How to use your tax return to build a stronger financial future
By Robert Wright /September 08,2021/
Whether you breeze through tax time or dread the extra admin, receiving a tax refund makes the effort worthwhile. For many of us, getting a financial boost will be even more welcome this year, and you might be looking around for the best ways to spend it.
Plan how you’ll spend your tax refund wisely
Never underestimate the power of a well-crafted plan – it’s easy to watch funds dwindle when you haven’t given them a clear direction.
Recent research has revealed that 87% of us admit to splurging an average of $2,172 annually as a result of comfort spending, a figure that has increased for one in three Australians since COVID-19 hit. Additionally, 37% of us are struggling to repay debt.
Like any goal, your ambitions for this year’s tax return can be more easily realised if you have a concrete plan in place. In fact, studies have found that taking the time to write down your goals and plans can improve your chances of making them happen.
When you have a clearer picture of your finances, decide exactly how you plan to use your tax refund to avoid excitement spending once it lands in your account. This includes any money you’re hoping to use for a holiday or other splurge – work it into your financial plan to avoid spending beyond your means.
Anticipate your upcoming living expenses
When making your plan, you might want to consider your upcoming living expenses, particularly any large, irregular bills such as car insurance and registration costs, utility bills and general home maintenance.
Putting aside some of your tax refund as a cushion for upcoming expenses or into an emergency fund for unexpected expenses helps you avoid reaching for other financial support – such as personal loans and credit cards – when the bills start to build up.
Pay off debt
If you have some debt to repay, you’re not alone: the average Australian household debt-to-income ratio is around 190%, meaning we owe almost twice as much as we earn each year4 Putting your tax return towards any outstanding debts, including mortgage repayments, personal loans, and any credit card debt, may help reduce any interest charges.
What you can claim when working from home
By Robert Wright /June 11,2021/
Setting up a home office? Here’s how to create a comfortable workspace, while offsetting the extra costs of working remotely. If you’re among those who’s decided to say ‘so-long’ to the office, you’ve probably also realised that having the right home-office set up is essential for your productivity – and sanity.
As many of us learnt during lockdown, trying to fit in a full day’s work at the dining room table isn’t always the most productive option.
You might also have noticed what many freelancers have known for years: Working from home comes with extra costs, as does setting up your home office.
So, what do you need to do to get your workspace set up for productivity – and comfort – and how can you offset the extra costs that come with working from home?
For most computer work, there’s a few key areas you need to customise to suit you:
- The height of your desk and chair. You’ll know you’ve gotten this right when your forearms are parallel to the ground, with your wrists either straight, at or below shoulder level. Your knees should be level with your hips and feet flat on the ground, or on a footrest.
- Your monitor set up. Your monitor needs to be straight in front of you, an arm’s length away. The top of the screen should be at or slightly below eye level. Use a monitor riser if needed to get your monitor to the right height. Also consider the brightness of your display – it should be just a little brighter than surrounding ambient light.
- Location of key objects. Place your keyboard and mouse on the same level surface and keep other items you use often within easy reach. If you use the phone a lot, put it on speaker or use a headset to avoid neck and shoulder strain.
- Light sources. You’ll need sufficient ambient light to illuminate your workspace, so that you’re not straining your eyes. Beware of indirect lighting from windows that can cause glare on your monitor screen.
Getting (and expensing) equipment
Setting up an ergonomic workspace can involve a bit of gear, even if there are some inexpensive home solutions. At the very least you’ll need a computer, decent office chair, full size monitor, keyboard, and mouse. You may also need to add in a footrest, monitor riser, laptop dock or stand, headset, lighting, and any other office equipment you use regularly, like a printer.
This can add up to quite a hefty price tag! But don’t worry, it’s unlikely you’ll need to foot the entire bill yourself.
If you’re a company employee, start by speaking to your employer. Many companies will offer to either source equipment for you, lend it to you or reimburse you for purchase/s you make.
Under Workplace Health and Safety Laws, employers still have a duty to ensure the health and safety of workers, even if they’re working from home. In fact, some companies will already have occupational health and safety policies that mandate an ergonomic set up using a certain type of office equipment.
Tax deductions: What can I claim?
While you can save money by working from home (less transport costs, homemade lunches, no need for fancy clothes) it does come with other costs (and paperwork) you may not have thought about.
Fortunately, you’re allowed to offset many of these costs against your earnings by claiming a deduction in your annual tax return. According to the ATO, expenses you can claim a deduction for include:
- the cost of electricity for heating, cooling, and lighting the area you’re working in, and running items you’re using for work.
- cleaning costs for a dedicated work area.
- phone and internet expenses
- computer consumables (for example, printer paper and ink) and stationery
- home office equipment, including computers, printers, phones, furniture, and furnishings. You can claim either the
- full cost of items up to $300
- decline in value (depreciation) for items over $300.
To make a claim, you need to have spent the money and have a record to prove it. You can’t claim a deduction where you’ve been reimbursed by your employer for the expense.
Tax deductions: How do I claim?
Because it can be tricky to track and report on your expenses when working from home, the ATO has introduced a temporary ‘shortcut method’. This is now in place up until 30 June 2021 (and may be extended further).
The shortcut method allows you to claim a deduction of 80 cents for each hour you work from home. It covers all the deductible expenses listed above. You’ll need to keep a record of the hours you worked, in the form of a roster, diary, timesheet or similar.
With remote work now widely accepted, many people can’t wait to give hour-long commutes, open plan offices and office politics the flick for good. Just make sure you take the time to get your office set-up right and avoid those nasty repetitive strain injuries in years to come.
Source: FPA Money and Life
Majority of working Aussies to benefit from personal income tax cuts
By Robert Wright /December 04,2020/
Tax cuts proposed in the recent Federal Budget were passed in parliament on Friday 9 October, and you might see some of the benefits before Christmas.
The government has brought forward tax cuts originally planned for 1 July 2022 and backdated them to 1 July 2020. Plus, low and middle-income earners are still able to benefit from existing tax offsets.
Has my marginal tax rate changed?
The upper thresholds have increased for some tax brackets, as highlighted in the table below:
(*excluding 2 % Medicare Levy)
Can I benefit from the tax offsets?
If you earn up to $126,000 per year, you may be eligible for the low and middle income tax offset (LMITO). This was previously introduced as a temporary measure and scheduled to end when the 1 July 2022 tax cuts kicked off. But the good news is that despite bringing forward these tax cuts, the government has kept the LMITO for the 2020–21 financial year.
And, if you earn less than $66,667 per year, you may be eligible for an additional tax offset called the low income tax offset (LITO). As part of this package of tax cuts, this tax offset was increased from $450 to $700.
How much will I save from the tax cuts?
The below table shows indicative tax cuts, based on the legislative changes for an individual in 2020-21, to the tax rates, thresholds, and offsets that were applicable for 2020-21 (before these changes):
When will I receive the new tax savings?
Your take-home pay should reflect the new rates before Christmas. The Australian Taxation Office (ATO) has given employers until 16 November to make changes to payroll processes and systems.
As you’ll have already paid personal income tax at the original rate since 1 July this year, you’ll receive your entitlement to the reduced tax payable for the entire 2020–21 income year when you lodge your income tax return.