Individual Tax Returns: Tax Tips FY19
The time has come to start preparing for your 2019 tax return. There are a couple of key areas of interest and changes that you should be aware of.
The ATO has told us that they have two key areas of focus this financial year:
- Work related deductions, and
- Rental property deductions.
There has also been changes to Superannuation for the 2018-19 financial year that allow you to carry forward your unused concessional contributions for superannuation. This is an excellent concession to help you top up your superannuation.
Keep reading for more details of what to expect or call us on 02 8378 2421 to book in appointment with your tax advisor today.
Work related deductions
Last financial year, over 8.8 million taxpayers claimed $21.98 billion in deductions for work related expenses. It’s an area under intense review by the Australian Taxation Office (ATO). If you claim work-related deductions, it’s important to ensure that you are able to substantiate any claim you make.
To claim a deduction:
- You need to have incurred the expense yourself and not been reimbursed by your employer or business
- You need a record proving you incurred the expense, and
- The expense has to be directly related to how you earn your income – that is, the expense is directly related to your work. This also means ensuring that you only claim the work-related portion of items you use personally, such as mobile phones or internet services.
When you don’t have to keep receipts
If your claim for work related deductions is below $300 you do not have to keep a receipt for the expense. Work-related clothing has a $150 record keeping limit.
However, the ATO is concerned that taxpayers are ‘automatically’ claiming these deductions without incurring any expenses because of a belief that you don’t have to support the claim. If you have claimed an amount up to the record keeping threshold, you may find that the ATO will ask you to explain how you came to that amount. If you don’t have diary entries or a good explanation, your claim might be denied.
Working from home
If you don’t have a dedicated work area but you do some work on the couch or at the dining room table, you can claim some of your expenses, like the work-related portion of your phone and internet bills, and the decline in value of your computer. If you have a dedicated work area, there are a few more expenses you can claim, including a portion of your electricity expenses and the decline in value of the rest of your office equipment (such as your office desk and chair).
If your home is your principal place of business, you might be able to claim expenses related to the portion of your home used for your business. What the ATO is looking for is an identifiable area of the home used for business.
Ensure any claims are in proportion to the work-related use. You can’t, for example, claim all of your internet expenses because you do a bit of work from home in the evenings and need the internet.
Work related clothing
In general, you cannot claim the cost of your work clothes or dry cleaning expenses unless the clothes are occupation-specific, such as chefs’ whites or a uniform with a logo, or protective gear because your workplace has hazards (note that jeans don’t count as protective wear). Just because you have to wear a suit to work does not make it deductible.
A note about payment summaries
Payment summaries from your employer are becoming redundant. If your employer uses single touch payroll, they will not provide you with a payment summary. Instead, you will be able to access an Income Statement from myGov (my.gov.au). For those working with smaller employers, you will receive a payment summary this year, before shifting to an Income Statement for 2019-20.
Rental property deductions
In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions. The ATO believes that is too much – one in ten is estimated to contain errors.
What you can claim for your rental property has been significantly curbed. For example, you can no longer claim deductions for the cost of travel you incur relating to a residential rental property, such as travelling to inspect the property. You can also no longer claim depreciation deductions for second-hand plant and equipment. Previously, for example, you could buy a rental property from someone else and then claim depreciation on the assets already in the property such as the kitchen appliances and carpet. From 1 July 2017, you can only claim deductions for assets you purchase new and install in the property.
4,500 audits of rental property deductions will be undertaken this year with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing. Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim.
When you own a share in a property
Rental income and expenses need to be recognised for tax purposes in line with the legal ownership of the property, except in very limited circumstances. This means that if you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns even if you pay most or all of the rental property expenses (the ATO would treat this as a private arrangement between the owners).
The main exception is that if the parties have separately borrowed money to acquire their interest in the property then they would claim their own interest deductions.
Superannuation changes: carry forward unused concessional contributions
- Have a total superannuation balance below $500,000 as at 30 June; and
- Have not utilised your entire concessional contributions cap ($25,000) for the year,
then you can ‘carry forward’ the unused amount on a rolling five-year basis.
Concessional contributions include employer contributions (super guarantee and salary sacrifice) and personal contributions where you have claimed a tax deduction.
2018-19 is the first year where these amounts can be carried forward. For example, if your total concessional contributions in the 2018-19 financial year were $10,000 and you meet the eligibility criteria, then you can carry forward the unused $15,000 over the next five years. You may then be able to make a higher deductible personal contribution in a later financial year. If you are selling an asset and you are likely to make a taxable capital gain, a higher deductible personal contribution may assist in reducing your tax liability in the year of sale.
- Your total superannuation balance must be below $500,000 as at 30 June of the prior year before you utilise any carried forward amount (within the five-year term); and
- In some cases, an additional 15% tax can apply (30% total) to concessional contributions made to super where income and concessional contributions exceeds certain thresholds ($250,000 in 2018-19). Your income could be higher than usual in the year when you sell an asset for a capital gain, for example.
This is an excellent concession to help you top up your superannuation, especially where you are out of the workforce for a period.