The COVID-19 crisis is turning out to be a tough time for many households. Maximising tax effectiveness is one strategy for being smart with your finances.

 With the financial impact of COVID-19 being felt by many individuals and families, perhaps you’re looking to lodge your next tax return quickly to benefit from a refund. Before the end of the financial year arrives on 30 June, it’s worth looking at ways to maximise any tax offsets, deductions and contributions – for your super and for working from home.

Working from home for the first time? New ways of claiming tax deductions

In the new COVID-19 world, many people are now working from home. This means you are entitled to claim a deduction on your personal income tax return on some related expenses. The Federal Government has introduced a temporary simplified ‘short cut method’, whereby you can claim 80c per hour that you’ve worked from home. If you intend to make a claim, ensure you’ve kept a record of your hours worked and include a ‘COVID-hourly rate’ in your income tax return.

Take advantage of the spouse tax offset

Making a $3,000 contribution to your spouse’s or partner’s superannuation account may provide you with up to $540 in a tax offset, if your spouse or partner has a total income below $37,000 for the 2020 financial year. If your spouse’s total income is up to $40,000, you may still qualify for a reduced tax offset amount.

Government co-contribution for low income earners

This is a great opportunity for part-time or casual workers to boost their super balance. If your annual income is below $38,564 for the 2020 financial year, making a $1,000 super contribution will mean the Federal Government will provide a $500 co-contribution to your super fund. If you’ve earned up to $53,564, you’ll be eligible for a part contribution. There are eligibility criteria that need to be met for the co-contribution, including that your income needs to be in part generated from working or income from carrying on a business.

Make top up concessional contributions to super

This can be a tax-efficient strategy if you earn $37,000 or more. The concessional contribution cap is $25,000, which is the total of any superannuation guarantee and salary sacrifice amounts that were contributed to your super during the year. If you’ve made less than $25,000 of this type of contribution this year, you may be able to make an additional contribution to your super fund and claim a tax deduction in your personal return for the amount you deposit. The contribution will be taxed in your super fund at 15%, rather than at your marginal rate.

Unused concessional contribution caps are also now accessible. This may be a relevant strategy for those who haven’t fully used their caps since July 2018 and have income to offset in the current financial year. This can be regular income, or it can be proceeds from the sale of an investment property. To determine your available concessional cap, log in to your MyGov account and click on the ATO and Superannuation section. This cap will be unique to each individual, so it is important to ensure the amount is correct. You may wish to engage the services of a financial adviser to assist you in applying the correct amount into super before claiming the deduction. 

A note on timing 

Keep in mind that any contributions to super need to be received by the super fund by 30 June 2020 in order to be accounted for the 2019/20 financial year. So don’t wait until the last minute – make a plan now to make the most of these opportunities as are available to you.

Further information on the strategies outlined above is available from the Australian Taxation Office website (ato.gov.au).

Money & Life, FPA