In 2022 Tax Tips

Tax Tips For Employees And Contractors

Like many other countries, Australia has a complex tax system that can be difficult to understand. This article provides a brief overview of the tax system for employees and contractors in Australia, including the differences between the two. 

It also provides some tips on how to reduce your tax liability. Whether you’re an employee or contractor, make sure you’re aware of your tax obligations so that you can pay the correct amount of tax and avoid any penalties.

Most people know they need to pay their taxes, but many don’t know exactly how it works. This blog post is designed to help employees and contractors understand the basics of tax payments in Australia. We’ll cover everything from when you need to start paying taxes to what deductions you can make so that you can be sure you’re compliant with Australian tax law. So read on for all the info!

Do you know your tax obligations as an employee or contractor in Australia? Are you claiming all the deductions you’re entitled to? In this post, we’ll provide some helpful tips on how to stay on top of your tax affairs and get the most out of your tax return. So stay safe and happy filing!

Anyone who has ever had a job knows that certain tax deductions can be claimed. However, did you know that the same rules apply to contractors? In this blog post, we will look at some of the tax tips that employees and contractors in Australia should be aware of. So whether you are an employee or contractor, make sure you read on!

Do you know the difference between being an employee and a contractor? The Australian Tax Office (ATO) does, and they’re not afraid to enforce the law regarding tax time. 

If you’re unsure of your status or whether you need to lodge a tax return, then read on for some tips from the ATO. They can help make sure you stay on the right side of the law – and avoid any nasty surprises come tax time.

Employees in Australia have income tax deducted from their paychecks throughout the year, known as PAYG (pay-as-you-go). The amount of tax deducted depends on how much taxable income you earn. 

If you have other sources of income (e.g. investments, rental property, etc.), you may need to file a separate tax return to declare this income and determine how much tax you owe. 

Are you an employee or contractor in Australia? If so, it’s important to understand the tax rules that apply to you. In this blog post, we’ll provide some tips on paying the right amount of tax and avoiding any penalties. So whether you’re new to the workforce or just want to make sure you’re doing things correctly, read on for our top tips!

Do you earn money as an employee or contractor in Australia? If so, there are a few tax tips you should know to make sure you’re paying the right amount of tax and getting all the deductions you’re entitled to. In this blog post, we’ll outline some key things to consider regarding your taxes as an employee or contractor.

Did you know that you’re responsible for paying your income tax as an employee or contractor in Australia? This can be confusing, especially if you’re unfamiliar with the tax system. This blog post will outline some tips to help make tax time a little bit easier. 

We’ll also provide a few resources to help you out further. So whether you’re just starting out in the workforce, or you’ve been doing your taxes for years, read on for some helpful advice!

Let’s get started!

Lodge On Time

If you’re lodging your own tax return, you need to lodge it by 1 November 2021. You can do this using myTax via myGov or through a paper return.

If you use a registered tax agent, they will generally have special lodgment schedules and lodge returns for clients later than 1 November 2021. So you’ll need to get on their client lists before 31 October to take advantage of late lodgment dates.

A lot of information will be prefilled by the ATO in your tax return. So it’s best to wait until all the data is finalised before lodging. This is usually completed by the end of July but can take until mid-August.

Check that your end-of-year income statement from your employer says ‘tax ready’ and your private health insurance, dividend and interest information is available before completing your return. Otherwise, it may include unfinalised data, and you may need to amend your tax return and pay additional tax.

Are You A Resident For Tax Purposes?

The tests used to work out residency status for tax purposes are not the same as residency tests used for other purposes such as immigration. 

The rules can be complex, and the ATO publishes information on tax residency to help. In addition, there are rules for international students, working holidaymakers and dual residents.

For non-residents temporarily in Australia as a result of COVID-19, the ATO has advised that individuals who are in Australia temporarily for some weeks or months will not become an Australian residents for tax purposes, as long as they usually live overseas permanently and intend to return there as soon as they are able.

There is no change to your Australian tax obligations for Australian tax residents temporarily stuck overseas as a result of COVID-19. If you must pay foreign income tax overseas, a foreign income tax offset will ordinarily apply to reduce your Australian tax bill.

Are You In Business?

It’s important to understand the differences between a hobby and a business for tax and other purposes. There’s no simple definition, and sometimes what starts out as a hobby grows into something more. 

Factors to consider include whether you intend to make a profit, repeat similar activities, or carry out activities in a business-like manner. In addition, the ATO provides information on online selling, share trading, and home-based business, and you can test out the business.gov.au tool.

You can’t claim a loss for a business that is little more than a hobby or lifestyle choice. Even if it has business-like characteristics and is unlikely ever to make a profit, and doesn’t have a significant commercial purpose or character, you can’t offset the loss against your other income. However, you can defer the loss until you profit from the business.

Report Your Income

woman green pullover uses calculator

1. Your income statement

Most employers are now required to directly report your pay, tax and superannuation information to the ATO each payday via Single Touch Payroll (STP). All employers will eventually report via STP.

An employer who reports via STP will provide you with an income statement. This will be finalised and shown as ‘tax ready’ by 31 July. You can access it through ATO online services in myGov. Your tax agent can also access your income statement for you.

An employer who does not report to the ATO via STP will need to give you a PAYG annual payment summary by Wednesday, 14 July 2021.

2. Government payments

The ATO prefills tax returns with several Australian Government payments, including JobSeeker and Newstart. These will appear in your tax return by the end of July 2021.

Check that all required allowances and payments have been included in your tax return but don’t include amounts that are not taxable, such as tax-free government pensions and benefits.

JobKeeper payments are treated the same as your usual salary or wages for employees. Therefore, if you received JobKeeper as an employee, it would be included on your income statement as either salary and wages or as an allowance, depending on your circumstances.

Contractors (i.e. sole traders) who received JobKeeper payments as eligible business participants need to include them as business income in your tax return. Include the amounts paid to you at the label ‘Assessable government industry payments’.

3. Termination and redundancy payments

You need to include income protection, sickness or accident insurance payments, redundancy payments and accrued leave payments in your tax return.

If you take leave, are temporarily stood down or lose your job and receive payment from your employer, different tax rules apply for the extra payments.

4. Early access to super

If you access your superannuation early due to COVID-19, you do not need to pay tax on these amounts and don’t need to include these amounts in your tax return.

5. Online, sharing and gig economy

If you drive people around, do odd jobs, rent out your possessions, run social media accounts or sell products, your income from these activities may be assessable and your expenses deductible. This can include income from barter, cryptocurrency payments and the sharing economy.

Examples of activities you may need to declare:

  • the gig economy where personal services are provided through short-term contracts or freelance work, including ride-sourcing, graphic design or dog-walking
  • the digital economy where activities are based on and income is earned through electronic platforms, including social media
  • the sharing economy where people share assets including rooms, cars or storage space for a fee, often through a digital platform.

The ATO receives data from a range of platforms, including AirTasker, Uber, AirBnb and Amazon, matched against tax returns. So make sure you keep records and report this income correctly.

You first need to determine whether you are in business for some activities such as online selling or personal services.

6. Cash payments

It’s ok to receive income in cash rather than electronically, but you must declare these amounts in your tax return.

If you’re an employee paid cash, your employer must still pay you the correct award wages, withhold tax from your pay and pay your super as required by law. They must also provide you with an income statement at tax time which should match the income they paid you.

For contractors, the consequences of not declaring cash income may include a tax bill with interest as well as criminal and administrative penalties. In addition, the ATO is cracking down on the cash economy, so it’s best to do your taxes properly.

You can report cash and hidden economy activities to the ATO.

7. Personal services income and sole traders

If more than 50 per cent of the amount you received for a contract was for your labour, skills or expertise, then the personal services income (PSI) rules may apply.

As a sole trader earning PSI, you won’t be able to claim certain deductions against your PSI. For example, rent, mortgage interest and payments to your spouse or associate would generally not be deductible. You will also need to complete the PSI question in your tax return.

How Can I Claim For Expenses I Have Incurred Working From Home?

There are three main ways to calculate expenses if you have been working from home this year.

The first is the “fixed-rate method”. You can claim a deduction of 52c for each hour you work from home. This covers expenses such as the depreciating value of home office furniture, electricity and gas, and any costs of repairs. It does not include phone or internet costs, equipment or stationery.

But acknowledging that many people have been working from home for the first time due to Covid-19, the ATO has introduced a second “temporary shortcut method” for calculating expenses during the pandemic.

You can claim a deduction of 80c for each hour you have worked from home between 1 March and 30 June. If you claim expenses incurred before this, you will need to use the 52c rate.

You have to have a timesheet or log of the hours you worked during this period, excluding any time you took a break. 

This “shortcut method” accounts for all deductible running expenses, such as electricity, gas, cleaning, phone and internet costs, printer ink and stationery, and depreciating capital items such as home office furniture.

On the plus side, you don’t have to provide receipts or track your work calls and time spent doing your job via the home internet.

But Saul Markunsky, director of In the Picture chartered accountants and business advisers, warns it is not the most financially rewarding method.

“It’s good if you have nothing specific to claim or no proof of expenses because you can claim without any substantiation other than that you worked that time,” he said.

“But if you work it out, 80c per hour at eight hours a day is $6.40 a day, which is not much if you look at how much you are probably spending on electricity and internet.”

Markunsky recommends the third method: differentiating the items and claiming them individually.

Claim Your Expenses

You can use the myDeductions tool in the ATO app to keep track of your expenses during the year, then upload it in myGov to prefill your tax return. If you use a tax agent, they can access your uploaded data through their practice management software.

1. Work-related deductions

Claiming all your work-related deductions may considerably reduce your tax bill.

Typical work-related expenses include:

  • uniforms and protective items
  • employment-related mobile phone and internet costs
  • subscriptions and union fees
  • travel expenses between worksites or client locations (but not the commute to and from home).

If an expense was for both work and private purposes, you could only claim a deduction for the work-related portion.

As a result of COVID-19, the ATO expects to see increased deductions for working from home and protective items required for work. They’re also expecting reduced claims for laundry, motor vehicle and travel expenses. You can’t claim the cost of travelling to and from work and working from home due to COVID-19.

Your usual work pattern may have changed during the year due to COVID-19 or other circumstances. If so, you may need to prepare an additional record for the period your work pattern changed, especially where claims are calculated using representative periods.

Make sure you keep receipts, diaries and documents to back up your claims and show how you calculated your private use percentage. The ATO publishes fact sheets for a range of occupations.

Be aware that the ATO checks work-related deductions closely and uses real-time analytics to detect claims that appear out of the ordinary.

Remember, for an expense to qualify:

  • you must have spent the money yourself and weren’t reimbursed
  • it must directly relate to earning your income, and
  • you must have a record to prove it.

2. Home office expenses

Working from home may entitle you to claim a deduction for home office expenses like electricity, office equipment depreciation and phone and internet expenses.

However, coffee, snacks and toilet paper aren’t deductible and, for most employees, neither are rent, mortgage interest, water or rates.

There are three ways you can claim home office expenses:

  • shortcut method
  • fixed-rate method
  • actual cost method.

You must have a dedicated work area such as a home office to use the fixed-rate method, and under the actual cost method, you’re unlikely to claim much if you don’t have a home office.

You should consider which method will get you the biggest deduction, particularly if you have pricey asset depreciation or high running costs.

The shortcut method is available for expenses between 1 July 2020 and 30 June 2021. It allows you to claim a deduction of 80 cents per hour worked at home and didn’t require you to have a dedicated work area, such as a private study. 

But be careful – if you use this method, no other expenses for working from home, such as depreciation, can be claimed for that period. You must record the number of hours you worked from home. 

This could be a timesheet, roster, diary, or similar document that sets out your work hours. For your claim, you just need to calculate the number of hours worked and multiply by 0.8.

The fixed-rate method gives you 52 cents for each hour for home office expenses and covers the decline in value of furniture and furnishings, electricity and gas, and the cost of repairs. You need to keep a record of hours worked and a diary for four weeks to show your usual work-from-home pattern.

The actual cost method is exactly that – your actual costs. If you don’t have a dedicated work area, such as a home office, you will generally only incur minimal additional running expenses. All actual cost claims need to be supported by records of hours worked, receipts and how you worked out the amounts claimed, particularly if you work in a shared space.

The ATO has information for employees working from home during COVID-19 to help calculate their expenses.

3. Self-education expenses

You can claim self-education expenses provided your studies are directly related to maintaining or improving current occupational skills or are likely to increase income from your current employment. If your study is unrelated to your work, the expenses incurred are not deductible.

Typical self-education expenses include course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers, tablets and printers.

You must also disallow the first $250 of self-education expenses incurred from a place of education, such as from university or college. This $250 can be offset by non-deductible amounts such as childcare while attending self-education activities or capital expenses related to self-education.

Higher Education Loan Program (HELP) repayments are not deductible.

4. Car expenses

If you use your motor vehicle for work travel, you have two choices for how to claim:

  • cents per kilometre method
  • logbook method.

The cents per kilometre method provides 72 cents per kilometre for travel up to 5,000 kilometres. This amount includes all your vehicle running expenses, including depreciation. 

The ATO and your tax agent (if you have one) may ask you to show how you worked out your business kilometres. However, the ATO is concerned that some taxpayers automatically claim the 5,000-kilometre limit regardless of the actual amount travelled.

If your work travel exceeds 5,000 kilometres, you must use the logbook method to claim a tax deduction for the work-related portion of your car expenses. You’ll need to keep odometer readings, receipts and invoices to support your claim.

In most situations, you can’t claim any expenses under these methods relating to a car owned or leased by someone else, including your employer or another member of your family.

5. Travel expenses

You can claim certain travel expenses incurred when travelling overnight for work. These may include meals, accommodation, transport fares, bridge and road tolls, car parking, car hire fees and other incidental costs.

If your trip and travel expenses are partly private, you will need to reduce your claim. For example, travelling with family members or combining personal and work activities on the same trip may require you to adjust the amount deducted. You may also need to adjust the amount claimed if you receive a travel allowance.

Trips between home and work are generally considered private travel and aren’t deductible. However, there are some situations that you can claim, such as travelling from your home to an alternative workplace, when you need to carry bulky tools or equipment or when you do itinerant work.

If you’re ‘travelling on work’ during COVID-19 and must quarantine, you can claim a deduction for accommodation, food, drink and incidental expenses. However, no deduction is available for private quarantine expenses or when you travel to or from a work location and need to quarantine.

How you report and claim allowance and expense amounts will depend on whether it’s shown on your income statement and how much you spent.

The record-keeping rules depend on whether you receive a travel allowance, travel for six nights or more and whether you are claiming less than the reasonable amount. We suggest that you keep track of your travel allowances, maintain a travel diary and store your receipts to make it easier to support your claim.

6. Depreciation

Immediate deductions can be claimed for assets that cost under $300 to the extent the asset is used to generate non-business income. These include tools, calculators, briefcases or computer equipment.

Assets over $300 used for an income-producing purpose can be written off (depreciated) over time as a tax deduction.

The deduction amount is generally determined by the asset’s value, its useful life and the extent to which you use it for work purposes.

Be aware that if you use the ATO’s 80 cents per hour shortcut method for working from home claims, you cannot claim depreciation for your home office expenses.

7. Expenses for contactors

You can claim a deduction for most costs you incur in running your business, for example, travel, car, marketing, home-based business expenses and business finance costs. For asset purchases, consider the simplified depreciation rules. Make sure you account for private use correctly and keep good records.

8. Donations

The ATO will prefill your tax return with their information about gifts and donations. Make sure you add any donations that weren’t included where the receipt shows your donation is tax-deductible.

Suppose you made a donation of $2 or more to bucket collections conducted by an approved organisation for natural disaster victims. In that case, you could claim a tax deduction of up to $10 for the total of those contributions without a receipt.

If you made donations to an approved organisation through workplace giving, you need to record the total amount of your donations. Your income statement, payment summary, or other written statement from your employer showing the donated amount, is sufficient evidence to support your claim. You do not need to have a receipt.

9. Superannuation contributions

Consider maximising your concessional or non-concessional contributions before the end of the financial year with a concessional contribution cap of $25,000 for the 2021 income year.

Check your superannuation contribution limits, and don’t leave it until 30 June to make your contributions as your super fund will not receive the contribution in time.

Carry-forward rules also allow you to make extra concessional contributions – above the $25,000 concessional contributions cap – without having to pay extra tax.

If you’re 67 or over, you will have to satisfy the work test to contribute to superannuation. If you’re under 18 on 30 June, you can only claim the contribution as a deduction if you earned income as an employee or business owner. Other eligibility criteria also apply.

You may be able to claim a tax deduction for personal super contributions that you made from your after-tax income. However, you will need to lodge a Notice of intent to claim or vary a deduction for personal contributions form.

Can I Claim Rent Or Mortgage Payments?

accounting

It depends on whether you rent or own.

If you are renting and have a separate room or space for your home office, you can claim a percentage of your rent based on the number of rooms in your house. So, if you have five rooms, including the kitchen and bathroom, and you are using one of those rooms as a home office, you can claim 20% of your rent.

But, if you own the property, you probably shouldn’t claim mortgage repayments.

“It affects your capital gains tax and the status of your house. So, for example, if you start claiming a percentage of your mortgage as a deduction, then a percentage of your property will become taxable when sold,” Markunksy said. “That’s a huge one that people often mess up.”

What Do I Do If My Income Changed Dramatically Thanks To Covid-19 And I’m Feeling Nervous About Tax Time?

A financial educator and the author of Money School, Lacey Filipich, said: “There will be a tendency for people to want to avoid tax this year.”

But if you have had tax coming out of your pay throughout the financial year and your income has changed, you probably want to submit your tax return as soon as possible, around mid-July.

“When you do a tax return, the ATO is looking at all your sources of income: work, investments, shares allowances,” Filipich said. “How much you paid in total versus how much you earned.

“So, if you had a drop in income, and you were paying tax earlier in the year, you are more likely to get a big whack of that back [since the total amount you earned during the year is less than what the ATO originally calculated].”

On the other hand, if you are a sole trader, haven’t been paying tax as you go, and fear a hefty tax bill, Filipich recommends waiting to submit your tax return until October – the end of tax return season – to give you more time to get the money together.

Tax Offsets

Tax offsets directly reduce your tax bill. However, eligibility for tax offsets generally depends on your income, family circumstances and specific conditions. 

Some offsets are automatically applied, while you’ll have to provide additional information on your return for others. Most offsets are non-refundable, meaning they can reduce your tax bill to zero, but any excess isn’t refunded to you.

Examples of offsets include the low and middle-income tax offset, the low-income tax offset, senior Australians and pensioners offset and the offset for superannuation contributions on behalf of a low-income spouse.

The small business income tax offset of up to $1,000 is available for sole traders with a turnover of less than $5 million. The offset rate is 13 per cent of the income tax payable on the portion of an individual’s taxable income that is their ‘total net small business income’.

If you receive certain government allowances and payments, you are eligible for the beneficiary offset that ensures you do not have to pay tax on those payments. You may, however, have to pay tax on other income, such as wages or investment income. The ATO provides a beneficiary tax offset calculator to estimate your offset.

You may also be eligible for the low-income super tax offset, automatically paid into your super fund after you lodge your tax return.

Superannuation

Suppose you’re an employee and are paid more than $450 before tax in a calendar month or are under 18 and work more than 30 hours per week. In that case, your employer should be making contributions to your nominated superannuation fund. 

You can check if you’re entitled to super payments and report your employer if they haven’t paid them. However, suppose you want to get a head start on your super and are subject to eligibility. In that case, you might want to consider the super co-contribution where the government gives you up to $500 extra in your fund when you make personal contributions.

You might also have several small-balance super accounts from working different jobs. From 1 July 2019, inactive low-balance accounts started to be consolidated, exit fees were removed, and insurance will be provided on an opt-in basis for members under 25 or with balances below $6000. Check out Searching for lost super on the ATO website to find your lost super.

The First Home Super Saver Scheme allows you to save money for your first home with the concessional tax treatment of superannuation. If you’re eligible, you can make additional voluntary salary sacrificed superannuation contributions up to $15,000 per year ($30,000 in total) into your complying fund. The tax savings go towards your first home deposit, helping you save faster.

Salary sacrifice arrangements

You may wish to review your remuneration arrangements with your employer and consider a salary sacrifice arrangement

This means you forego future gross salary in return for receiving exempt or concessionally taxed fringe benefits and making additional superannuation contributions under a proper salary sacrifice arrangement.

You should seek financial advice before entering into a salary sacrifice arrangement.

Do I Need To See An Accountant?

Both Filipich and Markunsky recommend getting professional financial advice, especially this year given the changing tax laws and forms of income you might have received, such as jobkeeper and jobseeker.

“You don’t want to get caught out and claim the wrong thing and have the ATO audit you, which is painful and can delay payment,” Filipich said.

“If you are really on the bones of your bum, it’s good to talk to a financial counsellor as they are a free service. They may not have the technical tax background, but if you are struggling and have the potential to end up with a tax bill, they can negotiate with you.”

The National Debt Helpline and the Wesley Mission are just two organisations that provide free financial counselling.

Above all else, Filipich stressed that you want to “get on the front foot with the ATO”.

“The best thing is to talk to the ATO via an accountant,” she said. “The ATO is very understanding at the moment. For example, if you ask if you can please have an exemption or an extension on paying a bill, they recognise that people are super stressed as a lot is going on. And they are not going to force you to do something as long as you don’t ignore the problem.”

If you see an accountant or a financial planner, you want to make sure your documents are as organised as possible.

“The accountant can only do what they do with what you give them,” Filipich said. “If you give them an ungodly mess, they will have to spend more time working out the basics and sorting through it as opposed to how to get you the most income.”

If you don’t have a system in place for collecting receipts and keeping track of work-related expenses, Filipich advised spending this tax season putting those into place for next year.

This could mean creating an email folder where you automatically file any receipts emailed to you, taking photos of receipts and filing them on your computer, carrying around a notebook and writing down expenses as they come up, or entering every expense onto a spreadsheet.

“The best thing you can do is manage it progressively.”

Recent Posts

Start typing and press Enter to search

finances saving economy concept female accountant banker use calculator