COVID-19 has impacted upon the lives and businesses of all Australians. With tax time upon us, the ATO continues its focus on rental property and work-related deductions while taking a sympathetic approach to struggling taxpayers.
By Elinor Kasapidis
Tax time 2020 has commenced in a year like no other. With COVID-19 affecting the livelihoods of many Australians, taxpayers may confront issues or be able to access concessions that previously weren’t on their radar.
Gavin Swan FCPA, director of Absolute Accounting Services, says: “We are already lodging tax returns for our clients, which is much earlier than usual. The reasons for the earlier lodgment include accessing refunds and being prepared for 2020-21 in terms of setting instalments and wages.
“Many businesses are doing a financial health-check at the same time as doing their taxes. This helps them to be prepared for any further government benefits and to have their taxes in order when discussing loans and credit facilities with their bank.
“A major portion of tax-related work was completed as part of assessing eligibility for JobKeeper and the cash flow boost, so it is not too much additional work to finalise the 2019-20 tax affairs for many of our clients.”
Challenges for rental property investors
Investors may have experienced significant changes to their rental property incomes or the availability of their properties for rent because of COVID-19. With many landlords providing deferrals to tenants for rent payments while being able to claim their usual expenses including interest, even if payments have been deferred by the bank, an increase in negatively geared properties is expected.
Of course, rental insurance payouts for loss of income do need to be declared and reductions in rent must be charged at market prices, recognising that current market conditions are quite different at the moment.
“Without good records, you will find it difficult to declare all your rental-related income in your tax return and work out what expenses you can claim as deductions,” says ATO Assistant Commissioner Karen Foat.
Work-related expenses still on the radar
This year, the ATO has introduced a shortcut method to claim deductions between 1 March 2020 and 30 June 2020 for work from home expenses at A80 cents per hour.
“It’s important to remember that if you’re claiming under the shortcut method, you cannot claim a separate additional deduction for any expenses you incur as a result of working from home,” says Foat.
Talking about the top tax time myths, Foat warns: “If you are working from home due to COVID-19, but need to travel to your regular office sometimes, you still cannot claim the cost of travel from home to work as these are still private expenses. Even though you are working from home, your home is still a private residence – it is not a ‘place of business’.”
Employees can still use the established fixed rate and actual cost methods to claim work from home expenses and these will need to be used to claim for the preceding eight months.
The ATO expects a significant reduction in claims for motor vehicle and travel expenses due to the restrictions imposed due to the crisis and will continue to monitor unusual or unexpected claims.
Remember the three golden rules for work-related expense claims:
- You must have spent the money yourself and not have been reimbursed
- It must be directly related to earning your income
- You must have a record to substantiate the claim
Increased instant asset write-off amounts
As part of the COVID-19 stimulus measures, a key feature for small business is the instant asset write-off which the government increased to A$150,000 for assets installed and ready for use from 12 March 2020, with a A$30,000 limit for assets purchased prior to that date.
If the balance of the small business pool is less than A$150,000 at 30 June 2020, before applying depreciation deductions, a deduction can be claimed for the full balance.
The ATO cautions that for businesses that purchased a car the instant asset write-off is limited to the business portion of the car limit of A$57,581 for the 2019–20 income tax year. The excess cost of the car cannot be claimed under any other depreciation rules.
Accelerated depreciation is available for asset purchases that exceed the A$150,000 threshold. For small businesses with an aggregated turnover of less than A$10 million this means an amount equal to 57.5 per cent (rather than 15 per cent) of a new depreciating asset can be claimed in the year the asset is added to the pool.
For those who did not take advantage of the increased instant asset write-off during 2019-20 but are still interested in purchasing assets for their business, the government has extended the policy until 31 December 2020.
ATO focusing on COVID-19 compliance
The ATO has signalled it will maintain a focus on claims for COVID-19 stimulus measures with ATO Deputy Commissioner Will Day saying: “We know the overwhelming majority of Australians are honest, and we’ve worked hard to help those people who are impacted by COVID-19 as quickly as possible. We also have an important role to ensure the integrity of the stimulus measures and when we uncover fraud or people seeking to exploit them, we’ll take action, as we know the community would expect us to do.
“We will be conducting checks, so if you've received a benefit as part of the COVID-19 stimulus measures and we discover you are ineligible, you can expect to hear from us.”
This includes early access to superannuation where applicants were not eligible or withdrew and recontributed super for a tax advantage, cash flow boost claims with fictitious employees or overstated amounts and JobKeeper arrangements such as payments to people who do not meet the eligibility requirements or falsifying records or revising activity statements to meet the fall in turnover test.
If you are having difficulty paying your tax, contact the ATO as early as possible to discuss your situation as there are a range of options to support you.
The ATO may be able to defer your income tax payment due dates up to 12 September 2020, stopping interest accruing on your tax liabilities and provide low interest payment arrangements.
For businesses in financial difficulty, the ATO provides a range of support options that can be tailored to your situation. There are also services to assist individuals facing financial difficulties or serious hardship.