Tax Deductions For Home Office Expenses
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3 ways to calculate work from home deductions
There are currently 3 ways to calculate working from home deductions for employees:
1. $0.80 per hour
- This has been called the "short-cut method" and was created by the ATO with Covid-19 in mind and applicable only for the period 1 March 2020 to 30 June 2020 (although possibly will be extended)
- Covers everything, such as electricity, gas, office furniture, stationery, phone, internet, computer consumables, cleaning
- You just need to keep notes of the hours working from home, ideally timesheets or diary notes over a four week period
2. $0.52 per hour
- Covers electricity, gas, cleaning, office furniture
- But we work out the following separately: stationery, phone, internet, computer consumables, cleaning
- You just need to keep notes of the hours working from home and all workings re stationery, phone, internet, computer consumables, cleaning
3. Actual costs
- We claim for everything on the basis of usage ideally using timesheets or diary notes over a four week period
- You need to keep all workings re stationery, phone, internet, computer consumables, cleaning
Deductible Personal Contributions
- If you are between 18 and 65 years old and have concessional cap space, you may benefit from a last minute contribution to super.
- Special eligibility rules apply for those under 18 and also check the "work test" for those between 65-75
- The concessional contribution cap for 2019/20 is $25,000, regardless of age.
- Employer mandatory 9.5% super contributions and salary sacrificed amounts typically count towards the concessional cap, contact your super fund for more info and also consider any such contributions which may hit your account before 30th June.
In order to claim the tax deduction, you will need to send a Notice of Intent to Claim a Tax Deduction to your fund AND receive back from the fund an acknowledgement of intent to claim notice by the earlier of:
- The day you lodge your tax return, or
- The end of the following tax year, i.e. 30 June 2021
Also consider the new rules about catching up unused concessional contributions.
- From 1 July 2018, if you have a super balance less than $500,000 and make concessional contributions less than the cap, you may be able to utilise the unused cap space for up to 5 years
Business Tax Planning Basics
- If your business has made a profit in 2019/20, you still have time to legally reduce it with these strategies:
- Consider delaying income to after 1st July 2020 (keep in mind if your income tax is prepared on the "cash" or "accruals" basis)
- Consider bringing forward expenses to before 30th June 2020, such as advertising, training, insurance, stationery, memberships, interest, travel
Up until 30 June 2020 the instant asset write off threshold is $150,000 for businesses with a grouped turnover up to $500 million;
- New or second hand assets
- Special rules apply for cars (car limit for 2019/20 is $57,581, and for 2020/21 its $59,136)
- Does not apply to such assets as (not and exhaustive list): land, buildings, renovations, landscaping, driveways,
- From 1 July 2020 to 31 December 2020 the threshold remains at $150,000 per asset, however only businesses with a grouped turnover of less than $10 million are eligible
- Review your business structure, might now be a good time to convert your sole trader or partnership business into a company or trust?
- Write off any bad debts. The debt must be effectively unrecoverable and actually written off, not just doubtful. You may be required to show your efforts to collect the debt such as whether a letter of demand was sent, or a debt collector engaged to chase a debt.
- Stocktake and make adjustments for obsolete, damaged or missing inventory
- Donations made before 30th June (note: donations cannot create or add to a loss for tax purposes)
- The superannuation amnesty is available for employers up to 7th September 2020. www.ato.gov.au/business/super-for-employers/superannuation-guarantee-amnesty
- Consider reviewing the ATO benchmarks for your industry: www.ato.gov.au/business/small-business-benchmarks let me know if you would like to deep dive into this freely available info
- Each year, consider if your record keeping / bookkeeping system is able to produce meaningful information in real time and let me know if you want to discuss the latest technology available
- And beyond the tax considerations its vitally important right now to consider your business cashflow, especially working capital including ability to access cash via a line of credit. Actively review your accounts receivable for collectability and consider negotiating favourable terms for your accounts payable.
Other Tax Planning Points
Remember that JobKeeper and JobSeeker payments you receive must be included as assessable income in your tax return. They are not tax free.
- However the government's Cashflow Boosts (minimum $10,000 paid to employers) and the early access of super up (maximum $10,000) are both tax free
- Check your 12 week motor vehicle logbooks, they are only valid for 5 years where the pattern of car usage has not changed. Each year you must note the 30th June odometer reading
- If you have sold assets which triggered capital gains this year, consider selling assets in a loss position to reduce the capital gains (consider the CGT discounts and wash-sale arrangement rules, best to call me about this strategy)
Consider the government's super co-contribution.
- In brief, a tax free $500 super contribution from the government if you have made personal non-concessional contribution of at least $1,000 and your income in 2019/20 is less than $38,564.
- There is a phase out calculation if your income is between $38,564 and $53,564, however check the specific definition of "income" for this scheme.
Consider spouse super contributions. You may be able to claim up a tax offset up to $540 if you contribute at least $3,000 into your spouse's super if he/she earns less than $40,000.
- Please note there are various rules surrounding this tax offset that need to be worked through first.
In order to claim a work related tax deduction, in general you must have spent the money, not been reimbursed by your employer, have a record to prove the expense and be able to explain how the expense directly relates to your employment.
- Some expenses are simply not tax deductible, such as normal drivers licence costs and vaccinations.
- New asset purchases, deciding whether to buy outright or to finance before 30th June
The Three Key Tax Minimsation Strategies
I consider the top 3 tax legal minimisation strategies to still be (for 2019/20 and beyond):
- Negatively geared property investing / share investing
Super planning such as:
- Salary sacrifice
- Deductible personal contributions up to the $25,000 concessional cap
- Using your super monies via a Self Managed Super Fund to buy your business premises
- Ensuring you maximise all of your work related expenses and have receipts, invoices and records in case audited