Australians can get a mega tax refund by shrewdly adding up their working-from home expenses and claiming a big super contribution as a deduction.
With fast forwarded tax cuts and low and middle-income tax offsets included, someone on an average, full-time salary of $90,000 can stand to get back close to $8,000 from the taxman with the right strategies.
The deadline for lodging a return or registering with an accountant is fast approaching with less than two weeks to go until the October 31 cutoff.
Australians who voluntarily top up their super can also pay a lower tax rate and claim a generous deduction.
The Australian Taxation Office, since the start of the pandemic in March 2020, has allowed those working from home to claim a flat 80 cents an hour rate. This deal has been extended until June 2022. H&R Block says claiming the lower 52 cent an hour rate and manually adding up expenses yields better results but Johnston Advisory said flat 80 cent rate better
Working from home expenses
Since the start of the pandemic in March 2020, the Australian Taxation Office has allowed those working from home to claim a flat 80 cents an hour rate.
The tricks to boosting your tax refund in 2021
Manually add up working from home expenses and claim the lower 52 cents an hour rate over the year instead of the flat 80 cents an hour rate
These can include:
• Heating, cooling and lighting bills
• Costs of cleaning your home working area
• Depreciation of home office furniture and fittings
• Depreciation of office equipment and computers
• Costs of repairing home office equipment, furniture and furnishings
• Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately instead of being claim over several years
• Computer consumables (like printer ink) and stationery
• Phone (mobile and/or landline) and internet expenses
Full-time workers who spent the entire financial year working from home can use this capped, short cut method to claim $1,536 based on putting in 40 hours a week over 48 weeks, taking into account four weeks of annual leave.
Tax agent H&R Block said someone who had worked from home all year could typically claim $2,600 if they relied on the lower 52-cent an hour rate and manually added up their phone, internet and electricity bills that were strictly related to work, along with the depreciation of home office furniture, stationary and ink cartridges.
Director of tax communications Mark Chapman said method was simple for those who keep receipts and a diary.
‘All you need to do to claim this is to keep a diary – note the time you start work each day, the time you finish work each day and any breaks,’ he told Daily Mail Australia.
But accountant Ben Johnston, the founder and managing director of Johnston Advisory, said the flat 80 cents an hour rate was much easier to add up compared with manually tallying up every expense.
‘The 80-cent Covid shortcut rate is much more attractive generally because it comes with much lighter substantiation requirements,’ he told Daily Mail Australia.
‘If you go down the 52-cent rate, and use the home internet, the substantiation requirements are much more heavy and you need diary evidence on work usage.
‘For internet especially, when you’ve got kids on iPads, and you’ve got your partner working and so forth, trying to diarise out WiFi usage becomes really, really difficult.’
On Friday, the tax office announced the flat 80 cents an hour rule would be extended for another year until June 30, 2022.
Accountant Ben Johnston, the founder and managing director of Johnston Advisory, said the flat 80 cents an hour rate was much easier to add up compared with manually tallying up every expense
For most of this financial year, so far, Sydney and Melbourne have been in lockdown, forcing many professionals to work from home.
Those with savings in the bank can also get a big tax refund by making a hefty voluntary superannuation contribution instead of buying a car for personal use.
During the last financial year Australians, with their own top-ups included, could deposit up to $25,000.
That figure included the compulsory employer superannuation contribution, which was 9.5 per cent in 2020-21, plus the voluntary contribution and any salary sacrifice.
To be taxed at the lower 15 per cent rate, someone on an average salary of $90,329 can only put in $16,419 because their employer would have already chipped in $8,581.
On that voluntary contribution, they are taxed at $2,463.
Those with lots of savings in the bank can also get a big tax refund by making a hefty voluntary superannuation contribution instead of buying a brand new car for personal use (pictured is a stock image)
But when making a tax claim, an individual can claim 32.5 cents in every dollar on the $16,419, netting themselves $5,336, by registering a ‘notice of intent’ with the tax office.
In 2020-21, Australians could deposit up to $25,000 in superannuation and only pay 15 per cent in tax
This included compulsory employer contributions, salary sacrifice and voluntary contributions
An individual pays the lower 15 per cent tax on their voluntary contribution not the amount their employer has already put in
An employee can also claim a deduction on their voluntary contribution based on their marginal tax rate
They end up with the tax deduction claim on their voluntary super contribution minus the 15 per cent tax they paid on that voluntary contribution
The total threshold for the 15 per cent superannuation tax rate was increased to $27,500 on July 1, 2021
‘The individual can only claim a deduction on the amount of the personal contribution – $16,419,’ Mr Chapman said.
‘Any amount paid by the employer can’t be claimed.’
When the $5,336 super tax deduction had the 15 per cent tax of $2,463 subtracted, this average salary earner was still $2,873 better off.
Mr Chapman said a tax claim could not be made until the super fund had confirmed the money had gone into the account.
‘You must receive the acknowledgment from your fund before you claim the deduction on your tax return,’ he said,
Since July 1, the threshold for total super contributions to be able to claim the 15 per cent tax rate has been raised to $27,500 from $25,000.
Mr Johnston said topping up super made sense for those on average incomes, but not for part-time students putting in very few hours a week.
‘If you earn less than $20,000, claiming a deduction for super is stupid because you’re saving not tax and you’re going to get taxed at 15 per cent when it goes in,’ he said.
‘You’re better off not claiming it.’
Compulsory employer super contributions increased to 10 per cent on July 1, 2021.
More than 10million Australian workers earning up to $126,000 are receiving up to $1,080 from the low and middle-income tax offset.
As part of this package for 2020-21 tax returns, 4.6million Australians earning between $48,000 and $90,000 will receive $1,080 as another 1.8million workers earning $37,000 to $48,000 get back $255.
Treasurer Josh Frydenberg in the May 2021 Budget extended the low and middle-income tax offset for those earning up to $126,000 at cost of $7.8billion.
Last year’s October Budget – delayed five months because of the pandemic -brought forward tax cuts to July 2020 that weren’t meant to come into effect until July 2022.
This relief, known as the stage two tax cuts, increased the 19 per cent personal income tax bracket from $37,000 to $45,000 and moved the 32.5 per cent tax bracket from $37,000 to $90,000 to between $45,000 and $120,000.
More than 10million Australian workers earning up to $126,000 are receiving up to $1,080 from the low and middle-income tax offset (pictured is hotel manager Alex Marton in Sydney’s Kings Cross after the lockdown)
This change means those earning $45,000 to $90,000 will receive $1,080 in tax relief.
What items can be claimed on tax?
Individuals can claim any work-related item in one go if it costs less than $300
Items worth more than $300 have to be claimed over several years or its ‘effective life’
Business owners can claim the cost of a car or machinery
The initial instant asset write-off, announced in the October 2020 Budget, allowed businesses to buy assets worth up to $150,000 and claim it on tax
The program, officially known as ‘temporary full expensing’ has been extended to June 2023
A business can claim an expense like a car – worth up to $59,136- over one financial year rather than eight
But there aren’t such strict cost limits on commercial vehicles like utes and vans
Above-average full-time professionals earning $90,000 to $120,000 will get a $2,430 tax cut.
So someone earning an average, full-time salary of $90,329 will get a base refund of $2,160, combining the $1,080 from the low and middle-income tax offset and the $1,080 from the tax bracket change being brought forward.
Buying new work items
If a work-related item costs less than $300, an individual as opposed to someone running a business can claim it in one go.
Above that amount, someone needs to claim the item over several years.
Mr Chapman said items costing more than $300 needed to have an ‘effective life’ worked out so purchasing cost could be divided over the number year an item was expected to last.
So a $400 briefcase expected to last eight years could be claimed against tax at $50 a year for eight years.
‘If the item costs more than $300, you need to work out the ‘effective life’ of the asset – this is how long you expect to use the item before it wears out,’ Mr Chapman said.
‘Each year, the ATO provides a list of ‘effective lives’ of commonly claimed assets such as cars and computers but you don’t need to follow the ATO’s effective life, you can self-assess provided you can substantiate your calculations.’
The May Budget made a special deal for business owners, but not individuals, by extending the instant asset write-off scheme, formally known as ‘temporary full expensing’.
Under this scheme, a business owner can buy a car for work and claim it over one year rather than eight.
The May Budget made a special deal for business owners, but not individuals, by extending the instant asset write-off scheme, formally known as ‘temporary full expensing’. This means they can claim the cost of a new vehicle over one year rather than eight (pictured is a Mazda BT-50 dual cab ute)
This meant a business owner who made a $200,000 annual profit could buy a $40,000 ute and thereby reduce their taxable earnings to $160,000.
Compared to the old system of only being to deduct $5,000 per year for eight years, the new instant asset write-off would leave the claimant $35,000 better off.
There is a cap on the claimable amount – business owners can only claim a deduction for a car worth up to $59,136 before GST, and that does include delivery vans and motorbikes.
Mr Johnston said that limit related to passenger cars and SUVs but not utes and vans.
‘If it’s for a ute or a van or a commercial vehicle, the depreciation cost limit doesn’t apply,’ he said.
‘It’s only for station wagons and four-wheel drives, sedans and so forth.’
For assets other than family cars, the threshold is $150,000.
But there is now no limit on the overall total cost of assets that can be claimed.
The instant asset write-off can be used on a wide range of assets, from new tables and chairs for cafe owners to laptops for accountants, along with EFTPOS machines, tools and equipment.