In 2021 Tax Tips

What are your tax obligations for the year? Do you know how to file your income taxes correctly? If not, don’t worry because we’ve compiled a list of top tax tips that will help guide you through the process. 

This blog post is designed to give you all the information you need about filing your taxes. We’ll cover topics like what documents are needed and where to submit them; which deductions can be made; and how much money should be withheld from paychecks. Read on for more!

With the cheers, party poppers and champagne clinks on New Year’s Eve also inevitably came a collective sigh of relief instead of the traditional fireworks, with the realisation that the fabled 2020 had finally drawn to a close. Finally, with the days of lockdown, constant sanitisation and toilet paper panic buying behind us, we can all start focusing on the good stuff – holidays, socialisation, elective surgery and of course – tax.

2021 heads both new and familiar tax players to create the dream team to achieve those be-more-tax-savvy New Years’ resolutions. Super contribution perks are the number one draft pick with personal contributions more accessible and desirable than ever, COVID concessions and grants continue to pulse the 2020 hangover, and we also enclose a cautionary nugget of wisdom on substantiation. So read on to arm yourself with the fool-proof 2021 tax artillery.

  • She carried forward the personal superannuation contributions threshold.
  • Downsizer superannuation contributions
  • COVID-19 working-from-home personal tax deduction rate extension
  • Small business immediate asset write-off threshold
  • Non-assessable non-exempt Victorian government grant income
  • Substantiation and logbooks

She carried forward the personal superannuation contributions threshold

While it is widely known that individuals are allowed a deductible concessional contribution each financial year to the extent of the deemed cap ($25,000 for the 2018 financial year onwards), we want to shed some much-needed light on the reality that individuals can carry forward unused cap amounts from up to five previous financial years (starting from the 2019 financial year) – subject to the individual’s superannuation balance being $500,000 before the start of the financial year in which the unused cap is to be utilised. 

For 2021 tax returns, this means a best-case scenario deduction of $75,000 – a huge tax clawback for contributing money to your super fund that you will be able to access anyway (eventually).

Irregular income-earners, in particular, will benefit from this, as they can ‘catch up on their superannuation contributions if they have the financial capacity to do so – for instance, individuals who have received money from a sale and incurred a taxable capital gain.

Financial year Concessional cap Maximum deduction with no concessional cap used in the previous year
2019 $25,000 $25,000
2020 $25,000 $50,000
2021 $25,000 $75,000
2022 $25,000 $100,000

Think of it as a particularly longstanding term deposit – with a return on investment at the rate of your marginal tax rate (if you can stand to wait a few years to access the principal). 

Speaking of waiting, if you want to hit pause on this tax tip, feel free to get utilising any time over the next few years – regardless, you’ll only ever have the previous five financial years of unused cap available to you. In any case, a lot of the big player superfunds require a stifling three or four weeks’ notice if you’re to get your contribution in and processed before the 30 June 2021 cut-off – so if not this year, then next.

Something to watch out for before you start daydreaming about how you’re going to spend all that sweet tax refund money – employer contributions eat away your concessional cap (whether it be the compulsory 9.5% SGC or otherwise) as well as personal contributions.

Downsizer superannuation contributions

If you are 65+ and meet the eligibility requirements* (see below for an excerpt of the ATO website), you can contribute to your super fund from the proceeds of selling your home of up to $300,000, without eating up your contributions cap or superannuation balance (and even if you have a total super balance greater than $1.6m). 

It’s a great opportunity to top up what you’ve saved in super if you haven’t had the chance (or if you’ve just been devoted to traversing Europe), and there’s no requirement to buy a new home if you’re planning on moving into your firstborn’s granny flat for some well-deserved pay-back free rent.

A couple of important factors to take into consideration:

  • It will count towards your transfer balance cap
  • You can only make the downsizer contribution once
  • The contributions are non-deductible

A bonus is that if one spouse only owned the sold home, the non-ownership spouse could also make a downsizer contribution (provided the other eligibility criteria are met). All’s fair in love and real estate!

Today, speak to your trusted Tax Warehouse superannuation advisor to learn more about the carried forward personal superannuation contributions threshold and the downsizer superannuation contributions scheme.

COVID-19 working-from-home personal tax deduction rate extension

Long ago (April 2020), in a galaxy not so far, far away, the ATO announced they would be introducing a temporary, 80c per hour worked from a home tax deduction from 1 March 2020 to 30 June 2020, requiring minimal substantiation. 

This method has now been extended to 30 June 2021, and workers should record the hours they work from home (through timesheets, rosters, diaries or similar). Hot tip – as the shortcut method covers all eligible home office expenses, this means you cannot claim usual expenses such as mobile phone or internet costs concurrently. 

Suppose you feel the 80c per hour does not accurately represent the costs of your home office. In that case, you can continue to use the old method and claim 52c per hour whilst still being able to claim other applicable home office expenses – rest assured your trusted Morrows advisor will investigate all options to maximise your deduction.

Another unfortunate drawback is that despite caffeine being as necessary as a computer for many, the ATO has deemed coffee, tea and snacks consumed while working from home ineligible as office expenses. So RIP to the daily $5 spent on a coffee down the street.

Small business immediate asset write-off threshold

If you read the riveting Morrows Federal Budget blog, you might remember the Budget’s crown jewel – the unlimited asset write-off threshold. Up to 30 June 2022, businesses with an aggregated turnover of up to $5 billion can claim an immediate deduction for the value of:

  • New depreciating assets;
  • The cost of improvements to existing eligible assets; and
  • For small and medium-sized businesses (aggregated annual turnover of less than $50 million) – second-hand assets

Assets must be installed and ready for use by 30 June 2022 – plenty of time to window-shop. As well as a tax deduction, combined with the new loss carry-back rules, a high-cost asset purchase could tip your business into loss territory, which could then be carried back to prior year profits – so a refund of tax already paid could be on the cards as well.

Before you hit up the Lamborghini dealers, remember that the luxury car limit remains at $59,136 for the 2021 financial year, meaning only the business portion of this amount can be immediately deducted in the year of purchase.

NANE Victorian government grant income

As if grant income isn’t delightful enough in its own right, the government has announced that grants from the Business Resilience Package are non-assessable, non-exempt (NANE) income – meaning businesses don’t have to pay tax on it.

This ploy is still green – grant payments that are not deemed by the government as explicitly NANE will continue to be taxable income, and NANE-status will be determined on an application by application basis (currently restricted to grant programs announced post-13 September 2020).

While the tangible benefits may still be unclear, this measure takes an important step to ensure that the full amount of these COVID-inspired grants remain in the hands of businesses in need, rather than requiring them to serve the Tax Office up a generous slice of the pie months later.

Substantiation and logbooks

Before you hit snooze on the word ‘substantiation’, heed this warning: in light of an expensive year for the government and somewhat trust-based cash flow boosts, grants and JobKeeper payments, the ATO will be more stringent than ever, ensuring their dollars have gone to the right pockets. So be prepared to justify your grant and JobKeeper applications, as that knock at the door could come at any time over the next few years.

Individuals should also tread lightly with work-related expense deductions and check that logbooks are up to date were using this method to claim work-related car expenses. Logbooks are valid for five years, and receipts, loan documents and tax invoices should also be kept for five years.

Get in touch with your Morrows tax and business advisor to find out how you can not only stay on top of but take advantage of those updates and COVID-19 concessions.

Eligibility for the downsizer measure

You will be eligible to make a downsizer contribution to super if you can answer yes to all of the following:

  • you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
  • the amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018
  • you or your spouse owned your home for ten years or more before the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of the sale
  • your home is in Australia and is not a caravan, houseboat or other mobile homes
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
  • you have provided your super fund with the Downsizer contribution into a super form either before or at the time of making your downsizer contribution
  • you make your downsizer contribution within 90 days of receiving the proceeds of the sale, which is usually at the date of settlement
  • you have not previously made a downsizer contribution to your super from the sale of another home.

Tax tips for employees and contractors

phone-notebook

Lodge on time

If you’re lodging your 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 pre-filled 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 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 businesslike manner. 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 businesslike 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 make a profit from the business.

Report your income

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.

Government payments

The ATO pre-fills 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.

For employees, JobKeeper payments are treated the same as your usual salary or wages. 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.

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.

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.

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 as well.

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.

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.

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.

Claim your expenses

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

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 pattern of work 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.

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:

  1. shortcut method
  2. fixed-rate method
  3. 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 keep a record of 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.

Self-education expenses

Money-coins

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.

Car expenses

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

  1. cents per kilometre method
  2. 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.

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.

You will need to reduce your claim if your trip and travel expenses are partly private. 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.

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.

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.

Donations

The ATO will pre-fill your tax return with the information they have received 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.

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 super personal 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.

Tax offsets

Tax offsets directly reduce your tax bill. 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. To find your lost super, check out Searching for lost super on the ATO website.

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.

Tax tips for new taxpayers

Coins-pen-bills

Lodge a return

If you’re preparing and lodging your tax return, you have until Monday, 1 November, to submit it. However, if you lodge online from August, a lot of your information will be pre-filled in your tax return. This will save you time and mean you’ll be less likely to leave something out.

Most registered tax agents have a special lodgment program and can lodge tax returns for their clients later than the deadline. If you’re using a tax agent or using a different tax agent for the first time, you need to contact them before 31 October to take advantage of their lodgment program due dates.

If you haven’t lodged your 2020 or earlier tax returns yet, it’s important to get up to date as soon as possible to avoid penalties.

Get your refund

If your total taxable income for the year ended 30 June 2021 is below the tax-free threshold of $18,200, you may not need to lodge an income tax return. Due to the low-income tax offset and low-and-middle-income tax offset, the effective tax-free threshold is $23,227.

However, if you have had tax withheld from your income during the year and are under the threshold, you must lodge a tax return to have these amounts refunded to you.

Typical examples of situations where tax may have been withheld are pay as you go (PAYG) withholding amounts from your salary, withholding from bank interest income during the year where you have not provided your tax file number (TFN) to your bank, or if you have received franked dividends or distributions from a family trust where you have not previously provided your TFN to the trustee.

Set up your MyGov account

If you haven’t already, you should set up your myGov account. This is a secure way to access government services online with one login and one password. 

You can then link government services, including the ATO, to your account. If you choose to lodge yourself, you can also access myTax through your myGov account.

Most employers will send your income statement (formerly known as payment summaries) via myGov. You will also be able to see your superannuation information there as well. If you use a tax agent, they’ll be able to access this information for you.

Identify all your assessable income.

To determine whether you need to lodge a tax return, identify all the sources of income you received during the year that is assessable for income tax purposes. For many taxpayers, this information will be contained on the income statement provided by your employer and pre-filled on your tax return.

These include:

  • income from work as an employee or a contractor, including any allowances, tips or gratuities received
  • investment income, such as any bank interest or dividends on shares received
  • capital gains or losses on cryptocurrency and other investments
  • certain government payments received such as Youth Allowance, ABSTUDY, living allowance and Austudy
  • some non-government scholarships, grants and awards
  • distributions from a family trust or partnership

If you get paid in cash, you still need to declare this and any tips as income on your tax return. 

Check that your payslip or income statement shows all your earnings and the amount of tax taken out, as well as superannuation payments if you’re entitled.

Understand HELP debts

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

If you have a HELP debt, repayments begin once your salary exceeds $46,620 for 2020–21. The specific amount required to be repaid will depend on a range of factors, including your taxable income.

Suppose you’re working and you’ve filled out a tax file number (TFN) declaration form indicating you have a HELP debt. In that case, your employer will withhold additional tax from your salary to assist you in recovering your debt. The ATO will automatically calculate your HELP repayment for the year once you lodge your tax return.

If you don’t notify your employer of your HELP debt through the TFN declaration, your employer will not withhold the additional tax, and you may find yourself facing an unexpected hefty tax bill.

People who are overseas with a HELP debt are required to make repayments based on their worldwide income. In addition, there are notifications, myGov registration and income reporting requirements.

Special rules for those under 18

Certain types of income earned by minors under the age of 18 may be taxed at a higher rate.. The types of income that may be taxed differently include:

  • income received as a beneficiary from a trust
  • interest, dividends, rent and royalties

Minors will also not typically claim the low-income tax offset to reduce their tax liability on such income.

Ordinary marginal tax rates will apply to other income (known as ‘excepted income’) earned by a minor aged under 18, such as:

  • employment or business income
  • taxable government payments such as Youth Allowance
  • income from a deceased estate
  • income from the property transferred to a minor as a result of a person’s death or a family breakdown and
  • net capital gains on disposal of investments

Tax Help program

The Tax Help program is available to eligible recipients in all capital cities and many regional areas across Australia from July to October. 

Tax Help is a network of ATO-trained and accredited community volunteers who provide a free and confidential service to help people complete their tax returns online using myTax.

Reporting illegal and concerning behaviours

You can report illegal activity and concerning behaviours to the ATO, for example:

  • JobKeeper fraud
  • demanding or paying for work cash in hand to avoid obligations
  • underpayment of wages
  • bypassing visa restrictions and visa fraud
  • identity fraud
  • tax fraud
  • not paying correct super to employees
  • creating false or fraudulent documents or records.

Tax tips for investors

Many Australians invest in property, financial markets and other assets, both in Australia and overseas. Managing the tax on your investments can help you increase your wealth.

The ATO’s data matching and information-gathering capabilities are significant and cover many capital transactions and investment revenue streams.

It is more important than ever to report investment income, including overseas, and maintain accurate records, correctly calculate capital gains or losses on disposal and comply with the various rules and concessions available to investors.

Speak with a CPA Australia-registered tax agent who can advise you on the tax consequences of your investments.

Investment deductions

You can claim a deduction for expenses incurred in earning interest, dividend or other investment income, but not for exempt dividends or other exempt income.

Examples of investment deductions include:

  • account-keeping fees for an account held for investment purposes
  • interest charged on money borrowed to buy shares and other related investments from which you derive assessable interest or dividend income
  • ongoing management fees or retainers and amounts paid for advice relating to changes in the mix of investment
  • a portion of other costs if they were incurred in managing your investments, such as some travel expenses, investment journals and borrowing costs

If you attend an investment seminar, you are only entitled to claim a deduction for the portion of travel expenses relating to some investment income activities.

Rental properties

The ATO has an ongoing focus on checking rental deductions and matching reported income against details from real estate agents, Stayz, Airbnb and other providers.

If you are a landlord, you must lodge a multi-property rental schedule with your tax returns.

Make sure that interest expense claims are correctly calculated, rental income is correctly apportioned between owners, claims for costs to repair damage and defects at the time of purchase are depreciated, and that holiday homes are genuinely available for rent.

Landlords of rental properties that are being rented out or are ready and available for rent can claim immediate deductions for a range of expenses. These may include interest on investment loans, land tax, council and water rates, corporate body charges, repairs and maintenance and agents’ commissions.

Landlords may be entitled to claim depreciation for the declining value of assets such as stoves, carpets and hot-water systems. They may also be able to claim a deduction for capital works spread over several years, such as structural improvements like re-modelling a bathroom.

Be aware that depreciation deductions for residential real estate properties are now limited to outlays incurred on new items. 

For properties acquired from 9 May 2017, landlords can no longer depreciate assets that were in the property at the time of purchase; however, should they purchase a new (not used or refurbished) asset, they can depreciate that asset.

Residential landlords are no longer allowed travel deductions relating to inspecting, maintaining or collecting rent for a rental property.

COVID-19 has raised several tax issues for rental property owners or agents to consider, including:

  • deductions for properties where tenants are not paying their full rent or have temporarily stopped paying rent as their income has been affected due to COVID-19
  • reductions in rent for tenants whose income has been adversely affected by COVID-19 to enable them to stay in the property
  • assessable receipts of back payments of rent or an amount of insurance for lost rent
  • interest deductions on deferred loan repayments for a period due to COVID-19
  • cancellation of bookings due to COVID-19 for a property that is usually rented out for short-term accommodation but has also previously had some private use by the owner
  • the private use of a rental property by the owner (e.g. holiday home) to isolate during COVID-19 and adjusting available deductions
  • changes to advertising and other fees for short-term rental properties during COVID-19 due to no demand for the property

While you’re still able to claim deductions for your expenses and depreciation, you may need to make adjustments if you’ve changed how you use the property.

If you’re a landlord, it’s well worth reading the ATO’s information on holiday homes, renting out part or all of a home and holiday apartments in commercial, residential properties, as well as factsheets on:

No deductions for vacant land

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Deductions for holding vacant land have now been limited. The new rules apply to costs incurred on or after 1 July 2019, even if the land was held before that date.

Deductions for expenses incurred for holding costs of vacant land can continue to be claimed by corporate tax entities, superannuation plans (other than self-managed superannuation funds), managed investment trusts, public unit trusts and unit trusts or partnerships where all the members are the aforementioned entity types.

There are some entities and circumstances where deductions for vacant land can still be claimed. For example, where the entity holding the land is a company, where you use the land in carrying on a business, or exceptional circumstances apply.

Expenses of holding land remain deductible if incurred in carrying on a business such as farming or gaining or producing assessable income.

The rules can be complex and require you to determine whether you are holding vacant land, whether it satisfies the various requirements or if exceptional circumstances apply.

The ATO has produced a flowchart to determine if deductions for expenses related to vacant land are limited.

Residential property and non-residents

Suppose you are a foreign resident for tax purposes when you dispose of your residential property in Australia. In that case, you will not qualify for the CGT main residence exemption unless you satisfy the life events test.

Gains or losses from cryptocurrencies

Almost one in five Australians invest in cryptocurrencies. If you are or have been involved in acquiring or disposing of cryptocurrencies in the past, you need to be aware of the tax consequences.

You may have to pay tax on any capital gain you make on the disposal of the cryptocurrency. There are also rules when exchanging one cryptocurrency for another and chain splits, staking rewards and airdrops.

The ATO now matches transaction data from digital exchanges, so it is more important than ever to ensure cryptocurrency gains and losses are correctly reported.

Different rules apply if you use cryptocurrency in business, such as running your start-up or trading large volumes of cryptocurrency.

Capital gains tax planning

You should carefully time the disposal of appreciating assets, as this may trigger a capital gain. It is important to recognise that CGT is triggered when you enter into a contract to sell a CGT asset rather than on its settlement.

This is particularly important where the entry and settlement of the contract straddle the end of the financial year. In these circumstances, it may be preferable from a cash flow perspective to defer the sale of the CGT asset to the subsequent year where other relief may be available, such as a capital loss sold on another asset.

You should also ensure that an eligible asset is retained for the 12-month holding period required under the CGT discount. The CGT discount is generally not available to foreign residents or temporary resident individuals.

Keep proper records for all of your investments and ensure that you keep them for at least five years after a capital gains tax event occurs.

Read the ATO’s guidance on capital gains tax.

Foreign investments

If you are an Australian resident with overseas assets, you need to include any capital gains or losses you make on those assets in your tax return. You may also have to include income you receive from overseas interests in your tax return.

You can receive income even if it is held overseas for you. So, for example, if you receive foreign income or gains taxable gains in Australia, and you paid foreign tax on that income, you may be entitled to an Australian foreign income tax offset.

Be aware that the ATO has information exchange agreements with revenue authorities in many foreign jurisdictions and therefore is likely to receive data on any of your overseas investments and income.

Exchange-traded funds

Exchange-traded funds (ETFs) are an increasingly popular investment product, but calculating the tax on them can be complicated. Because ETFs are classified as trusts, not ordinary company shares, they fall under the Attribution Managed Investment Trust (AMIT) rules.

This means that you will need to separately report the various distributions and capital gains amounts in your tax return.

While many investors will receive a member annual statement with the necessary details, these reports are optional. However, you need to ensure that you correctly report ETF amounts on your tax return, so check to see if the necessary details are there and follow up with the fund or registry if they aren’t.

Investment products

Towards the end of the financial year, there is often an uptick in promoting investment products that may claim to be tax-effective.

Check to see if a Product Ruling is available or if the ATO has issued a Taxpayer Alert.

A product ruling provides ATO assurance on the tax consequences of an arrangement, provided it is carried out as described in the ruling. However, it isn’t a sanction or guarantee of the tax effectiveness of a product or investment.

Taxpayer alerts are warnings issued by the ATO about higher-risk arrangements or issues.

You should form your view about the commercial and financial viability of a product. 

Consider issues such as whether the projected returns are realistic, the ”track record” of the management, the level of fees compared with similar products, and how the investment fits an existing portfolio.

If you are considering such an investment, seek independent advice before making a decision. 

Tax tips for small business

Small business owners often interact with the ATO and their tax agent throughout the year. Tax time provides an added opportunity to ensure your tax affairs are in order, obtain essential tax advice and see if you can improve your tax position.

You should obtain professional tax advice, especially in areas where more complex tax issues arise.

This includes refinanced debt, losses, restructures, capital gains tax, personal services income, trust declarations and distributions, and private company loans.

If you are seeking advice, have made errors or need to correct your business records, speak with a CPA Australia-registered tax agent who can work with you to get things right.

The basics

Getting the basics right has never been more important – good record keeping, substantiation, correct account codes, properly accounting for private use and declaring all cash transactions are essential to assuring yourself, your tax agent and the ATO that your tax affairs are in order.

Small businesses must ensure their bookkeeping and lodgments are correct and up to date. The onus is on business owners to correctly report their income, claim their expenses and have the appropriate records.

When keeping your records, make sure to:

  • record cash income and expenses
  • account for personal drawings and use of company money or assets
  • record goods for your use
  • separate private expenses from business expenses
  • keep valid tax invoices for creditable acquisitions when registered for GST
  • keep adequate stock records
  • keep adequate records to substantiate motor vehicle claims.

The ATO is getting smarter with its data, and business owners are increasingly contacting their income and expense claims.

The ATO will look for discrepancies in returns when compared against pre-fill data or business benchmarks and has increased resources to deal with the cash economy.

Contact the ATO to rectify any errors or mistakes. If you make a voluntary disclosure, you can generally expect a reduction in the administrative penalties and interest charges that would normally apply.

Your tax agent is required to take reasonable care when preparing your return, which means they may ask you detailed questions about your cash flow, business performance, personal use of assets and records.

JobKeeper

JobKeeper payments are assessable as ordinary income. However, you can claim deductions for the wage payments you made to employees, including amounts subsidised by JobKeeper.

Ensure that your reporting and documentation are correct. You must keep this information for five years after the payment was made.

Cash flow boost

Check that you have correctly received cash flow boost amounts. Cash flow boost payments are classified as non-assessable, non-exempt income so that no tax will be payable.

The cash flow boost is not subject to GST, and you are still entitled to a deduction for PAYG withholding paid.

Suppose you distribute the cash flow boost from the business to another entity (for example, making a trust distribution or paying a dividend to shareholders). In that case, there may be tax consequences for the recipient.

Covid-19 and disaster payments

Many businesses received COVID-19 or other disaster-related support from the government during the year.

Unless there is a specific exception, government payments to assist a business to continue operating are assessable. This includes assistance provided as a one-off lump sum or a series of payments.

The ATO has published information on the tax treatment of a range of federal, state, territory and local government assistance packages. You should also check the tax treatment of disaster assistance payments.

If you use an assistance payment to purchase items for your business, the normal conditions for deductibility apply. The fact that money from a relief fund is used to purchase an item doesn’t affect the deductibility of that item.

Personal services income rules

Personal services income (PSI) is income produced mainly from your skills or efforts as an individual. It commonly includes medical practitioners, construction workers, financial professionals and IT consultants.

The PSI rules are designed to ensure you can’t reduce or defer your income tax by diverting income received from your services by using companies, partnerships or trusts.

You need to check whether the PSI rules apply or whether you’re running a personal services business (PSB). If more than one individual is generating PSI through an entity such as a company, partnership or trust, you’ll need to work through the steps separately for each individual.

Once you determine the PSI rules apply, you’ll need to attribute PSI to each individual who produced the income and ensure that you are correctly withholding.

Many businesses make mistakes with the PSI rules. This is hardly surprising given their complexity, and their applicability can change from contract to contract.

Crowdfunding

The tax consequences of crowdfunding vary depending on the nature of the arrangement, your role (i.e. promoter, intermediary or contributor) and the circumstances.

The tax laws that apply to investment and financial activity undertaken conventionally (for example, buying goods and services, buying shares, lending money) apply in the same way to investment and financial activity conducted under crowdfunding.

Deductions

Optimise depreciation deductions

There are several ways you can depreciate your assets. The Federal Government introduced and has extended the instant asset write-off, temporary full expensing and backing business investment measures as part of its COVID-19 economic stimulus packages.

The ATO provides information on the interaction of the various tax depreciation incentives introduced by the government to help businesses.

Many businesses use the simplified depreciation rules, including the instant asset write-off and the general small business pool. Under temporary full expensing, you deduct the small business pool balance at the end of the income years ending between 6 October 2020 and 30 June 2022. The methods are discussed in more detail below.

The instant asset write-off and temporary full expensing deduction methods are not available for all assets. In such cases, the asset will be allocated to the general small business pool and depreciated at the appropriate rate, depending on if it is eligible for accelerated depreciation.

Where a balancing adjustment occurs during the year, the asset’s termination value must be deducted from the pool.

If you purchase a car for your business, the depreciation amount is limited to the business portion of the car limit of $59,136 for the 2020–21 income tax year. You cannot claim the excess cost of the car under any other depreciation rules.

Instant asset write-off

The instant asset write-off is available for:

  • assets first used or installed ready for use from 12 March 2020 until 30 June 2021 and purchased by 31 December 2020
  • assets costing up to $150,000 (up from $30,000)
  • businesses with an aggregated turnover of less than $500 million (up from $50 million).

The instant asset write-off can be used for multiple assets if the cost of each asset is less than the relevant threshold and new and second-hand assets.

Temporary full expensing

Eligible businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible (not excluded assets) new depreciating assets.

The eligible assets must be first held and first used or installed ready for use for a taxable purpose, between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.

Businesses can also immediately deduct the business portion of the cost of improvements to eligible depreciating assets (and to assets acquired before 7.30 pm AEDT on 6 October 2020 that would otherwise be eligible assets) if those costs are incurred between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.

You can opt-out of temporary full expensing for an income year on an asset-by-asset basis if you are not using the simplified depreciation rules.

If you are a small business that chooses to use the simplified depreciation rules, you apply the temporary full expensing rules with some modifications. This includes deducting the balance of your small business pool at the end of an income year ending between 6 October 2020 and 30 June 2022.

Employee bonuses

If you pay staff bonuses and want to bring expenses into the 2020–21 year, ensure they are quantified and documented in a properly authorised resolution (e.g. in board minutes).

This must be done before year-end to incur a deduction for employee bonuses where such amounts are not paid or credited until the subsequent year.

Trading stock

Many small businesses use the simpler trading stock rules as the value of their trading stock doesn’t vary by more than $5,000 a year. However, COVID-19 affected the sales last year. Consequently, some businesses’ inventory levels reduced significantly, and the market selling value or replacement value basis may be more tax-effective.

Where COVID-19 has materially reduced the market value of trading stock below its cost, such as for obsolete stock, this may result in your closing stock being valued at an amount less than cost and will generate an allowable deduction.

Write off bad debts

Businesses can claim a deduction for bad debts when various conditions are met. Examples include where the debtor cannot be traced, the debtor is in liquidation or receivership, there are insufficient funds or assets to satisfy the debt, or there is little or no likelihood of the debt being recovered.

A deduction will only be available if the debt still exists at the time it is written off. If the debt is forgiven or compromised before it is written off as bad in the accounts, no deduction will be available.

Certain additional requirements must be met where the creditor is either a company or trust. In addition, special rules apply for private companies with debts related to shareholders or an associate of a shareholder.

Tax payable

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Company tax rate

Most companies with an aggregated annual turnover of less than $50 million will pay tax at 26 per cent in 2020–21. However, some companies with a turnover below $50 million will continue to pay tax at 30 per cent, especially companies that earn nearly all their income from passive investments, such as rental income or interest income.

These differential rates create several complexities for companies.

To qualify for the lower (base rate entity) tax rate:

  • a company must have an aggregated turnover of less than $50 million, where aggregated turnover is the sum of the company’s ordinary income and the ordinary income of any connected affiliate or entity, and
  • no more than 80 per cent of their assessable income is base rate entity passive income.

The full company tax rate of 30 per cent applies to all companies that are not eligible for the lower company tax rate.

In line with the changes to company tax rates, there have also been changes to the franking rules, which affects the allocation of franking credits.

Loss carry-back tax offset

Eligible companies with a taxable loss may be able to claim the loss carry-back tax offset.

In particular, eligible companies that find themselves in a taxable loss position due to the instant asset write off or temporary full expensing rules could use the loss carry-back tax offset instead of carrying forward the losses to future years.

The offset effectively represents the tax an eligible company would save if it could deduct the loss in the earlier year using the loss year tax rate.

As it is a refundable tax offset, it may result in a cash refund, a reduced tax liability or a reduction of a debt owing to the ATO. In addition, the eligible company does not need to amend the earlier income years to claim the offset.

The tax offset available is limited to your franking account surplus on the last day of the income year for which you claim it. The ATO will be checking franking accounts to ensure the offset is claimed correctly.

Losses

Businesses may find themselves in a taxable loss position or seek to use prior-year losses when their business performance changes.

Different loss rules apply depending on the business structure. For example, partnerships distribute the loss proportionately to each partner, while trust losses can’t be distributed to beneficiaries.

Companies are subject to rules such as same majority ownership and control, same business test or similar business test.

We recommend seeking professional advice on issues like the loss tests, loss carry-back tax offset, the effect of capital injections on continuity of ownership tests and unrealised losses from reductions in asset values.

CGT concessions

In addition to the more widely available CGT concessions, small businesses can access the following specific concessions:

  • 15 year-exemption
  • 50 per cent active asset reduction
  • retirement exemption
  • rollover
  • restructure rollover.

You can apply as many concessions as you’re entitled to until the capital gain is reduced to nil. There are rules about the order in which you apply the concessions, any current year or prior year capital losses, and the CGT discount.

The rules are complex, and getting it wrong can be costly, so we recommend seeking advice before restructuring or disposing assets and ensuring your business structure is designed to take advantage of the available concessions.

PAYG instalment indexation suspended

The government suspended the indexation of PAYG and GST instalment amounts for small businesses in 2020–21, and the ATO allowed taxpayers to vary their quarterly instalments without penalty.

Some businesses that reduce their instalment amounts during the year may receive a larger than the expected tax bill. The ATO offers a range of payment plans to assist.

Private use of company money or assets

There are rules around taking money out of your business or using its money or assets for yourself and your family. This is often done by:

  • payments of salary, wages or directors’ fees – withholding, superannuation and payroll reporting requirements for the company
  • provision of fringe benefits – the company pays fringe benefits tax
  • repayments of a loan to the company
  • dividends – a profit distribution that may include franking credits
  • company loans.

The private use of company money or assets is a focus area for the ATO, and the consequences of getting it wrong can be costly.

Division 7A

A private company’s payment or another benefit to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A.

The income tax laws may treat the following as an unfranked deemed dividend for a taxpayer unless an exemption applies:

  • a payment or a loan by a private company to a shareholder or an associate (like a family member)
  • the forgiveness of a shareholder’s or associate’s debt
  • the use of a company asset by a shareholder or their associate, or
  • the transfer of a company asset to a shareholder or their associate.

The most common exemption is to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term. This may be seven or 25 years, depending on whether the loan is secured.

There are various things a private company can do before its 2020–21 income tax return needs to be lodged to minimise the risk of a shareholder or an associate deriving a deemed dividend.

Division 7A also applies to certain benefits provided to shareholders or their associates from trusts where a private company has a present unpaid entitlement (UPE) to the trust’s profits.

Trusts

Prepare trust resolutions by 30 June

Trustees of discretionary trusts are always required to prepare and document resolutions on how trust income should be distributed to beneficiaries for the 2020–21 financial year by 30 June.

Suppose a proper resolution is not executed by 30 June. In that case, any default beneficiaries under the deed will become presently entitled to trust income and subject to tax (even where they do not receive any cash distribution).

Alternatively, the trustee will be assessed at the highest marginal tax rate on any taxable income derived but not distributed by the trust.

A trustee must show how an effective resolution was made through minutes, file notes or an exchange of correspondence documented before year-end. However, the trust’s accounts do not need to be prepared by 30 June.

As a corporate trustee may need time to notify its directors that a meeting must be convened to pass and record a resolution, such a notice should be sent out well before the 30 June deadline.

Streaming capital gains and franked dividends

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The streaming rules are complex but, generally, the trustees of discretionary trusts can stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts.

The trustee must document this resolution before 30 June, and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.

Prevent deemed dividends

An unpaid distribution owed by a trust to a related private company beneficiary that arises on or after 1 July 2016 will be treated as a loan if the same family group controls the trustee and the company.

In these circumstances, the associated trust may be taken to have derived a deemed dividend for the unpaid trust distribution in 2020–21.

However, a deemed dividend may be prevented if the unpaid distribution is paid out or a complying loan agreement is entered into before the company’s 2020–21 income tax return needs to be lodged.

Alternatively, a deemed dividend will not arise if the amount is held in a suitable sub-trust arrangement for the sole benefit of the private company and other conditions are satisfied.

Reimbursement agreements

Suppose a beneficiary’s entitlement arises out of a reimbursement agreement. In that case, the net income that would otherwise have been assessed to the beneficiary (or trustee on their behalf) is instead assessed at the top marginal tax rate.

The exception is where the agreement is part of an ordinary family or commercial dealing. The beneficiary is under a legal disability (e.g. a minor), so make sure that any reimbursement agreements satisfy legal requirements.

Additional tips

Single Touch Payroll

Employers need to make a finalisation declaration by 14 July 2021 so that employees can access their tax-ready income statements.

Before finalising, ensure the STP information is correct and apply for a deferral if you need more time.

Superannuation guarantee

Ensure superannuation guarantee payments for employees are up-to-date. Employers can claim deductions for superannuation contributions made on their employees in the financial year the nominated super funds receive them by 30 June.

Report and rectify any missed payments to the ATO. If you do not pay an employee’s super guarantee on time and to the right fund, you must lodge a superannuation guarantee charge (SGC) statement and pay the SGC to the ATO.

The ATO has limited discretion about overpayments, which can be exercised in certain circumstances.

The SGC is not tax-deductible, and there are significant administrative charges, fees and penalties. It’s therefore important to ensure that you’re paying superannuation guarantee correctly throughout the year.

The taxable payments reporting system

Does your business earn income from building and construction, cleaning, courier, road freight, IT, security, investigation or surveillance services? If so, you may need to lodge a taxable payments annual report by 30 August 2021 to report payments made to contractors.

The details you need to report are generally contained in the contractors’ invoices and include ABN, name, address and total amounts paid for the financial year.

GST adjustments

When you do a tax return for your business, your tax agent will often do a reconciliation against your GST accounts. This can identify misclassified transactions or unclaimed credits which will need to be fixed.

Many mistakes relating to GST and fuel tax credit can be corrected in your next BAS. However, if you can’t correct your mistake in your next BAS, you need to lodge a revision.

It’s also an opportunity to ensure that your accounting software is correctly recording your GST transactions.

The ATO has worksheets to assist in calculating GST adjustments for sales, purchases, bad debts, creditable purpose and adjustments summary.

Businesses in financial distress

COVID-19 has left many businesses facing cash flow difficulties or severe financial distress. Therefore, it’s important to create a budget and seek to improve the financial position of your business.

There are tax obligations to consider when deregistering a company, and the ATO provides information for businesses in financial difficulty.

Individuals facing serious financial hardship can apply for release from their tax debts.

If you think your business is in financial difficulty, getting proper accounting and legal advice as early as possible is critical.

Primary production

Farm management deposits (FMDS)

One of the best tax planning measures available to primary producers is utilising the farm management deposits scheme (FMDs). They are an effective business and cash flow planning tool.

Primary producers can deposit up to $800,000 in an FMD account and have early access to their FMD account during times of drought. They may be able to offset the interest costs on primary production business debt.

Income averaging

Tax averaging enables primary producers to even out their income and tax payable over a maximum of five years to allow for good and bad years.

This ensures that farmers don’t pay more tax over time than taxpayers on comparable but steady incomes.

Other primary producer tax concessions

Other tax concessions you may be entitled to as a primary producer include:

  • the uncapped immediate write-off for capital expenditure on water facilities and fencing assets
  • the deduction for the full cost of a fodder storage asset if the expense was incurred or it was first used or installed ready for use on or after 19 August 2018
  • the outright deduction for capital expenditure for land care operations and carbon sink forests
  • the accelerated write-off for horticultural plants and grapevines.

Finding a tax agent

You can cut your hair, but you’ll get a better result if you see a professional.

It’s the same with completing your tax return. If you see a CPA-registered tax agent, you can be confident you’re meeting your tax obligations and getting the maximum refund you’re entitled to.

It’s well worth the investment because tax can be complicated.

We find that the most common answer to questions on tax is, “It depends”, which reflects the detailed rules of the Australian tax system. Tax agents navigate this maze on your behalf, taking the worry out of tax time.

Using a tax agent provides peace of mind, access to professional tax advice, extended time to lodge your return and makes it easier to do your taxes. They can also advise you on the tax consequences of your future activities and help you establish good record-keeping practices to maximise your claims. The cost of going to a tax agent is also tax-deductible.

Most tax agents don’t charge very much for a simple tax return. Most small business owners will see a tax agent throughout the year to help them manage their tax affairs.

Check that your tax agent is registered with the Tax Practitioners Board.

It’s also recommended that they’re a member of a professional accounting organisation such as CPA Australia. This way, you’ll know they’re abiding by professional and ethical standards.

Like most relationships, it’s important to develop an ongoing and trusted relationship with your tax agent. This helps to make sure they understand you, your business and your finances so that you can manage your tax effectively.

Tax agents are required to stay up to date with the latest developments in tax and changes in the law. They are also bound by regulatory requirements to ensure the service you receive is of high quality and within the law.

For example, every tax agent is legally obliged to take reasonable care. This means checking your tax history, ensuring you have documentation such as receipts, and asking questions about your income, expenses and assets.

Things you should watch out for include agents who:

  • promise large refunds
  • charge a percentage of your refund as a fee
  • spend very little time with you or on your tax return
  • don’t ask for receipts or documentation
  • don’t ask questions or enter information that you can’t substantiate
  • ask you to sign blank or incomplete returns or blank voluntary disclosure forms, or
  • ask to lodge your tax return through myTax.

You should be careful about who you ask to prepare your return and make sure that you check the tax return in detail before signing. 

Even if you use a tax agent, the responsibility is on you to ensure that your tax affairs are reported correctly and that you’re able to prove your claims if the ATO asks any questions.

Tax scams and identity theft

There has been a significant increase in tax-related scams, fraud attempts, deceptive emails and SMS schemes targeting Australians.

Thieves only need basic details such as name, date of birth, address, myGov details or tax file number (TFN) to commit an identity crime.

If criminals steal your identity, it can take a long time to fix. As a result, it may be difficult for you to get a job, a loan, rent a house, or apply for government services or benefits.

If you’re unsure whether an ATO interaction is genuine, do not reply. If you receive an SMS or email claiming to be from the ATO, check with the ATO first to confirm it’s genuine.

To protect against scams and identity theft, the ATO encourages individuals to:

  • run the latest software updates to ensure operating systems security is current
  • update antivirus software
  • always exercise caution when clicking on links and providing personal identifying information
  • never share personal information on social media, such as your TFN, myGov or bank account details.
  • avoid accessing online government services via a hyperlink in an email or SMS – only via an independent search
  • always access the ATO’s online services directly via ato.gov.au or my.gov.au or the ATO app
  • call the ATO on an independently sourced number to verify an interaction if in doubt
  • don’t click on a link; open an attachment or download a file if in doubt.

Ensure your digital identity, such as your my Ovid, is secure. Your digital identity is unique to you and shouldn’t be shared, as this will enable others access to your data across services such as tax and health.

If you suspect your TFN or ABN has been stolen, misused or compromised, phone the ATO’s Client Identity Support Centre on 1800 467 033 between 8.00 am and 6.00 pm Monday – Friday. They can investigate and place additional protective measures on your account.

If you think someone accessed your myGov account, including your linked ATO services, without your permission, phone the ATO on 13 28 61, between 8.00 am and 6.00 pm, Monday to Friday.

If you think someone has inappropriately accessed your personal information in myGovID, report this immediately – phone the ATO on 1300 287 539 (select option 2) between 8.00 am and 6.00pm AEST Monday to Friday.

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