Glen Forsyth
1 July 2020
It’s the end of the financial year, and you are collecting all those bits of paper, and time to prepare your 2020 tax return. There’s lots of distractions, you are working out what COVID-19 benefits you can claim, your head is spinning, and it’s time for a meal. Stop, deep breaths, relax, let’s chat about all things tax and EOFY.
A Tax Return in a nutshell, is the calculations of what income you made, and what expenses you had that were related to that income. The difference is your taxable income, and this is what you pay tax on.
Income for Australian tax return purposes
When you prepare your 2020 tax return for the ATO, you have to think about ALL of your income, not just your main employment income.
Most Australians fit into one or more of these three common incomes;
- Normal salary and wages;
- bank interest, and;
- capital gains or losses on shares.
You need to ensure that you include all the jobs you have worked for, between 1 July 2019 to 30 June 2020. If you don’t have your employment details in myGov or in a payment summary, you can contact your employer and ask for a payment summary, which has the information you need to fulfill your tax return. When completing the return form, it is important to choose the right occupation where you earn the most income.
Pretty much every single Australian has a bank account and most of these banking products receive some interest during the year. You can find out how much interest you have received for this financial year from your bank statements.
If you own shares, and have received any dividends, that’s income too. If you have sold any of those shares during the 2020 financial year, you have realised capital gains or losses, which must be reported.
If you receive payments from Centrelink, such as JobSeeker or youth allowance, pensions, etc. Income also includes if you receive an income stream or payouts from your superannuation fund or self-managed super fund.
If you own a rental property, you would have rental income or losses you want to claim this year as well.
Finally, if you received any other type of income that I haven’t mentioned before, such as sole trader or business income, that’s also income that must be declared.
Deductions for Australian tax return purposes
You can include deductions on your 2020 tax return in various areas, such as work related expenses, health insurance, education, donations and similar.
Medicare levy and private health insurance if you have any private health insurance.To avoid the Medicare levy surcharge, if you do have a private health insurance cover you can avoid it.
Then there is information for any child support you have paid for your child or dependent children. You can also claim the cost if you have paid an accountant last year to manage your tax return.
There are also donations, if you have made donations during the 2020 financial year, you can claim it.
Then there are all the many work-related expenses.
You can claim work related car expenses if you travel between two jobs. You can’t claim the car expenses for the trip from your home to work, however if you work for two jobs you can claim the trip between one workplace to another.
There are also work related travel expenses if you occurred taxi costs, flights, bus expenses while you travel for work.
Also, work related clothing, laundry and dry cleaning expenses if you have a compulsory work uniform or occupation specific clothing, such as nurse uniform or construction safety helmet, etc.
Then there is work-related self-education expenses. If the expense directly improves your skill at your workplace or could potential result in increase of your salary.
There is also work related phone and internet expense in the home office. Only if you use your phone for work purposes, for example calling your managers or you use the internet to check the roster.
There are other work related expenses so you can claim as well, such any expenses that’s related to your workplace that you hadn’t get reimbursed from and you have any sort of evidence to prove.
Firstly, what should Australians like you be doing to get ready for the end of financial year?
I think the first point is just to gather your information and just preview your financial affairs that you have. Maybe starting point is sorting your incoming expenses which is basically showing you the net profit of the year. Much of the time, we don’t even know what we’ve made for the year. It’s good for you to pat yourself on the back for a job well done. You’ve probably got some bank statements gathering dust, any and all of your donations for the year, some work-related deductions keeping all your receipts and also a summary of the assets that you own and any debts that you have.
So that’s a range of paperwork, and the best way to store all of that documentation is not to get a shoe box, but put everything online instead. Taxpayers are becoming more sophisticated by using online software but you can use things like Google Drive or Dropbox to store your important documents.
The classic example that I have is when you make a donation usually you’ll get an email receipt or anything that you tend to do even if you pay your subscription to membership they’ll send you an email receipt. Just store that in a folder and you know label it tax and then share a link at the end of the year to your accountant if you have one.
What commonly missed deductions should Australians be thinking about, especially for their 2020 tax return?
I think there’s a few and that obviously comes down to what you do but some general ones a home office now we’re finding that clients using their home for their place of work and it isn’t often a tricky one but where you do use it you can claim things like the running expenses and keeping the count of your phone your internet and just keeping a diary of at least the number of hours that we spent using your study but it is a tricky one so just make sure you check with the accountant some of the expenses you can claim but other expenses like work-related deductions that aren’t green burst from your employer
Things like you’ve got the subscriptions income protection insurance any depreciation for assets that you’ve used within the business and donations another one especially given this time of year we’re all getting invited to gala dinner and auction events but just be careful with things like the donations just because if you do get something back you can’t actually claim it and making sure that you’re donating to registered charities.
What should Australian small business owners be thinking about when preparing their return?
I think the number one thing is just making sure like I think a lot of our clients they start off being salt traders they start off with an idea that stats are probably like a hobby as you’ve seen and then they’ve suddenly grown more too fast and just reviewing whether that structure is now still suitable for them now that they’ve grown they’re probably selling their products overseas that sole trader stool the best structure for them so it’s just having a chat with the accountant and just making sure they’re reviewing what they’ve done and seeing where they want to head to in the future and also just being careful of other things that can trip you up things like GST and number one when we start off we don’t really hit the threshold level.
If you’ve hit the $75,000 threshold that requires you to register for distance of being aware of that because suddenly your incomes like cut short of the 10% but you thought you had we’ve ended financial you being your grand final yeah are there any things you wish people wouldn’t do that would make your life a whole lot easier it’s always hard to undo things for your 2020 tax return.
I think before you ever enter into a contract purchase or invest in real estate, or make that large donation to a charity always best to just check with the accountant you know is that right but the other thing is I think clients tend not to plan for their tax a lot of times these clients have come from traditional salary wage earners and traditional jobs where they never had to account for tax and the next thing you know they’re earning blood tons of money and the tax is not taking care of until the end of the year
You want to make sure you’ve got enough cash for the tax and planning for that you don’t even want to get the call when I have to call you up and tell you for this large eighty thousand or tax bill and you’re going oh my god how am I going to actually fund that so it’s always best to sort of plan ahead and that’s something I always recommend, which is forecast twelve months in advance and come up with a plan of some of their lodgement dates and also some upcoming tax payments that they all need to make so it’s sort of cash flow I guess.
