4TH JUNE, 2020
It’s been an unusual year for business owners and tax payers, and tax time will be even more critical than before. To maximise your tax return, be sure to consider these key deductions.
Between lockdown restrictions, government stimulus measures and the approaching end of the financial year (EOFY), small business owners have already had an incredibly busy year.
But that makes recordkeeping and making thorough tax claims all the more critical in 2020. If you’re running a small business, a rental property owner, or an employee, understanding what you’re able to claim on tax can have serious ramifications for your cash flow and future tax planning.
What can I claim on tax?
When completing your tax return, there are many deductions you can claim against expenses related to your work that people often forget about, but which you can’t afford to overlook in 2020.
Travel expenses, home office expenses, education and even internet and mobile phone connection expenses may be tax deductible — and it’s worth talking to a tax professional to ascertain which apply to you (it’ll help you remain compliant and the cost of tax advice is deductible, too!).
1. Prepay expenses
With tax deductions, every little bit counts. Prepaying your expenses can attract a tax deduction that is commonly overlooked.
Small business owners and rental property owners can prepay expenses such as subscriptions, business travel expenses, training events, leases, rent, phone, internet, insurance and business asset repairs, not exceeding more than one year.
2. Review your stock and inventory
Take a good look at your stock, identify any damaged or obsolete stock and write it down or write it off. This exercise will impact the value of the trading stock and your profit margins.
You will also need to consider how to value your stock trading every financial year, as you may be entitled to a tax deduction when the opening stock exceeds the closing stock.
3. Review your asset acquisition
Does your business you need new or second-hand assets? Well now may be a good time to purchase them.
As part of the Federal Government’s recent Coronavirus Stimulus Package, the Instant Asset Write-Off threshold has increased from $30,000 to $150,000 (net of GST) per asset acquired and now applies to businesses with an aggregated annual turnover of less than $500 million.
This measure will apply to all purchases made from 12 March 2020 to 30 June 2020 where the assets are used, or installed ready for use, in the business by 30 June 2020.
4. Union fees
If you pay these each year, you’re entitled to a tax deduction under D5-Other work related expenses.
Many people have found cause to be exceedingly generous in the past financial year. While this is great, it’s also good to know that your altruism also attracts a tax break.
Donations of $2 or more to an appropriate charitable organisation is tax deductible if you have a receipt.
6. Rental property expenses
Rental property expenses often go unclaimed. The most forgotten deductions are: bank fees, gardening and lawn mowing, pest control, security patrol fees, secretarial and bookkeeping fees, travel and car expenses for rent collection, inspections of property and maintenance can be claimed for all commercial properties and only for residential properties where the landlord is in the business of letting properties. The ATO has announced that rental property expenses can still be claimed in full this year for genuine rental arrangements where the landlord has given the tenant a rental reduction or a rental waiver.
7. Home office expenses
Under COVID-19, many people have been working from home, and this can attract some tax benefits.
If you run a business from home, you may be able to claim “occupancy costs” and the cost of using your personal computer, software, equipment, furniture, lighting, heating and a percentage of your rent/mortgage as a tax deduction.
However, you may not get the full main residence exemption if your home is your principal place of business — for more information visit the ATO website.
Alternatively, if you’re an employee working from home, you may be able to claim a deduction for expenses you incur relating to that work.
There are three ways of calculating home office expenses depending on your circumstances:
- Shortcut method (80 cents) — only available 1 March to 30 June 2020
- Fixed-rate method (52 cents)
- Actual cost method
You must meet the recordkeeping requirements and working criteria to use each method.
8. Income protection insurance
You’re entitled to a tax deduction for insurance premiums paid against the loss of income. Remember though, that this does not include life insurance, trauma insurance or critical care insurance.
9. Work-related car expenses
Business owners and employees who use their personal car for work-related reasons, apart from driving to and from work, can usually claim running costs as a tax deduction where a valid logbook has been kept for a representative period of three months. To be eligible, you must be the owner of the car and your travel must be part of your working day.
For example: driving between offices, special trips to the post office or bank or moving from one job site to another.
10. Internet expenses
If you ever work from home and you have your internet connection in your name, then it’s likely you could claim your internet expenses as a deduction. Estimate your monthly work use as a percentage of the total household use.
11. Mobile phone expenses
As a business owner or an employee, you can claim the cost of your work-related calls, not your entire phone bill. It’s a good idea to keep a logbook of when you use your personal phone, to determine the average percentage of your calls that are work-related.
12. Self-education expenses
You can claim self-education expenses if there’s a direct connection between the course and your role in your business, or your duties as an employee. You could be entitled to a tax deduction for expenses including the following:
- Textbooks, professional and trade journals
- Computer expenses
- Student union fees
- Student services and amenities fees
- Accommodation and meals, only when participating in your course requires you be away from home for one or more nights
- Running expenses if you have a room set aside for self-education purposes – such as the cost of heating, cooling and lighting that room while you are studying in it
13. Cost of managing your tax affairs
Did you use a tax agent to prepare and lodge your tax return last year? If you did, then you can claim the amount you paid last year – on this year’s return.
On your tax return, simply put the amount you paid in 2020 into section D10 – “Cost of Managing Tax Affairs”. The fees you pay for tax return help are always tax deductible.
14. Investment losses and bad debts
Don’t overlook the possibility of claiming an investment loss this year if you’re a share trader as opposed to a share investor. Speak to your financial advisor to discuss steps that can be taken to minimize the impact, and what can be done to help offset the loss against other incomes, such as salaries and wages.
Business owners also need to prove that they have made a genuine attempt to recover any bad debts that may have arisen. Your financial advisor can explain how to document the debt as evidence the amounts were written off before the end of the financial year.