or a budget.
How else could you know how you are tracking if you do not have a plan to compare your actual outcomes against?
So, now let us apply these concepts to the family unit, couple or individual level.
In many other areas of our life; holiday, bushfire, household budgets, we often have a plan in place to maximise the outcome.
Regardless of whether you plan, or live from-day-to-day, if there was ever a time to be planning ahead, it is now.
Emotional health plan
There is a strong likelihood you or a member of your family may experience a bout of depression or a sense of helplessness, experience the loss of your job or business, a breakdown in a relationship, children not coping with home-based learning, or it all just getting too much to deal with.
Are you going to wait until the situation reaches crisis point, or will you work on a contingency plan?
Even just a list of health professionals, support services such as Beyond Blue or your GP, along with their contact details, may suffice as a plan.
Talking through your feelings and concerns with a trusted friend or family member is usually a positive starting point, as you are acknowledging that you have a problem, that you are willing to talk to someone about it, rather than just internalising your pain and retreating to within yourself.
There may also be things you could plan to do to assist in reducing stress levels either in your person or your household, such as walking your dog, or offering to walk your neighbour’s dog, or even considering buying a pup to nurture.
Other alternatives you may consider in your plan might be taking up yoga, meditation — or even a relaxing massage.
The important thing is to have thought ahead in “what if” mode, and recorded some notes and discussed it with your partner, family or friend.
You may also keep an eye out for Stephanie Foxley’s monthly Mental Health column or Maree Zimny’s Wellness column.
Physical health plan
It is widely acknowledged that there is a strong connection between physical health and emotional health.
A regular cardio work-out seems to kick in the endorphins which can relieve stress and produce feelings of wellbeing.
In my case, I have found on the days I have a one hour workout first thing in the morning that I am cognitively sharper and better equipped to deal with the more challenging mental demands of the day.
I have observed over the years a number of people who have experienced major emotional traumas and have taken up walking or jogging, even running in marathons as a means of coping with their depression or loss of self-worth.
I strongly recommend you put together a physical exercise plan that embraces a range of exercises including cardio.
You may have to be more creative while confined to home by using substitute objects to facilitate certain exercise routines.
You may also wish to check out Chris Sharp’s monthly Fitness column for some great ideas.
Human contact plan
Stage 4 restrictions are challenging and the drastic change in lifestyle can exacerbate feelings of aloneness and isolation which can impact on our emotional health.
It is therefore important to use the digital and visual media such as FaceTime, Skype and Zoom to regularly stay in touch.
Plan to contact family and friends at regular times and do not be reluctant to discuss how you are coping with everyday challenges.
Sometimes, comforting exchanges between family and friends that are experiencing similar challenges can be just as therapeutic as a visit to a psychologist or counsellor.
Financial plan
Finally, we need to address the most challenging aspect of surviving COVID-19 and that is finance.
When we refer to finance in this context, it embraces the income you earn from employment, your business, your investments, plus your access to borrowed funds through mortgage loans, and other forms of bank finance, credit card and pay later finance, and assets you own that could be sold to release funds such as investments, superannuation, financial support from family, friends, your community and the government in the form of pensions, JobKeeper, JobSeeker and numerous other types of support currently listed at dhhs.vic.gov.au/financial-support-coronavirus-covid19.
Once again, I hope you will choose to travel proactively and prepare a financial plan for your household and for your business if you have one.
The greater the uncertainty we face, the more crucial it is to plan ahead rather than wait for financial disaster to hit you unexpectedly, with no pathway to guide your financial decision making.
A good financial plan should enable us to project where our financial resources may be sourced from and how much we may need to fund our projected expenditure.
Available financial resources are what fuels our daily activities and needs in the same way as petrol or diesel fuels your travel needs.
If you run out of fuel your vehicle grinds to a halt.
The same drama can occur in your home if you run out of access to financial resources, so your financial plan in this time of great uncertainty should take top priority.
A useful starting point if you do not already have a personal or household budget in place is to go on to the ATO website (ato.gov.au) and look for the personal living expenses comprehensive worksheet (NAT 72959-12.2015).
Alternatively, for an excellent and more sophisticated budget planner with the option of using an excel based spreadsheet go to moneysmart.gov.au/budgeting/budget-planner.
Tips on preparing a budget
Select the most appropriate time frame, weekly, fortnightly or monthly, depending upon your pay period or most convenient period for estimating your cash flows and convert all income and expenditure amounts to the equivalent amount per period.
Access the last 12 months bank statements and credit card statements and any other necessary supporting documents in order to build a record of past actual income and expenditure for the time period chosen.
Sort your expenditure items into those that are essential or unavoidable and those that are discretionary.
Use your historical data as the starting point in estimating your budgeted amounts for the first period of your budget.
Ask yourself whether the historical amounts are likely to be repeated or not, and note why your estimates are expected to differ e.g. now working from home or children are learning from home.
Amounts received or paid quarterly or annually etc., will need to be entered into the period they are expected to be received or paid so your net cash flow will vary up or down each period accordingly.
Structure your budget to take you through to December 31, 2020 at least and subsequently extend it to March 31, and finally June 30, 2021.
There is a lot of merit in monitoring your actual monthly receipts and payments against your budget estimates and where necessary revising your estimates for future periods so that your finance plan becomes a living plan.
Preparing a personal or household budget is important because it will inform you — ahead of time — when you may be able to bank surplus cash flow to cover future commitments, or in the absence of cash reserves to draw down on, allow you to plan forward, proactively, and work on where the additional cash can be found, be it selling down shares, seeking additional paid work, cutting out certain discretionary expenditures, or discussing your financial needs with your bank, instead of just taking a punt on providence.
The content of this article is not intended to be relied upon as professional advice.
It reflects insights I have gained from my experience as an educator, small business owner, practicing accountant and custodian of my parents’ and grandmothers’ respective recollections of surviving the privations and challenges, resulting from two world wars, the Spanish flu epidemic and the 1930s depression.
Their stories have left me with a deep appreciation of how resilience and wellness are so essential for survival when the unknown overwhelms our consciousness.
THIS MONTH’S column draws your attention to a number of issues that may be relevant for you at this time of the year, when your mind turns to getting your information ready for tax time.
There are a few changes this year that have implications for the preparation of your personal income tax return.
These changes include income from JobKeeper or JobSeeker payments, termination or redundancy payments and deductions for work related expenses such as home office expenses, car expenses, uniform/protective clothing claims, changes to phone and WiFi usage, depreciation deductions and claims for super contributions using the catchup-up opportunity et cetera.
Whilst some of these issues, such as making superannuation contributions and claiming home office expenses, have been covered in earlier editions of my column, you may find preparing your own tax return this year more challenging than in prior years.
Furthermore, the ATO has warned of increased audit activity particularly in the areas of claims for concessional super contributions and work related expenses, given the significant impact of COVID-19 on employment and working from home.
It may therefore be an appropriate time to consider using the services of a registered tax agent to prepare and lodge your 2020 income tax return and relieve you of the challenge of coping with these changes.
A further benefit of using a tax agent is that you may delay lodgement of your return as late as May 15, 2021.
If you expect to have a tax liability and are struggling financially, payment can be delayed until your assessment issues, or even later if your tax agent negotiates a payment plan for you.
You should of course engage a tax agent’s services prior to October 31, 2020 to take advantage of the agent’s later lodgement date.
Accessing your Income Statement or Payment Summary
If your employer is reporting payroll information each payday using Single Touch Payroll (STP), they are no longer required to give you a payment summary.
You will instead receive an Income Statement which you can access through the ATO online services via myGov, once it has been marked as “Tax ready”.
Most employers with 19 or more employees have until July 14, 2020 to finalise their payroll data whilst those with less than 19 employees have until July 31.
The tax office will send a notification to your myGov inbox when all of your income statements are “Tax ready”.
If you have earned interest on bank accounts or investments or have shares that are paying dividends or received distributions from trusts you should delay lodging your tax return until all information needed to complete your tax return available through the ATO Online services has been accessed.
Likewise, if you are using the services of a tax agent, they also will not be able to complete your tax return until all pre-filling information is available from their software or online services for agents.
Although you may be eager to lodge your tax return or have it completed and lodged by your tax agent, it may cause you further inconvenience and cost if subsequently additional information becomes available necessitating the preparation and lodgement of an amended return.
COVID-19 income support reporting
a) JobKeeper payments
If you are an employee and your employer received JobKeeper payments for you as an eligible employee, the reimbursements received by your employer are included in your gross salary and reported at Item 1 in your tax return.
If you are self-employed and operating as a sole trader, eligible JobKeeper payments you have received will be included in your Business Income at Item P8 of your individual tax return.
b) JobSeeker payments
If you were in receipt of JobSeeker payments this is assessable income and will be included in the information available from the ATO Online services through myGov and must be included in your tax return at Item 5 — Australian Government Allowances and Payments.
c) Cash Flow Boost
If you are a sole trader with employees and were fortunate enough to be eligible for the cash flow boost, these payments are classified as non-assessable non-exempt income and are not included in your tax return.
Yes, that is true!
d) More good news
If you missed out on buying depreciable assets over $30,000 and less than $150,000 by June 30, 2020, the good news is that the Government has extended this generous allowance until December 31, 2020.
e) Not so good news
The ATO has increased its focus on the tax gap of $8.4 billion between what individuals not in business are paying compared with what they should be paying if they fully complied with the tax laws.
Yes, that is correct!
As a result, the ATO has implemented several key initiatives to reduce the estimated tax gap for this taxpayer group, many of whom prepare and lodge their own tax returns.
These include amongst others:
increasing the quantity and quality of the data the ATO collects (particularly through the ‘I’ return).
helping taxpayers and their tax agents correctly report income and deductions up front, using prompter messages, emails and letters to alert them early where amounts reported on the return are unusual compared to similar taxpayers.
taking firmer action to address non-compliance among higher-risk taxpayers and agents including additional audits in areas driving the tax gap.
The content of this article is not intended to be used as professional advice and should not be used as such.
Brian Spurrell FCPA, CTA, Registered Tax Agent, is Director of Personalised Taxation & Accounting Services Pty Ltd. PO Box 143 Warrandyte 3113. Mobile: 0412 011 946
JUNE IS THE month when our minds turn to tax and the obligation to lodge our tax returns, which brings to mind Kerry Packer’s memorable claim, “I pay what is due and not a penny more.”
The purpose of this column is to assist you in adopting the same philosophy which you are perfectly entitled to do, providing you understand the important difference between tax evasion and tax avoidance.
Tax evasion is acting contrary to the law and incurs severe penalties, whereas tax avoidance involves working within the law to avoid paying more tax than you need to.
So what do you need to understand in order to implement Kerry Packer’s advice?
Claim all deductible expenses
Make sure you claim all expenditure incurred in the tax year that is tax deductible.
This will require you to keep either paper (invoices, receipts etc.) or electronic records that contain date of expenditure, description and amount.
Bank statements and credit card statements may suffice if they contain sufficient identifying information.
Alternatively download the ATO myDeductions App and use it to record your deduction records on to your mobile or tablet.
This App is suitable for use by individuals and sole traders.
Work related expenses totalling less than $300 do not require supporting documentation but you will be expected to have a reasonable basis for arriving at the amount you are claiming.
This may apply for example when claiming laundry of uniforms or protective work clothing.
Claiming all expenditures such as donations, work related expenses, business and investment related deductions etc. can be quite complicated, so give consideration to using the services of a registered tax agent whose fees and your travel time to visit are deductible.
Your tax agent will also be able to advise you on the appropriate records you will need to claim the deductible component of motor vehicle, phone, computer, home office expenses, laundering of uniforms and protective clothing, self-education expenses and depreciable assets etc.
Use timing to increase deductions
We have probably all heard the saying “a bird in the hand is worth two in the bush”. This equally applies to tax by bringing forward deductions into the current year and reducing your tax liability for the current year rather than waiting a further 12 months or more before you claim the tax saving from the deduction.
Deductible expenses such as insurance premiums should be timed to fall due in June rather than any other month of the year.
The same goes for depreciable assets that are deductible such as computers, rental property depreciable contents, and particularly tools, plant and equipment and motor vehicles used in a business.
If you donate to charities, school building funds etc. give a thought to making these donations in June rather than earlier in the year, reducing the time period between the cash outlay and the receipt of the tax deduction benefit.
Delaying receipt of
assessable income
Timing benefits can also be accessed by delaying the receipt of income until July rather than having it paid to you in June.
This strategy could be applied to timing the sale of investments that are likely to trigger a capital gain where there are no offsetting capital losses available.
Wage and salary earners entitled to a year-end bonus may be able negotiate payment in the first pay period in July rather than the last pay period in June.
Sole traders selling on credit could consider delaying invoicing for work done in June until early July.
Tax saving and impact on
cash flow
The income and deductions strategies explained above whilst reducing your taxable income will have a significant impact on your cash flow if you are entitled to
a refund and lodge your tax
return early.
Example: A sole trader on an otherwise taxable income of $60,000 brought forward the purchase of an item of plant costing $15,000 from July to June which is fully tax deductible being under the $20,000 cap for a small business.
She also delayed billing customers for work done in June until July 1 amounting to $6,000 thereby reducing her taxable income by $21,000 to $39,000.
With tax levied at $0.34 per dollar in the range from $37,000 – $87,000 her tax saving and increased cash flow would amount to $7,560 including a low income tax offset of $415.
Tax-free gift of up to $500
Your homework is to Google “Super Co-Contribution” to discover whether you are eligible to receive your free gift.
Disclaimer:
The content of this article is not intended to be used as professional advice and should not be used as such. If you have any questions you should consult a registered
tax agent.
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