The end of the tax year is right around the corner and though you may be dreading 30 June, there are things you can do to feel better prepared and make the most of your tax deductions. Because this year has been different for many people in terms of their employment situation, there are changes to tax reporting that may affect you.
Here are some things to know about your income, deductions and home office expenses.
1. Your income
Generally speaking, your income is money you earn from your employer in salary or wages, or the income you earn as a self-employed person from your business. However, there are other items included in income that people often forget. When you file your taxes, be sure your reported income includes:
- Employment income
- Personal services income
- Crowdfunding income
- Sharing economy and tax income
- Investment income
- Government payments
- Termination payments
- Bank interest
- Prizes and awards
- Income from rental property
- Foreign income
- Capital gains
- Managed funds income
- Discounted shares under employee share schemes
2. Your deductions
Deductions are typically the least understood area of taxes. People often get confused about what they can and cannot deduct, which can result in missing out on important tax breaks.
To qualify as a deduction the expense must be directly related to earning your income; you must be able to prove the expense occurred, for example, with a receipt; and you cannot have been reimbursed by your employer for the expense. In the case of an expense that is both work and private, you can only claim a deduction for the portion that is related to work.
Items that may count as deductions:
- Vehicle expenses
- Travel expenses
- Clothing, laundry and dry-cleaning expenses
- Self-education expenses
- Home office expenses
- Tools and equipment expenses
- Overtime meals
- Union fees
- Client bad debts
- Protective items, equipment and products
- Income protection
- Personal super contributions
- Gifts and donations
3. Your home office expenses
Even if you are an employee, if you work from home you may be able to claim deductions related to the cost of working from your home. These include items such as additional electrical, phone, and internet expenses.
Among the things you can’t claim as deductions:
- Anything your employer pays for or reimburses you for;
- Any decline in value of items your employer provided;
- General household items your employer provides at work (such as snacks);
- Items related to your children and their education; and
- Occupancy expenses such as rent and mortgage (employees typically can’t claim these).
If you are working from home as an employee, you can use one of three methods for calculating your expenses.
The shortcut method allows you to claim 80 cents per hour for every hour you worked from home. You can only use this method to claim expenses from 1 March 2020 through the 2020-2021 income year.
The fixed rate method allows you to claim a deduction for additional running expenses for working from home. In this case, you can claim 52 cents for each hour you worked from home, but you must have a dedicated work area and keep records of time worked, either throughout the year or over a representative four-week period. The fixed rate method also does not include phone or internet expenses, computer consumables or the decline in the value of equipment.
The actual cost method allows you to work out the deduction based on the actual costs incurred working from home. This includes electricity and gas, phone and internet, cleaning and consumables. The exact expenses you can deduct varies, depending on whether you have a dedicated work area.