Are you ready for 30 June 2021?
The 2021 end of financial year (EOFY) is fast approaching and you should be considering the available options that may just boost your business or your personal financial position. So, as thoughts turn to getting your house in order before the EOFY, what tips and traps should you be aware of?
In preparing for your 2021 Income Tax Return, you may want to consider the following deductions that can give your tax refund a welcome boost:
Paying any professional or union fees due June 30 to claim the deduction for the whole amount this year.
Charitable donations over $2 are deductible as long as you have a receipt, and the charity is registered as a deductible gift recipient.
If you have some spare cash, you could make a personal contribution into your Super fund, provided this doesn’t mean you’ll exceed $25,000 for the year (including employer contributions). This can be a great way to boost your retirement savings and claim a tax deduction. The payment must be made by June 30 and you need to advise your super fund that you’ve made the payment by the time you lodge your return
While there have been no significant changes to what can be claimed for 2021, it’s worth noting that many people are now claiming Personal Protective Equipment (PPE), an expense that wouldn’t have been commonly claimed pre-COVID. Workers in an occupation that requires physical contact or proximity with customers or clients during the COVID-19 period can claim a deduction for items such as gloves, face masks, sanitiser and antibacterial spray. Relevant industries could include healthcare, retail, hospitality, beauty and hairdressing.
Another significant change is that the ATO approved an increase in cents per km for work-related motor vehicle use, from 68 cents per km to 72 cents per km from July 1 2020.
Every year about this time, the Australian Taxation Office (ATO) announces it's hotspot for the year ahead. Essentially, the ATO will again be focussing on Work-related expenses.
The ATO has detailed the work-related expenses deductions that it will be paying close attention to this year, in light of COVID-19. With more people working from home, working reduced hours or unfortunately not working at all, the ATO expect to see claims for laundry expenses or travel (including Motor Vehicle) expenses decline this year.
The ATO also expects to see a substantial increase in people claiming deductions for working from home as a result of COVID-19 restrictions. The shortcut method allowed in 2020 has been extended for the 2021 financial year. This method allows taxpayers to calculate home office expenses at a rate of 80 cents per hour.
From a work-related expenses perspective, it is still important to meet the three golden rules:
You must have spent the money yourself and weren't reimbursed,
The expense must be directly related to earning your income,
You must have a record to prove the expense.
The next area of focus for the ATO is on claims in relation to Investment Properties and holiday homes. The ATO will focus on:
Excessive interest expense claims.
Incorrect apportionment of rental income and expenses between owners
Incorrectly claiming deductions for capital expenses, such as such as legal costs associated with buying and selling a property and property improvements
Holiday homes that are not genuinely available for rent. Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed.
The key tip is to ensure you keep good records. The golden rule is; if you cannot substantiate it, you can’t claim it, so it’s essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that the property was available for rent, such as rental listings.
Another area of focus for the ATO is Cryptocurrency investment transactions. The ATO is concerned that many taxpayers believe their cryptocurrency gains are tax free or only taxable when the holdings are cashed back into Australian dollars.
If you sold (this includes transferring) any cryptocurrency in the 2021 financial year, it is important that this gain or loss is reported in your 2021 Income Tax Return. Again, the key tip is to ensure you keep good records, including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for.
Small business Tips
In order to minimise your business tax payable and underpin your future business success, you may want to consider the following tax breaks and other opportunities:
Temporary Full Expensing on new business assets. The new asset write-off rules allow eligible businesses to claim the total cost of new capital assets acquired after 7.30pm on 6 October 2020. All businesses with an aggregated annual turnover of less than $50 million are eligible to claim the total cost of new & second-hand depreciable assets and the total cost of improvements to existing eligible assets that are first used or installed by 30 June 2021. Eligible assets include anything that is used in the running of your business, such as computers; an office or shop fitout; tools for use on a work site; business equipment; phones; and point of sale systems. It also includes business-use motor vehicles, such as utes and delivery vans – but for passenger cars the claim is capped at $59,136.
Prepay expenses. For expenses covering no more than 12 months, an immediate deduction is generally available. This may include prepayments for insurance premiums, phone and internet services, subscriptions to trade or professional bodies and rent on your business premises.
Delay invoicing. Deferring taxable income to the next financial year can help cut your tax in the current financial year
Write-off bad debts. While no business wants to be in a position where they can’t recover a debt, it does happen. If your business has to write off a debt, a tax deduction is available for the amount of the debt written off.
Pay superannuation. Ensure all June quarter superannuation contributions are paid by 30 June to accelerate your tax deduction. To meet this requirement, the contributions must be paid, cleared in the business bank account and received by the employee’s super fund before 30 June.
Get the right trading stock valuation. Damaged and obsolete stock can be written down or written off entirely and a tax deduction claimed.
Business tax rate reduced. The tax rate for most companies drops from 27.5% to 26% for the 2021 financial year. The tax offset for unincorporated small businesses has increased from 8% in 2020 to 13% for 2021. This applies to sole traders or those who have a share of net small business income from a partnership or trust (Unfortunately, the offset remains capped at a maximum of $1000).
Let’s have a chat
Of course, tread carefully and don’t let tax drive your business and/or investment decisions. You should determine whether the strategies will suit your circumstances. If you have any questions, let’s set up a time to discuss and agree on your pre-30 June action plan. Email me at email@example.com or call me on 0411 034 275.
The information presented is general in nature and not to be used, relied or acted upon without seeking professional advice to ensure that the information appropriate for your individual circumstances. National Taxation accepts no liability for any errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. www.nationaltaxation.com.au. ABN 63 665 545 130.