Running a small business isn’t always smooth sailing, especially at the end of the financial year. With these few tax return tips, you’ll have your tax return done quick, so you can get back to business.
Prepare your tax return early
Avoid the rush in July by getting your documents together early. For some businesses, this involves manually collecting an inventory of receipts, expense records, invoices or employee details to review your company’s spend. Keeping records helps you understand your business’ financial situation and for tax purposes, receipts should be kept for up to five years. Starting as early as possible is the best way to minimise stress towards the end of the financial year and will help you lodge correct statements. As you go, confirm your business records are up to date and in line with current legislation.
Get ahead of the game and plan ahead by keeping copies of previous years records.
Get in touch with your accountant before June 30 to ensure you’re organised / Source: Stock image.
Tax advice for small business owners – what can you claim?
Being a small business there are plenty of things you’re able to claim tax on. Here’s a brief overview below.
If you or your employees travel for business you can claim:
airfares, train, bus or taxi fares, accommodation costs, meals and overnight business travel.
If you run your business at your home, or your business is based from home, you can claim:
the business portion of some expenses, including mortgage interest and electricity.
Match all accounts
Reconciling your accounts ensures bank statements are consistent with your own records, helping you spot any discrepancies in spend and find duplicate transactions. Start by chasing up outstanding payments, pending invoices or unpaid refunds. When all payments are up to date, match your receipts to your bank transactions, asking for copies of receipts where necessary. When you reconcile your accounts, you will also need to consider investment accounts, unpaid or outstanding debts and any leases.
Send payment summaries to employees well before July to ensure your business’ accounts are reconciled before PAYG summaries are provided for employees. Use this chance to update employees’ current financial details and superannuation payments, also checking any termination dates and leave entitlements.
Some business owners use this opportunity to pre-purchase service and supplies to claim a deduction but fall for the trap of spending for unnecessary items, simply for a tax deduction. You can make a tax deduction on any important businesses purchases.
Claim the right deductions for the best refund
Keep accurate and detailed records to help you make the right deductions and concessions for your business. While it may take you some time to delve into the details of what deductions are available, a little effort from the experts will help your business pocket extra savings this financial year.
You can claim expenses related to the running of your business -mostly for day-to-day costs or for expenses that depreciate over time but are used to improve the structure of your business. To see what can and can’t be claimed, Check the ATO website.
Registered businesses with an ABN and a turnover under $2 mil may take advantage of recent tax concessions. This means they can claim any assets (less than $20,000) if an ongoing activity is adequately demonstrated. According to the ATO, your business may be eligible to claim up to $300 on home office equipment, electrical costs, cleaning expenses or repairs although documentation is required to claim deductions that exceed $300.
Plan ahead for maximal tax return savings
The end of the financial year is also an opportunity to compare your business’ performance to last financial year. You can then set realistic business goals for the upcoming year.
Lauren suggests that businesses should consider investing time and money in the right accounting software. This will minimise the risk of tax audits and penalties.
“Be organised. If you have adequate accounting software and bookkeeping procedures, you can do the work as you go,” she says.
The pressure of running a small business is already a lot to handle. When the end of financial year comes around, why not leave it to the experts? From tax accountants to bookkeepers, request a free service and make the right expert connection.
We’ve talked to our best accountants to bring you this business tax guide for FY2021/22
This year, changes in the economy and places of employment provided the opportunity for many to start their own business and work from the comfort of their home. One of the tasks that might be confusing for a new business owner might be how and when to file your taxes. Filing taxes is something that most do not enjoy, and you want to get it finished so that you can get back to doing what you love most, running your business. Here are a few of the basics that you need to know about filing your tax return in Australia.
Important Dates
Your tax return due date primarily depends on your lodgement history and whether you are registered with a Tax Agent. There are some important dates to remember when it comes to lodging your income tax return.
May – June – Contact a Tax Agent prior to financial year end to ensure you understand what tax concessions and business deductions you could claim. According to Dexterous Group, it is crucial for businesses to be proactive and not reactive at tax time specifically when it comes to paying superannuation, writing off bad debts and claiming any instant asset write-offs.
30th June – financial year end and the cut-off date for claiming business deductions, or any instant asset write-offs.
31st October – the due date for lodging your income tax returns (if you’re not registered with a Tax Agent)
15th May* – the general due date granted to Tax Agents to complete your income tax return on your behalf. Please note this may vary depending on a number of factors so please contact a Tax Agent for confirmation of your due date *following year
“Be proactive, not reactive when it comes to tax time.”
ATO: The Australian Taxation Office has its own smartphone app which is free to download and use, here you can access relevant tax and super information for small businesses
E-sign apps for digital signatures e.g. Docusign, HelloSign – the ability to sign remotely is very helpful in the tax return process according to Dexterous Group
Oneflare: an app that connects you with the best accountants in your local area by providing personalised quotes from businesses
Etax: an app with third-party tax service providers
The Dexterous Group, bringing you the best business tax advice / Source: Dexterous Group
What information do I need to provide in my business tax return?
What you need for your large or small business tax return depends on the structure of your business.
Sole trader: As a sole trader, your business income counts as your individual income. You may claim deductions for any eligable expenses and must include all income you have made in the financial year in your tax return. As a sole trader, you are required to lodge the following:
The business and professional items schedule for individuals
A tax return for individuals, including the supplementary section
Partnership: As a partnership, you are required to submit a partnership tax return to report net income. You may deduct any allowable expenses, which then leaves the assessable income.
As well as this, any individual partner must also file an individual tax return to report:
Your share of any partnership net income or loss
Any other assessable income you have earned, such as wages and salary, dividends and rental income
Note: With a partnership, each partner must pay tax on their individual share of the partnerships net income.
Trusts: In a trust business structure, the trustee lodges a trust tax return to provide the following:
The trust’s net income or loss for the financial period
Note: an individual tax return must also be lodged by each beneficiary of the trust
Companies: If your business operated under a company structure, you are required to lodge a company tax return to provide the following:
Taxable income
Tax offsets and credits
PAYG instalments
Tax payable amounts or refund receivable amounts
Note: if you are a company director, you are still required to lodge an individual tax return.
Contact local accountants
What can my business claim as tax deductions?
As a business, there are many expenses and deductions that you can claim. This list is a few suggestions of things that your business may be eligible for but it depends on what type of business you operate and your specific circumstances, for example as a tradie you are eligible for deductions like transport costs. If you are in doubt, you should contact your tax professional or the ATO to answer questions about whether your business is eligible. Here are a few things that you may be able to claim on your business:
The best place to find tax rates for filing your ATO business tax return is on the ATO tax table. As a sole trader, you submit an individual tax return and do not have to pay tax on the first $18,200 that you earn, (see table below for individual income tax rates). Different business structures will have different tax rates. This is just a guideline, and you should consult a professional for advice tailored to your business.
Methods for lodging
Online through the myTax portal: You can file your small business tax return online if you meet certain requirements. This is only allowed for simple returns.
With a registered tax agent: Any person or business can file with a registered tax agent. The cost of hiring a tax accountant can be between $75-220, but there are many advantages of doing so. It saves you time, ensures all the right deductions are made, and extends the time you have to file. The biggest mistakes that are made by businesses, according to Dexterous Group is incorrectly claiming deductions. Some businesses aren’t fully aware of all the deductions they are eligible for based on their industry, business type and related deduction thresholds, which can lead to; mistakes, an increased tax bill or even penalties.
As a hard copy: You can fill out the tax return yourself and send it through the mail. You might have extended processing time if you choose this method.
Using SBR enabled software: Certain third-party applications are available that allow you to file online yourself. One of the most important things to consider if you use this method is to verify the registration of the software with the ATO.
Hard copy tax return / Source: Shutterstock
Other important documents to consider at tax time
It is good to have the following documents available when you lodge your tax return, regardless of whether you plan to do it yourself or by a professional. It is better to have the record and not need it than to need it and not have it. Nicholas recommends storing digital copies of receipts, by simply taking a photo and storing them in a folder on your phone or computer.
Copies of any payments received
Invoices for any business expenses
A list of debtors
A list of creditors
Bank records
Employee and contractor details
Any capital gains events (e.g. buying or selling business assets)
The Australian tax code can be complicated, especially if you are a new business. The last thing that you would want to do is to make a costly mistake. Fees and fines can be pretty steep if you make an error or miss a deadline. Hiring an accountant takes the worry off you and is often cheaper than the time it takes to do the research and file the return yourself.
The cost of a small business tax return usually depends on the type of business you have and how complex the return is to file. You should compare rates and service reviews, but the most important thing is that you make sure they are a legitimate accountant and registered agent.
Licencing and qualifications
An accountant must be a Registered Tax Agent, BAS agent, or Tax Adviser. Agents must be registered to specialise in individual or company taxes. You need to make sure that the professional you hire knows how to handle the type of taxes you need to file. It is also a good idea to find someone who has many years of experience.
Tax deductions are a great way to claim back much needed cash at the end of financial year. There are many expenses that you are able to claim in your tax return, the top 7 tax reductions for tradies are explained below:
1. Transport expenses
As a tradie chances are your van or ute is your main method of transportation for taking you from job to job. As long as you can prove that you are using your vehicle for business purposes then you are able to claim back the purchase cost and any ongoing operating costs associated with the vehicle.
There are two different ways in which you can track your mileage in order to claim back the cost of running your vehicle for business purposes: the logbook method and the cents per kilometer method. If you choose to use the log book method you will need to prove your odometer readings for a time period of at least 12 consecutive weeks. By tracking the mileage you can claim the percentage of vehicle expenses allocated to business use, including running costs and depreciation. The cents per kilometre method allows you to claim $0.66 per kilometre on up to 5000 kilometres of business travel.
You can claim GST credits for the tools and equipment that you purchase to help you run your business. Items that cost up to $300 can be claimed as a tax deduction immediately. For items that cost over $300 you are able to claim a deduction on the items decline in value.
3. Clothing
If your profession requires you to wear specialist protective clothing such as steel capped boots, high-vis jackets, safety glasses and helmets can be claimed as a deduction. It is also possible to claim GST credits for the cleaning of your work clothes. Should the cost of cleaning exceed $150 you will need to provide receipts. For cleaning specialist work clothing on a regular basis you can claim a deduction of $1 for an entire load of work clothing; or $0.50 when the load is partially work wear.
4. Training courses, licences and certificates
If you’re undertaking any training courses or studying for any qualifications that relate to your trade, you are able to claim back the cost. You must be undertaking said qualification or training course to improve or maintain your skills in your profession only in order for them to be tax deductible.
5. Communications
You’re eligible to claim back the cost of work related phone and internet expenses. For claims more than $50 you need to work out the percentage that is used for work time only over a 4 week period, this can then be applied to the full income year. You will need to prove this with records in the form of bills, electronic summaries or diary entries.
6. Travel expenses
You can claim expenses associated with travelling for work purposes, such as accommodation, meals and transportation costs i.e. taxi fares. These costs are deductible as long as you have proof of purchase in the form of receipts.
7. Union and association fees
The cost of union fees or subscriptions to professional associations are claimable in your annual tax return. Use your statement of fees or subscriptions paid as proof of your membership when submitting your return.
Other small business tax deductions
Everyone has tax obligations and must part with a percentage of their income at the end of every year. Business owners have additional tax burdens based on their business process and profit. It’s important that they conduct a break-even analysis and examine expenses and income carefully to determine how much they need to pay every year.
Before you look at possible tax deduction options, you need to know whether your business is legally considered a small business. According to the government, businesses that have an annual turnover of $2 million or less are considered small. All of your businesses, including connected and affiliated ventures, are included in this bracket. This means you can’t split your business in order to remain under the $2 million mark.
Small business tax deductions you can claim
As a business owner, you know that you need to spend money to make it. Generally, the biggest portion of your income is funnelled back into your business to pay for essential business expenses and to generate more income. You can get tax deductions for most of the money you cycle back into your business. Many small business owners attempt to abuse this system and claim deductions for frivolous and unneeded expenses. Conversely, many miss opportunities to deduct tax and end up paying more than they need to. Here is a small business tax deductions list that most businesses can lay claim to:
Advertising and sponsorship – Advertising raises awareness of your brand and brings customers to your doorstep, which generates income and profit for your company. Any investment you make towards advertising is tax deductible because it is an essential business expense. You also get tax deductions for advertising during the recruitment process, as hiring employees is also an essential business expense.
Business-related travel – Travelling for business can be an expensive affair, especially if you need to travel to distant locations on a regular basis. As this travel is needed to help generate income, the expenses are deductible. You just need to maintain a clear record of your expenses. Preserve all your receipts, keep copies of your itinerary, record all your expenses and provide reasons for your travels. All of these expenses will be tax deductible. Make sure you don’t include any expenses that are counted as entertainment. For example, if you visit a different country and attend a concert during the business trip, you can’t claim deductions for the money you spent on the concert.
Bad debts – Small business owners often struggle with bad debts, especially when they’re first starting out and have problems with cash flow. Some business debts have to be written off because business owners simply don’t have the resources to pay back the debt. This debt should be included as accessible income in the current year or previous year’s statements. It should also be written off as bad in the same year in order to claim a deduction.
Borrowed money – If you need to borrow money you can claim deductions on that. You just need to prove that the money you borrowed helps provide accessible income to your business. Expenses on borrowed money can be legal costs, valuation fees, overdraft guarantee fees, registration fees, etc. These deductions are different from the deductions you get for paying interest on borrowed money, so make sure to claim both.
Fringe benefits – If you provide fringe benefits to your employees, it’s considered a business expense and you can get tax deductions on it.
Repairs and maintenance – Repairs and maintenance of your commercial property is an essential business expense and helps generate income as well. You need to make sure these expenses aren’t considered “capital costs.” You can claim deductions for thing like painting, plumbing, cleaning, up-keep, machine servicing and maintenance.
Insurance – A number of insurance schemes are tax deductible as they’re considered essential business expenses as well. For example, you can get deductions for Worker’s Compensation, fire, public liability, vehicle, theft and loss of profit insurance premiums.
Superannuation funds – You get deductions for contributions you make to your employee’s superannuation funds. You can also get deductions for your own superannuation funds.
Salary – Salaries and wages paid to employees and workers are tax-deductible because they contribute towards your company’s revenue and profit. However, you need to keep in mind that all salaries are connected to your business and generate profit for your business. Sole traders can’t claim salaries paid to themselves.
An investment is an asset that is purchased with the intention of making a profit in the future. The asset can be stocks, a piece of property, or something such as precious metals or coins. You can wait to receive payment when the asset is sold, or you can gain a profit from it along the way. Some examples of these types of assets include rent from property, dividends from shares, and interest from a bank account. The ATO treats different kinds of assets differently, and you can soon see your profits dwindling when tax time comes around if you are not careful.
What investment income must you declare?
Interest: When you open a savings account or other interest-bearing account at a bank, you will receive a certain percentage of additional money from the bank. This is typically a certain percentage based on the amount of the account.
Dividends: The shareholder of companies receives dividends. They are taken from profits and usually paid on a semi-annual basis.
Rent: Rent is money that someone pays you for living on your property. It is in the form of a regular monthly income.
Managed investment funds: A managed investment is an asset, such as a trust, that someone else manages for you. Some of them are set up to pay regular sums of money. Some different types of trusts include cash management, money market, mortgage, unit, or managed fund.
Capital gains: Capital gains are realised when you sell an asset, such as when you sell your home or a stock. A capital gain is a profit that you earn from the sale.
Dividends:
Dividends are one of the most misunderstood assets of many people. Let’s start from the beginning.
When a company needs money for something such as an expansion, new equipment, or to increase capacity, they have several different tools to use to obtain what they need. They can go to a lending institution and get it through traditional means, apply for grants, or try to find a private investor.
Another method that they have is to offer shares of their company up to the public. The public can buy shares with the hopes of making a profit in the future when they sell them. In this case, the public acts as the lender. Some stocks pay dividends, which can provide regular income for as long as you hold the stock. Here is a bit more about what a dividend is and how it works.
How do they work?
When a company makes a profit, they can choose to keep some or all of it. They can also choose to make owning shares in their company more enticing by sharing some of the windfalls with their shareholders. These funds are typically distributed to shareholders in July and December.
How are they paid?
The most common form of dividend payment is in the form of cash. This means that for tax purposes, they are taxes as a cash payment. This can have significant tax repercussions. Sometimes, the dividends can be paid through a trust or share club. Also, you can arrange to have the dividends reinvested instead of being sent to you. All of these options have different tax consequences.
Why are dividends so important when declaring investment income?
If you are a shareholder, when the company makes a dividend distribution, it counts as income for the shareholder. It must be reported as such on taxes. It is always wise to keep your dividend statements because you will need them when you file your taxes.
How are dividends taxed between residents and non-residents of Australia?
How dividends work depends on whether you are a resident or non-resident. A non-resident of Australia can own stock in an Australian company. Residents and non-residents are taxed differently and have different tax burdens when it comes to dividends.
If you are a non-resident and became a resident later in the year, you might not have had the proper withholding taken out. In this case, you need to report the dividends on your tax form. If you are a non-resident, you cannot use a tax offset for franked dividends. However, you can use it to offset other Australian income. You will have to pay a withholding tax on unfranked dividends. You do not have to pay tax on unfranked dividends because it is considered conduit foreign income.
If you are an Australian resident, you will pay taxes based on an imputation system. This system dictates how the taxes paid on company profits should be allocated. It determines whether the tax burden belongs to the company, the shareholder, or a portion to each. This system is to make sure that a double tax is not paid on the same profits by two different entities.
A tax accountant can help you to maximise your profits from investments / Source: ASR Partners
What is the difference between franked and unfranked dividends?
When a company makes a profit, they must pay a certain amount of tax on it, typically around 30% for most companies. When an individual shareholder receives income via dividends, they pay a tax on share profit. Without the franking system, double tax jeopardy can occur where both the company and the individual pay taxes on the same profits.
When shares are franked, it means that the company has paid the taxes on the shares held by the individual. If the individual receives franked dividends, they receive a credit for tax on shares that they own. The difference between franked shares and unfranked shares is who is responsible for the tax burden on the profits.
Franked dividend:
To receive a franked dividend, you must purchase franked shares. These are shares that are already marked as having the taxes paid on them. Dividends can be fully franked or partially franked. A fully franked dividend means that the shareholder will receive a full tax credit for the shared. A partially franked dividend means that the tax burden is shared between the company and the shareholder. The franked dividend tax rate depends on which tax bracket you fall into based on your total income. If your tax rate is below the corporate tax rate of 30%, the ATO will refund the difference to you.
Unfranked dividend:
Unfranked dividends are just like regular stocks or investment instruments. You will have to pay the full amount of tax on any dividends or other taxes that you earn from them. They count as income and will increase your overall revenue, which could bump you up into a different tax bracket.
What are franking credits?
Franking credits refer to the offset that you receive when your tax bracket is less than what the company paid for the credits. For instance, if you own 1,000 shares of a company and the company makes $5 per share in profit. They will have to pay 30% on those shares, which is $1.75 per share. This leaves $3.50 that they can keep or distribute to shareholders as dividends. The shareholder would then receive a 30% imputation credit. This means that for 1,000 shares, the shareholder gets $2,500 in taxable income. Of this, $1,170 is dividend income, and $750 is franking credit.
How to hire a tax accountant
As you can see, the topic of dividends can become complicated when it is tax time. Hiring a good tax accountant can help you wade through the regulations and keep the amount to which you are entitled. Here are a few tips for hiring a tax accountant.
How to create an accurate estimate
You can help your tax accountant by taking a few simple steps. These steps will help your professional make sure that you get the proper franking credit for your stocks.
Keep your dividend statements and other income records in a safe place.
Make your accountant aware of any changes that have occurred, such as residency.
Keep your receipts for any buying or selling transactions.
Licencing and qualifications
To practice in Australia, a tax accountant must meet at least the following minimum requirements.
Complete a Bachelor’s in some form of accounting.
Pass the Certified Public Accountant (CPA) program.
Be a member of a qualifying trade organisation.
How to save money hiring a tax accountant
Everyone likes to save money at tax time. Here are a few tips to help you save on accounting fees and the taxes owed.
Save every receipt and write down what it is.
Keep your files organised so that your accountant does not miss anything.
Ask about fees before you agree to an accountant’s services.
Saving money at tax time is something that everyone wants to do. If you have work-related car expenses, then you might be able to deduct work-related car expenses under certain circumstances. Let’s explore when and how you can deduct your vehicle expenses at tax time.
Here are a few examples of times when you might be able to deduct your car expense when using it for business.
Hauling tools and equipment used for your job.
Pick-up and delivery of items for your employer.
Travelling between two different places of employment.
Your work begins at home and involves various sites.
Travel for meetings, conferences, and other work-related events.
Travel to your workplace, but only under certain circumstances.
How do I track & claim my car-related expenses?
The Australian government allows two different methods for claiming the car allowance tax deduction. When claiming car expenses, you can use either method. Here is a break down of how they work.
Cents per kilometre method
Using this method, you can deduct a set rate for each kilometre that you travel for business-related activities. If you use this method, you must demonstrate that you used the kilometres claimed for work. A simple logbook that includes the miles travelled is sufficient. Let’s take a look at an example.
Jim is a manager for the construction industry. He uses his personal car to deliver and drop off supplies to a remote worksite that is 7km away. The round trip is 14 km to and from the home office. He does this once a week, every week of the year except for two weeks of vacation. The current allowable rate is $0.68/kilometre.
14km per week X 50 weeks = 700 kilometres that can be claimed
700 allowable kilometres X $0.68 = $47.60 that can be deducted
Pros
Easy to calculate using a simple formula.
Computed using a standard rate set by the government.
Suitable for people who use their car less than the maximum allowable kilometres.
Record keeping is simple for this method.
Cons
Limited to 5,000 kilometres per vehicle per year.
Cannot claim separate vehicle expenses.
Logbook method
This method requires more record keeping of motor vehicle expenses. Still, if you use your personal vehicle for work frequently, it can add up to a more significant deduction. Let’s see an example.
Now, let’s say Jim uses his own vehicle for 1,000 km during the 12 week period when he tracked vehicle mileage in his logbook. Let’s also say that Jim kept records of fuel, repairs, service, insurance, and took depreciation on his new vehicle. The current deduction rate using the logbook method is 85%.
1,000 km X 0.85 = $85
$8,430 of vehicle expenses X 0.85 = $7,165.50
$7,165.50 + $85 = $7,250.50 deductible expenses
Pros
Only have to keep a motor vehicle logbook for 12 consecutive weeks.
You only need to complete the logbook once every five years.
More detailed record keeping.
Can deduct expenses such as registration, fuel, service, insurance, etc.
Based on a percentage of all costs.
An excellent choice for those who exceed the 5,000 km limit for the cents per km method.
Cons
You must own the car.
Must record all business and all personal trips.
Must keep all receipt for related expenses.
More restrictions apply to this deduction method.
What car-related costs can’t I claim on my taxes?
Both vehicle expense deduction methods have different rules that apply to when you can and cannot take the deduction. Here are a few examples that might apply to your circumstances.
Travelling from home to your regular place of employment.
Car expenses that are reimbursed or are included as part of a salary package.
Picking up something for your employer on your way to your regular work location.
Fuel when using the cents per km method.
An employee is driving your personal car for work.
You are working overtime, and public transportation is not available.
You have to drive back to work for after-hours calls.
What about owned or leased cars?
You can deduct expenses from a car that you own, lease, or is under a lease-to-own agreement. This can be claimed using either the logbook or cents per km method. In some cases, you might be able to claim the car tax deduction for vehicles, such as motorcycles, passenger vans, or trucks fitted to haul equipment.
How to hire a tax accountant
Sometimes, deciding how the rules for the car tax deduction apply to you can be tricky. Hiring a tax accountant can help you take the maximum allowable deduction for your circumstances and help you to avoid any penalties for claiming something that is not allowed. Here are a few tips for hiring a tax accountant.
How to create an accurate estimate
To claim your tax deduction and get the proper credit for your circumstances, you need to do a few things to help your tax professional:
Keep all vehicle-related receipts.
Print out all electronic receipts.
Place all of your receipts in a file.
Keep your logbook with you at all times.
Place your logbook in a place where you will see it.
Licencing & qualifications
Hiring a tax professional is an important decision. You must choose carefully because utilising the wrong one can land you in trouble. Here are some of the requirements needed to become a tax accountant.
Must have a Bachelor’s degree in accounting.
Must participate in the Certified Practising Accountants (CPA) program or be a member of the Institute of Public Accountants or Chartered Accountants Australia.
Be sure to ask how long they have been a tax accountant and their experience with similar tax circumstances.
Contact local tax accountants
How to save money hiring a tax accountant
Tax accountants use different methods of charging for services. Some charge a flat fee, while others work on a percentage basis. Here are a few tips for saving money when hiring a tax professional.
Ask what they charge and how they charge upfront.
Save your receipts, or you cannot deduct all of your eligible expenses.
Keep your records in the proper order to save your preparer time.
FAQs
Can you claim fuel on tax?
Claiming fuel on tax is only allowed if you choose the logbook tax method. A matching receipt must accompany a fuel claim, and you must keep a travel logbook for tax purposes. You can only claim a portion of your fuel expense that was used for work purposes. You cannot claim this deduction if you use the cents per km tax deduction method.
The impact of COVID-19 has made a lasting impression on the conventional office workplace. Working from home seems to be here to stay for a lot of companies, meaning the process of lodging your tax return may look a little different. You can still lodge your tax return online via myGov, as well as hire a professional tax accountant from the 1st of July to 31st of October 2022. The Australia Tax Office has continued the methods they introduced last year when it comes to claming for working from home, due to Coronavirus.
This article will focus on filing a tax return if you’re an employee and explain:
The New ‘COVID-19 Hourly Rate’ claims and Shortcut Method
What you can and cannot claim if you’re working from home due to COVID-19
How to calculate your running expenses (Fixed Rate and Actual Cost Method)
What you need for a Tax Return (Whether you’re working at home or not)
The ATO states that there are now three methods to calculate your running expenses. The third Shortcut Method was introduced to support us working from home due to coronavirus. The three methods include the:
1. Shortcut Method: Claim 80 cents per work hour for all running expenses
2. Fixed Rate Method:
Claim 52 cents per work hour (Lighting, cooling, heating and decline in office furniture)
Work-related portion of your phone and internet expenses, computer and stationery
Worked-related portion of the decline in value for your electronic work devices
3. Actual Cost Method: Claim all your actual work-related portion
What is the Shortcut Method?
The Shortcut Method covers all deductible running expenses, so you don’t need to expense them individually. In order to be eligible to claim for the ATO deduction of 80 cents per hour due to working from home due to COVID-19, you need to:
Be working from home to fulfil your employment responsibilities and not just occasionally take calls and check your emails.
Be incurring additional running expenses due to working at home.
Note: Since this method covers all deductible running expenses, you cannot claim further reductions on these expenses.
Records you need to use the shortcut method
Work from home bookkeeping is equally as important if you were to still be working at your workplace. The main records you will need is a record of the number of yours you have worked from home due to COVID-19, as well as receipts of running, phone and internet and home office expenses. Acceptable records for proof of your working hours include timesheets, rosters and diary entries. Remember, you must include the note ‘COVID-Hourly Rate’ in your tax return whether you’re submitting it through myGov or a tax agent.
What you can & cannot claim if you’re working from home
If you predominantly work from home prior to COVID-19, you have always been able to claim tax on expenses such as running, occupancy and phone and internet. Let’s refer to these as working from home expenses.
This year the ATO recognises that many of us are now working from home if possible. The be eligible for claiming tax on working from home expenses, whether it’s one day a week or due to COVID-19, you must keep the following records:
A diary with at least 4-week representative records detailing your usual pattern of working at home. These can include your timesheets or calendar. The ATO may ask your employer to confirm these details.
The actual hours you’ve worked from home due to coronavirus
Receipts or written evidence (e.g. depreciating assets you’ve purchased or entries of small expenses that are $10 or less, and totalling no more than $200)
Itemised phone accounts and records where you’re able to identify work-related calls
Your usual arrangements for working at home
Summary of what you can & cannot claim (COVID-19)
If it’s your first time working at home, here’s a list of work from home tax deductions you can claim for. In order to be eligible to claim a deduction, the following must apply:
Real – You spent the money on this expense.
Relevant – The expense is directly related to your income to be recognised as an ATO work-related expense.
Records – Keep records to prove the expense.
What you can claim
Cleaning Costs for your dedicated workspace
Computer and Stationery
Home Office Equipment (such as computers, printers, phones and furniture) which you can either claim up to $300 or decline in value for items over $300
Phone and Internet Expenses
Running Expenses (1st of March to at least 30 June 2020) such as electricity for heating, cooling and lighting in your working space
What you cannot claim
Occupancy Expenses including rent and mortgage rates. If you’re running a business from home, you may be entitled to a partial exemption.
Coffee, tea and milk, even if your employer has provided them in your workplace
Children’s education costs
Note: If you’re using this Shortcut Method, you must note ‘COVID-hourly rate’ in your tax return and keep in your records.
How to calculate your running expenses
Using the Shortcut Method is the simplest way to calculate your running expenses, but what if you want to use the old Fixed Rate Method (52 cents) or the Actual Rate Method? Here’s a quick summary of how to make calculations for both methods.
Fixed rate method
The Fixed Rate Method allows you to claim a fixed rate of 52 cents per work hour.
You’ll need to have a diary for a representative 4-week period showing your usual working pattern and record the number of hours you’re working at home.
You will then need to separately calculate the expenses for your phone and internet usage, computer consumables and stationery and any office electronics or furniture that are declining in value. You can use the ATO myDepreciation tool to calculate the declining value of your items.
Keep a record of the actual hours you have worked from home this financial year.
Just like the Shortcut and Fixed Rate Method, you will need to have a diary for a representative 4-week period showing your usual working pattern.
Calculate the decline in appreciating assets with receipts for proof.
Work out your cleaning expenses by totalling your receipts and multiplying them by the floor area of your workspace.
Individually calculate your heating, cooling and lighting costs.
For your home office furniture, you can claim for a deduction that costs $300 or more by calculating the decline of owned assets for the income year and assets used for work-related needs.
How to do your tax return
There are generally two options when submitting a tax claim. You can either do it yourself with the myGov tax return process or hire a tax accountant. It’s recommended to hire a tax agent if you have multiple expenses or just want your tax return to be accurate and correct. Keep reading for a list of records and documents you need for both options.
Option 1: I’m lodging my tax return myself online
Have your Tax File Number, Income (PAYG Payment Summary) and Expense documents and records ready. Having an ATO Tax Return Checklist can be handy.
Throughout the financial year, you can use the myDeductions app to keep track of your expenses. This app should only be used by employees, not business owners.
The ATO will prefill some information such as your PAYG Payment Summary, bank and superannuation. You can also link other services such as your Centrelink and Medicare. Be sure to check if all the information is correct.
Follow the prompts adding in your expenses and other records.
Remember to note ‘COVID-19 Hourly Rate’ if you want to claim tax back on running expenses or home office expenses.
Submit your online Tax Return Form. The refund can take approximately two weeks to process.
Tip: You can check the status of your tax return on your myGov account and if you made any mistakes, simply click on the ‘Manage tax returns’ button to amend any records.
Option 2: I’d like to hire a Tax Accountant
Sometimes it might be easier to hire a professional to ensure no mistakes are made.
Have the same documents ready if you were to lodge your tax return yourself. Important documents include your Tax File Number, PAYG Payment Summary and Expense Records and Receipts.
Find a reliable tax accountant, whether the service is provided in-person or online. If you’re hiring online, be sure to check the business’s reviews and ratings before hiring.
Once the service is complete, your tax agent should provide you confirmation details and keep you updated on the status of your tax return.
Contact local tax accountants
How much does a Tax Accountant cost?
Hiring a tax accountant is one of the most popular services on Oneflare. Tax return fees can cost approximately $100 to over $1,000 depending on if you’re lodging for just yourself or your business. Find out more about what can affect the cost of your accountant fees on our Tax Accountant Cost Guide.
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Frequently asked questions
Do I need to lodge a tax return?
If you are working or have had government support such as the Higher Education Loan Program (HELP) or Trade Support Loan (TSL). If you are still unsure, contact the ATO or ask an accountant for help.
How do I get a tax file number?
The process for applying for a TFN differs if you’re an Australian citizen or resident or you’re foreign to the country. Generally, you can apply for a TFN at your local post office or online. Find out what process you need to follow on the ATO website.
How long does a tax return take to process?
The ATO states that it can take approximately two weeks if you lodge online and ten weeks to process if you lodge on paper.
My partner and I both work from home, can we both claim expenses under the Shortcut Method?
Yes. For example, if you and your partner both live together, you can both individually claim 80 cents per work hour. The previous ATO requirement that you both need a dedicated work area has been removed. Remember to note ‘COVID-19 Hourly Rate’ in your tax return.
What is the ATO Tax Brackets for 2019-2020?
The tax brackets change slightly every single year and differ for foreign resident tax rates.
There are multiple ways to contact the ATO, including in person, on the phone or online chat. If you are contacting the ATO via phone, the hours have been extended to support high volume calls from 8 am to 8 pm (AEST) Monday to Friday, and 10 am to 4 pm (AEST) Saturday and Sunday.
Disclaimer – Due to the ever-changing nature of COVID-19, please check on the ATO website for the most accurate and up-to-date information.
