Getting ready for Tax Time
With the end of the 2021 financial year fast approaching, now is the time to get yourself tax ready, review your deductions, ensure you have all receipts and substantiation and review any of those pesky car log books and working from home diaries.
It’s important to to keep records that are up to date and kept for the minimum time required.
The ATO have issued warnings to all taxpayers to beware that they are cracking down on my dodgy deductions with a key interest in car & travel expenses along with working from home expenses. They are diving deep into deductions, so if you want to claim it, you will need to prove it.
In a statement on 20th May 2021, Assistant Commissioner Tim Loh noted that COVID-19 has changed up people’s work habits, therefore we expect their work-related expenses will reflect this.
“We know many people started working from home during COVID-19, so a jump in these claims is expected,” Mr Loh said.
“But, if you are working at home, we would not expect to see claims for travelling between worksites, laundering uniforms or business trips.”
“While it’s good to see most people have been doing the right thing, our data analytics will be on the lookout for unusually high claims this tax time. Particularly where someone’s deductions are much higher than others with a similar job and income.”
“We will also look closely at anyone with significant working from home expenses, that maintains or increases their claims for things like car, travel or clothing expenses.”
“You can’t simply copy and paste previous year’s claims without evidence.”
“But we know some of these unusual claims may be legitimate. So, if you explain your claim with evidence, you have nothing to fear.”
To avoid any back and forth with your accountant or any unexpected invoices for services, ensure you have all your documents organised in one place.
To help you at tax time this coming new financial year, we have put together our key tips and a checklist to assist individual & sole trader returns.
Start with the basics
The basics of all tax returns are the same. As tax agents we can see a lot of basic information. However, to get yourself started:
Review last years tax return
Find out your lodgement due date. These dates start as early as October 2021 and go right through to May/June 2022.
Any personal changes in the year: Address updates, name change, marital or spouse status, number of dependent children
Review your occupation code. Is this still relevant to your current employment?
Spouse details (if applicable or if we do not complete the spouse return)
Private Health information (often we an see this direct from the ATO from August/September onwards)
Gather and list all income:
Employment Income, business and investment income, such as dividends, rental property income and interest received
Gather all expenses:
Work related expenses, donations, cost of managing tax affairs, self education deductions (Must be directly related to your occupation and current employment), business and investment expenses
If you are expecting a refund, please ensure you have provided up to date bank details. BSB and Account Number. The ATO no longer issue cheque’s.
Golden Rules for claiming deductions
No matter your occupation, the rules are the same. If you have incurred an expense that is directly linked to your work or business and you have not been reimbursed for this expenses, you may be able to claim it as a deduction.
The expense MUST have been incurred for your business or work related duties.
You MUST NOT have been reimbursed for the expense by your employer
If the expense is used for a mix of work/business and personal use, you can only claim the work/business portion
You must be able to prove the expense incurred and how you have calculated the work/business portion, (for example, by producing diary records of work-related use)
Working from home expenses
The temporary shortcut method for working from home expenses is available for the full 2020-21 financial year. This allows an all-inclusive rate of 80 cents per hour for every hour people work from home, rather than needing to separately calculate costs for specific expenses.
All you need to do is multiply the hours worked at home by 80 cents, keeping a record such as a timesheet, roster or diary entry that shows the hours your worked.
Remember – the shortcut method is temporary. If you want to claim part of an expense over $300 (such as a desk or computer) in future years, you need to keep your receipt.
Correctly calculate motor vehicle expenses
If you incur motor vehicle expenses when performing your work duties, then you are able to claim vehicle and other travel expenses. You must keep a record of your travel and vehicle expenses.
We strongly recommend, if you use the logbook method, review your current logbook. If your logbook older than 5 years or almost 5 years old, you will need to complete a new logbook. If your circumstances have changed, you may need to start a new log book ready for tax time.
There are two methods to choose from to calculate your car expenses:
A single rate is used. The rate is:
72 cents per kilometer from 1 July 2020
68 cents per kilometer for 2018–19 and 2019–20
66 cents per kilometer for the 2017–18, 2016–17 and 2015–16.
You can claim a maximum of 5,000 business kilometers per car.
You may need to provide written evidence to show how you worked out your business kilometers (for example, by producing diary records of work-related trips).
Where you and another joint owner use the car for separate income-producing purposes, you can each claim up to a maximum of 5,000 business kilometers.
Your claim is based on the business-use percentage of the expenses for the car.
Expenses include running costs and decline in value but not capital costs, such as
the purchase price of your car (this must be depreciated)
the principal on any money borrowed to buy it
any improvement costs. (these must be depreciated)
To calculate your business-use percentage, you need a logbook and the odometer readings for the logbook period. The logbook period is a minimum continuous period of 12 weeks. That 12-week period needs to be representative of your travel throughout the year.
If your circumstances change, such as a change in the type of work undertaken by your business, you may need a new logbook.
You can claim fuel and oil costs based on either your
actual receipts
estimate of the expenses based on odometer records that show readings from the start and the end of the period you had the car during the year.
You need written evidence for all other expenses for the car.
The ATO has extensive guides to help you work our what income and allowances you need to declare and the work-related deductions you may be eligible to claim as a deduction.
Click here to be taken to the ATO Occupation and Inductry Specifiy guide to deductions.
We have created an Income Tx Return checklist for individuals to help make tax time easier. Please find our Mair Mansfield tax time checklist here.
Contact our office to chat to one of team members if you have any questions about your upcoming 2021 tax return.