If you are a self-preparer, by now the vast majority of you can expect to find your tax information for 2020 marked “Tax Ready” if you use the ATO online service via myGov to access the information you will need to complete your individual tax return as a self-preparer.
Likewise if you use a registered tax agent to prepare your individual tax return, you can expect the same information to be available to your tax agent for pre-filling your return.
This year the risk of making errors in preparing your individual tax return has been raised due to:
- the increased options and complexity of claiming home office expenses and the impact of Govt. assistance packages, and
- the ATO increasing its audit focus on work related deductions and rental properties.
As a consequence, regardless of whether you are preparing and lodging your own tax return or gathering together your paperwork for your tax agent to prepare your return, you will need to exercise greater care and diligence to ensure you are not only compliant but can fully substantiate your claims for deductions.
This year accountants and tax agents have been placed under extreme pressure dealing with all of the new legislation relating to the various stimulus packages and ensuring that their clients and employees gain access to the benefits they are entitled to.
These pressures will continue with the extension of and adjustments to the stimulus packages post September 2020, so getting your paperwork organized and compliant will greatly assist your tax agent and possibly reduce the waiting time for your assessment and refund if applicable.
So, the tips that follow are designed to assist you in meeting this challenge.
1) Home office expenses
Many of you may be claiming home office expenses incurred as a consequence of changes in work arrangements. If so, I recommend you read my April and May articles before taking on this challenge.
If you elect to use the easier method of claiming under the cents per hour (cph) method of 52cph from 1/7/2019 to 29/2/2020 and 80cph from 1/3/2020 to 30/6/2020, please note the following :
- you must have a record of the actual hours spent working at home for work related purposes or have kept a diary record for a representative four week period,
- the 52cph rate substitutes for claiming heating, cooling, lighting and furniture depreciation only,
- you can elect to use the 52cph instead of the 80cph method and claim all other running expenses separately,
- the 80cph rate substitutes for all home office costs but there is no requirement to have a dedicated work area set aside such as a private study,
- if you are claiming using the 80cph method you must add a note stating “COVID – hourly rate” next to the deduction where you have used that method
- more than one person in a household can claim under the 80cph method if eligible,
- occupancy costs such as mortgage interest, rates, insurance and rent cannot be claimed unless you operate a business from home,
- you cannot claim the costs of setting up your children for home schooling as these costs are viewed by the ATO as being private expenses.
- please note that the option to use the 80cph “shortcut method” has been extended to 30/9/2020, so please continue to maintain a record of hours worked as it is possible the ATO may extend this option further in line with JobKeeper 2.0.
If you have incurred significant costs in fitting out and equipping a home office you may well be entitled to a significantly larger deduction for home office expenses if you opt for the alternative of claiming the work related portion of all the home office expenses you have incurred. This of course requires you to have records of all expenses incurred and to apportion these costs on the basis of time or floor space between work related and private use percentages. Please refer to my April and May articles if you wish to use this option for claiming your home office expenses – available on both the Diary and PTAS websites.
2) Home to work travel
If you are working from home due to COVID-19 circumstances but you need to travel to your regular office sometimes, contrary to what you may believe, you cannot claim the cost of travel from home to work as the ATO regards your home as a private residence and not a place of business. The only exception would be if your employer requires you to transport bulky tools or equipment and there is not a safe place to store them at the workplace.
If you are claiming genuine work related car or travel expenses, make sure you have records of your expenditure and evidence explaining why the expenditure is work related. Beware of claiming a business percentage of car expenses without an up to date and relevant log book record reflecting any change due to the impact ofCOVID-19 factors.
The ATO has issued a warning that unsubstantiated claims for work related car expenses are in their sights, particularly claims repetitious of the previous year or claiming exactly 5000km under the cents per km method.
3) Work related uniforms, protective clothing, laundry and dry cleaning expenses
If you have claimed these expenses in the past do not fall into the trap of claiming a similar amount to last year. The ATO will expect to see a reduction in these claims to reflect time you have spent working from home.
4) Claiming exactly $300 for work related expenses
Beware of the myth that you are entitled to claim $300 for work related expenses just because you don’t need receipts for claims up to that amount.
You cannot claim expenses that have not been incurred for work related purposes and for those that you have incurred amounting to less than $301 you still must be able to show how you worked out your claim. The ATO has warned they will also be looking out for claims of this nature.
5) New work related deduction
Now for the good news thanks to COVID-19. If you are in employment that requires physical contact or close proximity to customers and you had to buy your own hand sanitizer, gloves, masks or other personal protective items you may claim the cost of these items. As with all expenses, any such expenditure for private use or for use in employment where you have incurred such expenditure by choice, you cannot claim on these items as they are deemed to be of a private nature.
The content of this article is not intended to be relied upon as professional advice and should not be used as such. Many of the issues covered in this article are quite complex so if you are preparing your own tax return and have any questions give some thought to consulting a registered tax agent.
Brian Spurrell FCPA, CTA, Registered Tax Agent.
Director, Personalised Taxation & Accounting Services Pty Ltd
P O Box 143 Warrandyte 3113.
Ph: 0412 011 946
Web: www.ptasaccountants .com.au