What you need to know about your 2019/20 Australian tax return, WFH deductions and Coronavirus.

Coronavirus has hit ‘pause’ on so much in 2020, you’d be forgiven for thinking it’s still mid-April. And yet, here we are, already embarked on the new financial year in Australia. And that means it’s time to turn your mind to the one that’s been, and get ready to lodge your Australian tax return.

Coronavirus has touched every facet of our lives. And if you’re wondering does coronavirus affect your 2019/20 Australian tax return? The answer is: definitely yes.

So, we’ve pulled together a handy FAQ addressing your questions about your tax return, JobKeeper and the coronavirus stimulus measures, how to claim for expenses and working from home tax deductions, and much more.

Read on for what you need to know before lodging your tax return.

How are JobKeeper payments taxed?

JobKeeper payments are made directly by the Australian Government to employers for eligible employees. As a business, JobKeeper payments made to you are taxed as income.

If you’ve been deemed an eligible employee and your employer has been receiving JobKeeper payments, you likely won’t have noticed any change at all (except that you’ve miraculously kept your job through coronavirus – well done you!). As an eligible employee, you’ll be paid a salary directly by your employer. These payments will appear on your Income Statement and are treated as taxable income.

How are JobSeeker payments taxed?

If you’ve been receiving JobSeeker, these payments are treated as taxable income.

You will need to disclose these payments on your tax return at the Australian Government allowances and payments section.

How might coronavirus affect my 2019/20 Australian tax return?

Coronavirus may impact your tax position and subsequent refund or liability.

For example, if your overall annual hours were lower than expected due to a job loss or reduced hours in the wake of coronavirus, there’s a chance your employer will have over-deducted your tax for the year. This means you could be in for a refund.

To determine how much tax should have been withheld for you during the year, have a look at the ATO’s Tax Withheld Calculator.

How has COVID affected the Instant Asset Write-Off?

If you operate under your own ABN, you can claim an Instant Asset Write-Off for assets under $150,000 that were purchased from March 2020 onwards.

Both new and secondhand assets can be claimed, provided they have been purchased for and used by your business to generate income, and you can support the purchase with receipts.

So that side-hustle you got on its feet during lockdown? It’s looking like a better idea with every passing moment.

What is the automatic Low and Middle Income Earner Tax Offset?

The automatic Low and Middle Income Earner Tax Offset will provide up to $1,080 tax relief, depending on your income and how much tax you paid during the year.

This tax offset can effectively reduce the tax you pay to zero, but any unused offset amount will not be refunded to you.

Am I eligible for the automatic tax offset?

You are eligible for the automatic tax offset if you earned up to $126,000 for the year.

Those with annual incomes below $37,000 will receive $225 in tax offset, and those with earnings between $37,001 and $126,000 will receive up to the full amount of $1,080. If you’re earning more than $126,000, you will not be eligible for the automatic tax offset.

How do I apply for the automatic tax offset?

You do not need to apply for the automatic tax offset. The ATO will automatically add it to your tax return once it has been lodged and assessed. The offset amount (if any) will appear on your Notice of Assessment.

What you can and can’t claim when working from home is confusing at the best of times. With so many of us working remotely due to coronavirus, the 2019-2020 financial year will be no different.

As with any area in tax, it’s best to get good advice that looks at your personal circumstances. You may find you’re eligible for a host of different deductions this year – so don’t just go on what your friends, family or colleagues are doing.

How has coronavirus affected expense claims and tax deductions?

Coronavirus, and its related restrictions, has caused a sudden and dramatic shift in the way people work. In turn, occupation-related expense claims and deductions are also on the move.

With the rise of working from home during the 2019-2020 financial year, we’ve seen a sharp increase in the number of home office deductions and the number of people entitled to claim them.

Conversely, we’ve seen a sharp decline in travel expenses, fees for conferences and events, and with some many of us ‘dressed only from the waste up’ at the moment, work-related clothing and uniform costs are down as well.

What makes an expense tax deductible in the eyes of the ATO?

If you want to know if an expense is tax deductible in the eyes of the ATO, follow their three golden rules:

1. you must have spent the money and not have been reimbursed
2. it must be directly relevant to you earning your income, and
3. you must have a record to prove it.

What expenses are claimable for my home office?

Broadly speaking, you can claim for home office expenses, including:

• Utilities – work-related portion of your light, heat, phone and internet bills
• Electronics – expenses for work-related equipment like computers, tablets, extra screens and docking stations, printers and scanners.
• Consumables – printer paper, notebooks, envelopes, printer toner / ink.

Additionally, if you’re working from a dedicated work area like a study or home office, you can also claim for:

• Office furniture – desk, chairs, filing cabinets and lamps
• Cleaning expenses related to your dedicated office area.
• Depreciation – depreciation (decline in value / wear and tear) on fittings like curtains, carpets and light fixtures in your work area.

Here are some common WFH deductions:

The table below is illustrative only and is not exhaustive. It is important to remember that for assets that cost $300 or more, a deduction is claimed over a number of years. This is known as decline in value (or depreciation). To work out how much you can claim each year, refer to the ATO depreciation calculator.

What expenses are not claimable for my home office?

If you’re working from home, you shouldn’t try to claim a tax deduction for:

• Occupancy expenses like your mortgage interest, insurance, rent and rates (see below).
• Things like coffee, tea, milk and other household items your employer may have otherwise provided for you at your usual place of work.
• Costs related to children and their education, including expenses incurred while setting them up for online learning, teaching them at home or buying equipment such as computers, tablets or desks.

Can I claim a tax deduction for my rent or mortgage payments?

Broadly speaking, it’s unwise to claim a tax deduction for occupancy expenses like rent, rates or mortgage payments without specific advice from your tax accountant.

Technically, whether occupancy expenses are claimable really comes down to whether you rent or own your property.

If you are renting your home and have a dedicated home office or work area within it, you are able to claim a percentage of your rent based on the number of rooms in your property. For example, if you have 5 rooms in your home (including the kitchen and bathroom), and one of those rooms is your dedicated work area, you can claim 20% of your rent as an expense.

If you own your property, however, claiming mortgage repayments is unwise as it can trigger Capital Gains Tax.

Improperly claiming occupancy expenses can cause serious ripple effects, so speak with a professional before doing so.

Can I claim a tax deduction for cleaning services?

If you have a dedicated home office, you’re able to claim for the work-related portion of your cleaning costs if you claim using the Actual Expenses Method.

See this article for more information.

What if I was required to work in an office or workplace during coronavirus? Is anything special covered?
Can I claim a tax deduction for personal protective equipment?

If you were required to work from your usual office or workplace during coronavirus and needed to purchase additional clothing or equipment, you can claim this as a tax deduction.

For example, if you were required to buy your own personal protective equipment (PPE) like gloves, masks or gowns, these would be claimable expenses.

If you receive an allowance for the purchase or cleaning of occupation-related clothing or equipment from your employer, you need to disclose this as income on your tax return.

How do I calculate my expenses for working from home?

The ATO allows for three ways to calculate possible deductions:

1. Temporary Shortcut Method
2. Fixed-Rate Method
3. Actual Expenses Method

Taking a bit of time to consider the correct method for your circumstances is useful. Each method has its benefits and drawbacks and different record-keeping requirements. They are explained briefly below and in much greater detail in this article.

Speak to your accountant if you have any questions or want to clarify the best way forward for you.

Temporary Shortcut Method.

Given the many people working from home during coronavirus, the ATO has created a simplified Shortcut Method for calculating your expenses.

• Applies for the period 1 March – 30 June 2020.
• This flat-rate deduction allows for $0.80 per hour for work done at home.
• You need to keep a timesheet or diary which records the number of hours you have worked from home.
• You do not need to have a dedicated workspace to claim a deduction. You can do so whether you’ve been working from a home office or a more impromptu set up like your lounge room or dining table.
• If you share a workspace with a spouse or housemate, you can both claim the deduction without issue.
• If you use this method, you cannot claim any other expenses for working from home (like electricity, water or gas, phone or internet services, depreciation of furniture or equipment).

Fixed-Rate Method.

• This flat-rate deduction allows for $0.52 per hour for work done at home to cover the costs of heating, cooling and lighting, depreciation of and/or repair to furniture and equipment in your home office.
• For this Method, you need to be working from a dedicated study or home office.
• You need to keep a timesheet or diary of:
  – your actual hours spent working at home for the year; OR
  – for a representative four-week period to show your usual pattern of working at home.
• When using this Method, you may also claim separately for other expenses like your home internet and phone bills, the decline in value of equipment (depreciation), and other costs that directly relate to your work like stationery and consumables.

Actual Expenses Method.

• This Method allows you to calculate the actual expenses incurred while working from home, whether from a dedicated home office or make-shift work space.
• You need to keep a timesheet or diary of:
  – your actual hours spent working at home for the year; OR
  – for a representative four-week period to show your usual pattern of working at home.
• You also need to keep:
  – copies of your bills;
  – receipts showing the amount you spent on purchased assets;
  – receipts for stationery and consumables;
  – diary entries to record your small expenses ($10 or less) totalling no more than $200, or expenses for which you cannot get any kind of evidence.
• You will need to determine your deductible percentage – that is how much floor area your workspace takes up, as a percentage of your whole home (to do this, divide the size of your study/work area by the total square metres of your house).
• Then you can calculate the work-related portion of your household utilities like gas and electricity. You do this by totalling your bills and multiplying this figure by your deductible percentage.
• For items like phone and internet, you need to work through your itemised bill to determine your percentage of work-use over the course of the year or your representative four-week period.
• You need to account for non-business or shared use of your home office and equipment, and apportion your expenses accordingly.
• When using this Method, you also claim other expenses that directly relate to your work like stationery and consumables. For assets costing $300 or more, you will need to account for depreciation.

Which method should I use for calculating my expenses and working from home tax deductions?

Which method you use for calculating your expenses and subsequent tax deduction is up to you.

You might try calculating your expenses using a couple of methods and see what is best for your circumstances.

For example, while the Shortcut Method is simple to calculate and needs little in the way of substantiation, it’s a blunt instrument and doesn’t really cover all that much. $0.80 per hour works out to only $6.40 per day for an eight hour day – even if you’re working from home full-time, this deduction would barely cover even the most basic phone and internet plans, let alone your increased heating, cooling and electricity costs. In this case, it might be worth looking at the other methods.

In summary, you can use the method or methods that will give you the best outcome, as long as you meet the working criteria and record keeping requirements stated by the ATO.

Do I need a dedicated home office to claim working from home deductions? Can I claim expenses if I’ve been working from my dining table?

If you don’t have a dedicated home office space, and are say, working from your lounge room or dining table, never fear! You can still claim working from home expenses using the temporary Shortcut Method ($0.80 / hour for the hours worked from home) or the Actual Expense Method.

If you have a dedicated home office, you can claim working from home deductions using the temporary Shortcut Method, Fixed-Rate Method or Actual Expense Method.

Should I do my own tax return or do I need a tax accountant to help?

If your needs are pretty simple, lodging your own tax return is definitely possible. The big question is whether actually doing it is a smart use of your time, and how you’ll be sure you won’t miss important opportunities to improve your tax position. Moreover, if learning about your money (beyond tax) is important to you, it’s probably worthwhile investing in your relationship with a professional adviser.

We’d highly recommend seeking the assistance of an accountant if you:

• need to lodge tax returns for multiple years.
• are wondering what else you could or should be doing with your money.
• want certainty you’ve included all possible deductions and considered your tax strategically.
• have several different types of income for the year. For example, it’s possible to have gotten your usual salary, JobKeeper, a redundancy, JobSeeker and received income protection payouts – just in the course of this past year, as a result of COVID. Each of these income sources are subject to different terms, reporting requirements and tax. So keep that in mind.
• may find it difficult to pay your tax bill or want to discuss a payment plan with the ATO.
• need or would like someone to advocate for you with the ATO.

What is the deadline for lodging my 2019/2020 tax return with the Australian Tax Office?

If you’ve decided to complete your own tax return, you will need to have lodged it with the ATO by 31 October 2020.

If you plan on working with a tax accountant, you’ll get more time to lodge your return but you do need to have engaged the accountant’s services before 31 October 2020 to be included on their lodgement list.

How long do I need to keep my financial records and receipts?

Generally speaking, supporting evidence and records should be retained for five years from the date you lodge your tax return. There are some special circumstances and exceptions to this rule which you can read about here.

Paper vs digital: Do I need to keep my paper receipts? Or can I keep my financial records digitally?

You do not need to retain the original paper receipts if you prefer to keep your records in digital format. For example, you are free to take and save a photograph of an original receipt, rather than retain the paper receipt itself.

If you make paper or digital copies of original documents, they must be a true and clear copy of the original.

Always remember to backup your digital records.

What are good apps for keeping my receipts or tracking my expenses throughout the year?

There are lots of good apps for keeping track of your receipts and expenses throughout the year.

If you’re an employee, you might find the ATO’s myDeductions App handy. This tool allows you to keep records of your work and general expenses and should make lodging your tax return quicker come the end of the year.

If you’re operating a business, we always recommend Xero and the add-on Hubdoc which allows you to track your bills and expenses, link accounts for automatic entry, and sync with your accounting system for a real-time understanding of where you’re at. If your business needs assistance transitioning to Xero or related add-ons, sing out. We’ve got over a decade of experience with Xero, we’re Gold Champion Partners, Xero Adviser Certified and Xero Payroll Certified.