You have questions, we have answers.
This end of financial year may feel different from previous ones. You might be experiencing reduced working hours or find yourself unemployed, maybe you are working from home more, or as a landlord you could be incurring more out of pocket expenses as tenants struggle with affordability.
As the end of another tax year rapidly approaches on 30 June, we have collated some EOFY FAQs to help you maximise tax time benefits.
Question: I worked from home before COVID-19 and my work pattern has not changed as a result. Am I entitled to claim the shortcut rate of 80 cents per work hour for my additional running expenses?
Yes, the new shortcut method can be used for all individuals working from home. Even those who worked from home prior to the COVID-19 pandemic. Be aware that the shortcut method only applies to those hours worked between 1 March and 30 June 2020. Taxpayers can also choose to continue to claim using existing methods which are outlined below.
- the work-related portion of your actual expenses
- the fixed rate of 52 cents per hour plus the work-related portion of expenses not covered by that rate
Please get in touch with your Banks Group client service contact to find out which is the most appropriate method for your circumstances.
Question: If I claim my actual running expenses, what records do I need to keep?
Taxpayers will need to retain receipts for expenses, in addition to the records showing all work-related use. This method requires individuals to calculate the size of their home in addition to the size of the work-related space. Remember to also include the total of household running expenses (electricity and gas).
To apply this method, taxpayers will need to calculate the business percentage by dividing the area of work-related space by the total house area, then multiply this rate against the total costs. This is the amount that may be claimed.
Click here to access the ATO’s working from home calculator.
Question: If I suspend my private health insurance due to losing my job and my income for Medicare Levy Surcharge (MLS) purposes is above the threshold, will I be liable for MLS?
If you and all of your dependents were not covered by an appropriate level of private patient hospital cover, and your income for MLS thresholds is either met or above, you may still be required to pay the surcharge. The rate depends on your income for the surcharge threshold. This applies unless you (and your dependents if you have them) are exempt from paying the Medicare levy. Click here to find out more about the Medicare Levy Surcharge exemption.
Question: If I lose my job and suspend my private health insurance part way through the year, will I get a partial exemption from the Medicare Levy Surcharge (MLS) if my income for MLS purposes is above the threshold?
If you hold hospital cover but temporarily suspend payments for that cover, then you may have to pay the surcharge for the days that the private health cover was not in force. This will be determined from the information the health provider and the taxpayer provide to the ATO.
Question: I have lost my job as a result of COVID-19 and have found another job. Will I be taxed at a higher rate because it is considered a second job?
No – if you have lost your job, then you are entitled to claim the tax-free threshold to reduce the amount of tax that is withheld from your pay from the new job.
Remember to tell the new employer that you want to claim the tax-free threshold by answering ‘Yes’ to the question, ‘Do you want to claim the tax-free threshold from this payer?’.
Click here to calculate how much tax the employer will withhold from your payment.
Question: I am not an Australian resident and I am staying in Australia for longer than I expected because of COVID-19. What are my Australian tax obligations?
You may need to lodge an Australian tax return if you earn any assessable income from an Australian source. Your Australian tax obligations generally remain unchanged as a taxpayer’s salary, wages, investment income etc will still be assessed.
All foreign-sourced income will also be assessable unless you are a temporary Australian resident.
Tax matters can be complicated, so please don’t hesitate to seek advice from your Banks Group client service contact.
Question: Will my tax residency for tax purposes change as a result of me returning to Australia due to COVID-19?
Determining whether you are a resident for tax purposes in Australia is dependent on your individual circumstances. If an individual is here temporarily because of COVID-19, then the individual will not be considered an Australian resident for tax purposes if they:
- usually live overseas permanently
- intend to return overseas when able to do so
It is important to consider that the following circumstances may complicate the matter if the individual:
- ends up staying in Australia for a lengthy period
- does not plan to return to their country of residency when able to do so
Please contact your Banks Group client service contact for further advice regarding your specific circumstances and potential tax outcomes.
Question: What happens if I earn employment income from paid leave while I am in Australia temporarily?
Those who usually work overseas and earn foreign-source employment income may need to declare it in Australia. For those who have been on leave since arriving in Australia and are receiving foreign income from paid leave (such as annual or holiday leave) may be considered foreign-sourced income.
Check with your Banks Group client service contact to find out what is most appropriate for your circumstances.
Question: What happens if I earn employment income that is salary and wages from continuing my foreign employment (working remotely) while I am in Australia temporarily?
Income is deemed assessable based on whether it is from an Australian or a foreign source. It also depends on whether a double tax agreement applies with the country paying the income. The place where the employment is exercised is very significant when deciding the source of income.
However, COVID-19 has created a special set of circumstances that must be taken into consideration when deeming assessable income for a non-resident who usually works overseas. In a situation where the work is performed in Australia for another country and the arrangement is short term (three months or less), the employment income will not be considered to be coming from an Australian source.
Question: What if I get a wage or salary in Australia and my home country has a double tax agreement with Australia?
Employment income derived by a person who is a resident of another country (after applying the double tax arrangements (DTA) tie-breaker rules) and is performing duties in Australia for a short period will not be taxed in Australia. DTAs must be confirmed before assuming this is the case as the wording, conditions and time periods vary from agreement to agreement.
Generally, employment income will not be taxed in Australia if:
- you are a resident of a country with which Australia has a DTA (the DTA country)
- you are not present in Australia for more than 183 days in aggregate in either an income year or a 12-month period (depending on the applicable DTA)
- your salary and wages are paid to you by, or on behalf of, an employer that is not a resident of Australia
- your salary and wages are not deductible against the profits of an Australian permanent establishment of your employer
Check with your Banks Group client service contact to find out more.
Question: I am working overseas because of COVID-19. What are my Australian tax obligations?
If you usually live and work in Australia but you are temporarily overseas as a result of COVID-19, there is no change to your Australian tax obligations.
Question: If the bank defers loan repayments for a period of time as a result of COVID-19, can I continue to claim interest on the loan as a deduction?
Yes. If interest continues to accumulate on your loan, it remains deductible. Even if the bank defers the repayments.
Question: I use personal superannuation strategies to build my retirement nest egg which also has a positive impact on my tax position. Are there any other strategies I should be considering?
- Government Co-contributionsSuperannuation co-contributions help eligible individuals boost their retirement savings. For those who are low or middle-income earners and make personal (after-tax) contributions to superannuation, the Government may also make a contribution up to a maximum of $500 per financial year.The amount the Government contributes will depend on your income and how much after-tax contributions have been made to the fund during the financial year. You do not need to apply for the super co-contribution. When you lodge your tax return, the Government will work out if you are eligible.If your total income is equal to or lower than the threshold of $38,564 and you make an after-tax contribution of $1,000 to your superannuation account, the maximum Government contribution will apply. If your total income is between the lower threshold and the higher threshold of $53,564, your maximum entitlement will reduce progressively as your income rises.
There are other eligibility criteria to be aware of. Click here to find out more or talk to your Banks Group client service contact to obtain advice specific to your circumstances.
- Boosting a spouse’s super and reduce taxIf your spouse earns low or no income, you may be able to make a superannuation contribution and obtain a tax offset. The spouse’s assessable income needs to be equal to or less than $37,000 for the financial year for the full tax offset to apply. Contribution limits are aligned to the spouse’s contribution caps and are on a scaled basis, phasing out when their income reaches $40,000.There are other eligibility criteria to be aware of. Click here to find out more or talk to your Banks Group client service contact to obtain advice specific to your circumstances.
Question: Can I access the money inside super at a later date if I need it?
Before adding to super, keep in mind that the money will be inaccessible until certain conditions are met.
There are also caps on how much can be contributed to super each year. It is important to take the caps into account as penalties may apply if exceeded.
Make sure any contributions are received before 30 June to claim a deduction or offset for that financial year. With electronic transfers (including BPAY), the contribution takes effect the day the super fund receives the money, not the day of transfer.
Don’t leave it to the last minute – talk to Banks Group today about maximising your superannuation contribution caps.
If you have any further questions, please do not hesitate to contact your client service contact at Banks Group.
This article is intended for general discussion and is not intended to represent specific advice. Banks Group shall not be responsible for any entity that acts on any of the comments in this article without first obtaining specific advice from Banks Group.