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.
What tax deductions can I claim working from home?
By Robert Wright /July 20,2020/
According to the Australian Taxation Office, there are three ways to claim your home office running expenses.
The actual cost method
Under this method, your tax deductions include the actual costs of work-related expenses. This applies to things such as the costs of your home office furniture and fittings, as well as equipment such as computers and desks.
If the cost of depreciable home office items is less than $300 you may claim the full cost of these items as a tax deduction. If the cost of depreciable home office items is over $300, you may claim a deduction for the depreciation of these items.
If you regularly phone your employer or clients while you are away from your usual place of work, you can also claim a full tax deduction for the work-related portion of the phone calls you make at home and the cost of renting your phone.
Other costs you can claim a deduction for under the actual cost method include:
- Internet access charges.
- Printer and printer cartridges.
- The cost of heating, cooling and lighting your home office, over and above the amount you would ordinarily pay if you did not work from home.
- Any repairs to your home office furniture and fittings.
As your home isn’t considered to be a place of business, you can’t claim non work-related expenses under this method. This includes rent, the interest you pay on your mortgage and the cost of any insurance premiums.
The fixed cost method
Under this method, instead of tax deductions relating to the work portion of costs incurred at home, you can claim a rate of 52 cents per hour for expenses such as heating, lighting and cooling, come tax time. You can also apply the same rate when claiming a depreciation of home expenses, for example any furniture you’re now using in your home office.
The shortcut method
At the moment a special method, known as the shortcut method, is available to people working from home to claim work-related expenses as tax deductions. Please note however, that the special rate is only available from 1 March 2020 to 30 June 2020.
Under this method, each person in a household can claim expenses based on a rate of 80 cents an hour. So more than one person in a household – flatmates or members of the same family – can each claim a deduction for their expenses incurred that directly related to working from home. All that’s required to do so, is keeping a log of the hours you work.
The 80 cents per hour shortcut method seems like an easy way to work out your home office expenses come tax time. However, the risk for people using this method is that they won’t claim as much as they are entitled to under the other two methods. You also can’t claim the cost of equipment such as webcams and office furniture, as well as stationery or computer consumables like printer cartridges.
Whichever method you choose, it’s a good idea to keep accurate records of all your actual expenses, plus the hours you have worked. That will allow you to choose the best method when you or your tax agent prepares your tax return.
Say goodbye to tax troubles
By Robert Wright /July 01,2019/
Do you find yourself drowning in random receipts when EOFY comes around? Learn to lodge your tax return the easy way with these last-minute and longer-term tax hacks.
Tax paperwork is something few of us take in our stride. In fact, the majority of people hand over much of this responsibility to someone more qualified. In the 2016/17 financial year almost three-quarters of Australians lodged their return via their tax agent. But even your accountant can’t do it all for you. Gathering together receipts and records you need to pass along can become a headache when you leave it all to the last minute.
Depending on your situation – married or single, salaried employee or sole trader for example – there are all sorts of legitimate expenses you can claim against your income to lighten your tax burden. A good accountant can certainly advise on which types of deductions you could potentially include in your return. But whether you’re lodging through an agent or doing your tax return DIY-style, knowing what expenses to record can help you keep receipts organised throughout the financial year.
A visit to the ATO website (https://www.ato.gov.au/) can keep you in the know about eligible deductions in the current financial year. They also provide a handy myDeductions tool in the ATO app for tracking these deductible expenses as they happen. There are also a host of other apps available for keeping track of your spending, and not just the tax-deductible kind. Expensify has been popular for a few years now. Not only does it scan and store receipts, it actually pulls information including date, time, amount and merchant, into a CSV file ready for your accountant at tax time. There’s also a more concierge-style solution called Squirrel Street (formerly Shoeboxed) available here in Australia. For a monthly subscription you can mail your receipts to be scanned, uploaded and categorised on your behalf.
If you’re eligible to claim some of your car expenses as a deduction, there’s also a nifty app to make this easier too. Providing you’re following the logbook method for calculating vehicle usage, Vehicle Logbook is an ATO compliant app that gives you an easy way to capture and collate all that essential journey info.
Just like money you earn from working, income from investments is liable for tax. Whether that’s rent from a property or dividends from shares, there may be deductions you can claim against these investment earnings. While an accountant can certainly offer guidance on these deductions, a Financial Planner can advise you on the overall costs and benefits of your investments. Tax is just one of the costs you need to keep in mind when exploring investment options and coming up with an investment strategy to meet your financial goals.
Tidy-up for next time
By knowing what deductions and offsets you can legitimately claim, and keeping on top of record-keeping, you could be boosting your chances of getting a tax windfall after lodging your return. But if your overall finances are in a bit of muddle, there may be just as much value in doing a spot of financial housekeeping and decluttering your finances to get all your money matters in the best of shape for the future.
Source: FPA Money and Life, June 2019
7 super strategies for end of financial year
By Robert Wright /May 17,2019/
The end of the financial year is a good time to think about how you could grow your super and start saving for retirement. Here are some options you could consider to help your super work harder for you.
Tax-deductible super contributions
You may be eligible to claim a tax deduction for your personal super contributions. By doing this, you may be able to pay less tax while saving more for your future. Your eligibility can be affected by your age, sources of income and the level of salary sacrifice and certain other employer contributions made for you. To claim a deduction, you must give a notice to the Trustee of your super fund and have it acknowledged.
Keep in mind that personal deductible contributions count towards your annual before-tax contributions cap. The current before-tax contributions cap is $25,000 per financial year. Any contributions made above these limits will attract additional tax.
Salary sacrifice to top up your super
Salary sacrifice is an arrangement where part of your before-tax wage or salary is paid into your super account instead of being received as take-home pay. It could be an effective way to boost your super and help you with saving for retirement. There may be tax advantages for you, depending on how much you earn.
To get started, do a budget to work out how much you can afford to contribute to your super from each pay packet. You may also consider talking to your employer to find out if they can set up salary sacrifice arrangements for you.
Keep in mind that salary sacrifice contributions count towards your annual before-tax contributions cap of $25,000 per financial year. Personal deductible contributions and contributions made by your employer also count towards your annual before-tax contributions cap.
Consider a one-off contribution
After-tax super contributions are made from money you have already paid income tax on and won’t be claiming a tax deduction on. For example if you work for an employer, making a contribution to super directly from your bank account is considered an after-tax contribution.
Investment earnings within your super accumulation account are taxed at up to 15%, compared to your marginal tax rate which applies to investments you may hold outside of super. Please note that depending on your income level, your marginal tax rate may be less than 15%.
The annual limit for after-tax contributions is currently $100,000 if your total superannuation balance is below $1.6 million at the start of the financial year. In certain circumstances, you may be able to bring forward three years of after-tax contributions into one year, contributing up to $300,000, if you haven’t triggered the rule in the previous two years and your total superannuation balance is below $1.4 million at the start of the financial year. You may still be able to contribute part of the bring-forward if your total superannuation balance is between $1.4 million and $1.5 million at the start of the financial year.
In the 2018/19 financial year, if you are a middle to low income earner, adding to your super from after-tax money could see you entitled to a government co-contribution worth up to $500.
To be eligible, you need to earn less than $52,697 in the 2018/19 financial year and be aged below 71 at 30 June 2019. You must also have a total superannuation balance of less than $1.6 million at the start of the financial year to be eligible.
The maximum co-contribution of $500 is available if you earn less than $37,697 in the 2018/19 financial year and if you have made a contribution yourself of at least $1,000. The co-contribution steadily reduces as your income rises and until it reaches zero at an annual income of $52,697.
Spouse super contribution tax offset
If your spouse or partner’s assessable income is less than $40,000 in a financial year, and you decide to make super contributions on behalf of your spouse, you may be able to claim a tax offset for yourself.
The maximum tax offset available is $540 if your spouse receives $37,000 or less in assessable income in the 2018/19 financial year. The tax offset is progressively reduced until it reaches zero for spouses who earn $40,000 or more in assessable income in a year.
First home buyers
You may be able to make voluntary superannuation contributions to use towards a deposit for your first home under the First Home Super Saver Scheme (FHSSS) starting from 1 July 2017. Voluntary contributions you make, plus associated earnings, can be accessed from 1 July 2018 subject to meeting eligibility criteria. Whether using concessional or non-concessional contributions, the total amount of contributions you can withdraw is capped at $15,000 a year (or a maximum of $30,000 in total). Superannuation Guarantee contributions, as well as contributions that don’t count towards or are in excess of the contribution caps, cannot be accessed under the FHSSS as part of your deposit.
From 1 July 2018, if you are planning on downsizing your family home of ten years or more and are aged 65 or over, you may be able to contribute up to $300,000 from the sale proceeds to superannuation as a downsizer contribution. If you have a spouse, they could also contribute up to $300,000 to their superannuation from these proceeds. Downsizer contributions do not count towards your before or after-tax contribution caps or caps on contributions for total superannuation balance.
Be aware of annual limits
As annual limits apply to the amount you can add to your super each year, it is important to consider how much you have already added to your account (or accounts) during the financial year to know which strategies can work for you.