Has your employment situation changed in the past financial year? Whether your hours have changed, you’ve received financial support from the government, or have started working from home due to the COVID-19 pandemic, here are some tips on how to prepare and lodge your tax return.
Tax time is upon us but with many changes introduced in FY19–20 as a result of the economic effects of COVID-19, it might not be business as usual. Working from home, JobSeeker or JobKeeper payments may all affect how you prepare and lodge your tax return1.
Here’s what you need to know about tax returns, tax deductions and reviewing your tax to this financial year.
Who needs to prepare and lodge a tax return?
Australian residents who earned income over $18,201 between 1 July 2019 and 30 June 2020 are required to pay tax on this income2. Even if you haven’t earned over the threshold, you may still be required to lodge a tax return to the Australian Tax Office (ATO) in order to pay the required Medicare levy (typically 2% of your total income). Some low-earning residents may be exempt from this levy3. If you’re under 18, some differences in tax rates may apply4. Visit the ATO to understand if you need to lodge a tax return.
What documents will you need to collate to complete your tax return?
Depending on your job and industry, you’ll be required to gather several documents to help you complete your tax return and claim tax deductions. Documents needed could include:
- Your PAYG Payment Summary issued by your employer
- Statements outlining your private health insurance details
- Any payment summaries from Centrelink relating to government assistance and relief packages (including JobSeeker and JobKeeper payments)
- Bank statements that show interest earned on bank accounts
- Receipts from charitable donations; and accountancy fees from the previous year’s tax return.
Make tax time easier by gathering all these items together before getting ready to file your tax return.
What tax deductions can you claim on your tax return?
Items that can be claimed as a tax deduction will depend on both your industry and your occupation. Generally, to claim a deduction for a work-related expense such as travel expenses or self-education, the cost must be directly related to the earning of your income. Your expenses must not have been previously reimbursed (for example, by your employer) and you must also be able to produce the proof of purchase5. So, if you plan to claim deductions, make sure you have receipts or other written records.
For more information on deductible items related to your specific industry, see the ATO’s occupation and industry specific deduction guides6.
What are some of the most common tax deductions?
Some of the most common tax deductions include those related to car and travel expenses – such as driving between jobs for tradespeople – or uniform-related expenses that apply to people employed in services industries, such as flight attendants7. These deductions specifically relate to unavoidable expenses incurred as a necessary part of your job. For example, the ability to perform the job of a flight attendant is dependent on the uniform, whereas a teacher might not require the same job-specific clothing. This is one of the most common tax deduction mistakes8, explains the ATO. Make certain to read the guidelines for claiming deductions before filing your tax return.
Claiming deductions for time spent working from home
The widespread shift to working from home is a key consideration for the ATO this year. Certain measures have already been put in place in anticipation of this unique change to many people’s circumstances.
This year, the ATO has introduced a ‘shortcut’ method as an option for calculating relevant tax deductions for anyone who has spent the period between 1 March 2020 and 30 June 2020 working from home. For this timeframe, individuals can claim 80 cents for each hour you worked from home to cover any eligible tax deductions9.
These include costs such as electricity, phone use and decline in value of items used while working, including home office furniture and computers . If you use this shortcut method, you can’t claim any other expenses for working from home for that period.
Apart from the March to June period, a fixed rate method (52 cents per each hour you work from home) or the actual cost method can be used. You can refer to the worked example under ATO website for more information.
How to lodge your tax return
You can lodge your tax return with a registered tax agent of your choice, which incurs a fee (fully tax deductible). Alternatively, it’s free to use MyTax, the lodgment service on the ATO website.
Residents have up until 31 October 2020 to prepare and lodge a tax return for the 2019–20 tax year without penalty if you are lodging it yourself10 If you file your return with a registered tax agent, you may have more time, but you’re still required to engage them before 31 October 202011.
1. Australian Taxation Office: What’s new this year 2020?
2. Moneysmart.gov: Income tax
3. Australian Taxation Office: Medicare Levy
4. Australian Taxation Office: Your income if you are under 18 years old
5. Australian Taxation Office: Deductions you can claim
6,7. Australian Taxation Office: Occupations and industry specific guides
8. Australian Taxation Office: ATO guide to the 5 most common Tax Time mistakes
9. Australian Taxation Office: Working from home during COVID-19
10. Australian Taxation Office: Working from home during COVID-19
11,12. Australian Taxation Office: Lodging your tax return
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