2020 Tax Returns – How Will They be Different To Last Year?
Just about every new financial year, there will be some kind of tweak to taxation laws, which have often been announced on the previous year’s Federal Budget night, then argued about, amended and voted into legislation by the nation’s politicians, before eventually arriving through the system as a law.
It is great to be across these changes and updates constantly if you want to be a weapon of mass deductions!
There have been a number of these that have affected property investors in recent years, but the greatest disruptor of tax time for this financial year has undoubtedly been the COVID 19 lockdown.
The decision to shut down offices, flexible working spaces and cafes (and all that free wifi!) for social distancing reasons saw an estimated third of Aussie workers confined to their living rooms and home offices.
What this meant was that for many of us, our humble homes became one big tax deduction. Investors can benefit from the most deductions, but there is also something in it for owner-occupiers and tenants.
Working from home
Employees working from home for the first time during lockdown may not know where to start when making tax claims.
Regular home office deductions include work-related proportions of home internet costs, stationery, office equipment, gas, electricity and water bills; plus of course the depreciation (decline in value) of work-related items such as laptops.
Ordinarily you could calculate the expenses you can deduct in two ways:
- By documenting every cent you spend and identifying the percentages for personal and work; or
- Via a fixed rate of 52 cents per hour for energy bills, depreciation and repairs of office furniture and equipment; PLUS the separately calculated costs of mobile phone, internet and stationery.
But these times were far from ordinary!
One time offer
The ATO is this year offering a special COVID-19 ‘shortcut’ method, where you can claim 80 cents per hour for each hour worked from home between March 1 and June 30, 2020. This is designed to simplify an otherwise complex situation for many Aussies who don’t know how to approach that period. However, your unique financial situation may mean you do better than 80 cents an hour, so check with your accountant for what is best for you.
As always, interest paid on investment loans is the biggest deduction for many investors, who can also prepay another year’s interest in advance if they want.
Expenses such as landlord insurance, repairs and maintenance, council rates, property agent fees, land tax and pest control are all the usual deductions, but travel to an investment property – whether local or interstate – is no longer deductible.
Another recent change has been what depreciation can be claimed on. Anyone with second-hand properties purchased after May 9, 2017, will find they cannot claim a depreciation deduction on previously used plant and equipment assets. If the property is brand new however, they will still be able to.
To avoid confusion, it’s best to check the latest with a professional quantity surveyor or your accountant.
Many property investors are also tenants, especially those who choose to rent where they want to live and invest where the numbers stack up.
Good news: tenants who run a small business from home can claim a proportion of their rent as a tax deduction.
Regular employees working from home cannot claim rental expenses but are still able to make deductions for other work-related costs.
Owner-occupiers who run a business from home can also claim a deduction for interest paid on their permanent place of residence mortgage.
However, only the work-based portion of the home and costs are claimable, and you may find yourself exposed to capital gains tax when the time comes to sell, so check with your accountant to see how costly that may be and whether it’s worth it for you.