Holding out for that tax return in hopes of a nice financial boost? There’s nothing quite like checking your bank balance and seeing a cash injection courtesy of the Australian Taxation Office (ATO).
Holding out for that tax return in hopes of a nice financial boost? There’s nothing quite like checking your bank balance and seeing a cash injection courtesy of the Australian Taxation Office (ATO).
According to Gerry Incollingo, managing director of accounting specialists LCI Partners, knowing what you can claim is key to amping up your tax return.
Here he offers his advice on how to claim on laundry and clothing, education and super contributions to get the most out of your tax return.
Laundry and clothing
The ATO states you can claim a tax deduction for laundering, dry cleaning, buying, hiring or repairing clothing and footwear if it falls within one of the following categories:
– Occupation-specific clothing
– Protective clothing
– Compulsory uniforms
– Non-compulsory uniforms (but your employer needs to have registered it with AusIndustry)
“Laundry and dry-cleaning services is a little-known tax expense,” says Mr Incollingo. “If your amount claimed is over $150, written evidence of all laundry services must be kept.
“If you did all your own cleaning, you can actually use a reasonable basis to calculate the amount, such as $1 per load for work-related clothing or $0.50 per load for work clothing mixed with other clothing.”
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However, if you are going to make a claim on these items, be warned that the ATO says it closely inspects work-related clothing and laundry expenses and making such a claim could raise a “red flag”.
“We scrutinise claims using sophisticated data analytics which can identify unusual claims by comparing taxpayer claims to others in similar occupations. Our systems will flag claims that are significantly above the expected average and where this occurs the ATO may ask for these claims to be verified,” says Tim Loh, assistant commissioner at the ATO.
According to Mr Loh, at the end of April 2021, 5.7 million people had claimed around $1.56 billion in uniform, clothing and laundry expenses in their 2019-20 tax return, but not all of them were successful.
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Many common misconceptions surround what constitutes work clothing for tax purposes, explains Mr Loh. For example, an official workplace dress codes that requires you to wear a suit, smart black pants, certain colours or even retail fashion employees that are expected to wear items from the latest clothing line, aren’t eligible for a tax deduction. The other big mistake people make is not keeping receipts for work-related clothing.
“One taxpayer made a claim for $6,000 in work-related clothing claims comprising of $2,500 for protective clothing and $3,500 for compulsory uniform,” he explains.
“Our data analytics flagged the claim, and our investigators questioned the taxpayer. The taxpayer claimed that as an arborist, they had to replace their clothing often as they were frequently damaged in the course of their duties. However, the taxpayer failed to provide any evidence of the claim such as receipts or other documents. We removed all claims from their return.”
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Making a successful claim for little-known tax deductions
To successfully claim little-known tax deductions, Mr Loh says there are three “golden rules” – you must have spent the money and not be reimbursed, the expenses you’re claiming must directly relate to earning your income and you must have the receipts to prove it.
“We want to reassure the community that we will be empathetic to and understanding of legitimate mistakes where good faith efforts have been made,” says Mr Loh.
“However, people can expect that we will take firm action and apply penalties where they deliberately try to get away with doing the wrong thing.
“During 2020, the ATO had to shift focus on getting stimulus benefits out the door as quickly as possible to support so many businesses in need. In 2021, we will be continuing to balance our role in supporting taxpayers through this very challenging time, while recommencing our focus on addressing over claiming of work-related expenses.”
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Self-education expenses
To be eligible for a tax deduction on self-education expenses, you must take a course or workshop that directly relates to your current profession, business or trade.
There are a number of conditions, but according to the ATO to be eligible you must satisfy one of these four conditions:
You need to be:
– Maintaining your qualifications for your current role.
– Improving your skills or knowledge used in your current role.
– A trainee and the course you take forms part of the traineeship.
– Able to show the course you were taking led to, or was likely to lead to, an increase in your current salary
“There is no limit on the cost of the course that is to be claimed,” adds Mr Incollingo.
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Top up super contributions
Knowing the superannuation contribution limits and rates – and the different ways to add money to your super – can boost your annual tax refund and help you save for your retirement, advises Mr Incollingo.
However, he adds, it’s how you contribute to your super fund that plays a part in determining tax benefits.
“If you can afford to sacrifice your salary to boost payments into your super account, do so,” says Mr Incollingo. “As a result, you will be required to pay less tax because it reduces your taxable income and it’s considered a deduction.”
But before you start ploughing all of your extra money into superannuation, be aware that the ATO has a cap on before tax contributions.
“Super contributions that are made to your super fund before tax are considered concessional,” explains Mr Incollingo. “The limit for this financial year is $25,000. The most common contribution is the employer super guarantee charge amount and salary sacrificing. However, you can claim a deduction in your return for any super paid personally before 30 June up to the limit.”
That means that if you pay more than the $25,000 limit into your super fund during a financial year, you can be taxed at your marginal tax rate of 15 per cent, plus pay an excess concessional contributions charge of 31.5 per cent – that’s a total of 46.5 per cent in taxes taken out of your contribution.
However, if you pay less than the $25,000 limit, you can carry forward any unused concessional contributions to increase your cap the following year as long as your superannuation balance was less than $500,000 at the start of the financial year in which you make the contribution. For example, if your balance is saying $512,000 today, it’s very unlikely you will be able to use the catch up provisions after June 30.
Jamie Scheer from Empire Financial Group breaks it down as follows, “If you’re salary sacrificing, then any contributions you make will be on top of your employer’s superannuation guarantee contributions, which for most people is 9.5 per cent for this tax year and 10 per cent for next.
“However, if you think you’ll be close to the cap it’s best to make a quick call to your fund before you make the contribution to confirm how much has already gone in.
“So, if in 2020-21 your superannuation balance is $400,000, you should add the amount you have salary sacrificed to your employer’s contributions and any other contributions you have claimed a deduction for and then subtract that from your $25,000 yearly cap (which is increasing to $27,500 from July 1).
“The figure you have left is what can be carried forward to 2021-22. Since this ability was granted for the 2018-19 financial year you can carry forward contributions from that year onwards, Eventually any unused cap amounts will be able to be carried forward for a maximum of five years.”
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