Now is the season for Aussie taxpayers to file their annual tax return and claim all of the legitimate expenses they have accumulated throughout the 2020 financial year.

To make life easy for taxpayers there are various online platforms that can be used to lodge tax returns including Etax, as an alternative to the Australian Tax Office’s MyGov system.

Or, taxpayers may prefer the personal touch of dealing with an accountant who knows an individual’s financial history.

Whichever approach is taken, taxpayers can always use some invaluable tips that ensure they stay on the right side of the ATO while correctly claiming all of their eligible tax deductions.

Stockhead spoke with two taxation experts to get their top five tax return tips.

First up is Etax.com.au senior tax manager Liz Russell who has 40 years’ tax experience and has been with Etax, Australia’s largest online tax return service, since it launched in 1998.

1. Don’t miss investment income deductions

If you incurred costs while earning investment income you might be able to claim a deduction for these costs.

Common claims here include account keeping fees on investment accounts, interest charged on money you borrowed to purchase an investment, ongoing management fees as well as some other miscellaneous costs like investment journals, seminars and subscriptions.

Russell suggests discussing your exact circumstances with your accountant to determine whether you’ll be classified as a trader or an investor which may impact when and how you claim the expense.

2. Be sure to include disposal of shares or property

The sale of an investment property or shares will be subject to capital gains tax (CGT) and therefore need to be included on your tax return.

If you sold multiple parcels of shares, each one is a capital gains event and your total gain (or loss) is included on your tax return.

While it might have been disappointing at the time, don’t forget to include any shares you sold for a loss, as any losses can be used to offset your gains this year, or carried forward to a following year instead if not already used.

3. Get your dividend income correct

Entering this information correctly is important as dividends are not only considered income by the ATO and used to calculate your refund, but the dividends section of your tax return is also where your franking credits are entered, which in turn may help to reduce your tax liability.

Some retirees may receive their franking credit refunds automatically [based on share registry information] without needing to do a tax return.

For everyone else, you need to apply to the ATO for them to issue your franking credit refunds. If you are not sure how to do this, speak to your tax agent who can complete the application for you.

4. Maximise your COVID-19 WFH claim

Many people have been quick to jump on the ATO’s new 80c-per-hour Shortcut Method for claiming working from home (WFH) expenses. However, what they don’t know is that in a lot of cases claiming by this method is actually worse than claiming under the existing WFH rules.

The reason for this is that the Shortcut Method covers every expense you have when working from home (for example phone, internet, electricity, heating, cooling, depreciation of office furniture).

However, under the old running expenses method each of those items can be claimed separately and this usually leads to a bigger refund.

Russell’s advice is to chat with your accountant about which method is best for you. They can do some simple maths to ensure you are using the option which maximises your tax refund.

5. Don’t forget any other work-related deductions

Deductions are the number one way to improve your tax refund each year. If you had out-of-pocket, work-related expenses last year, make sure you include them on your return.

Just follow the golden deduction rules: You must have paid for the expense out of your own pocket, it must be directly related to your work and you can’t have been reimbursed for the expense already.

If you are not sure whether you can claim a particular expense, ask your accountant who will make sure you get your return right.

 

The next lot of tips comes from Leon Mok, managing partner at Pitcher Partners Perth. Pitcher Partners is an association of independent accounting and business advisory firms in Adelaide, Brisbane, Melbourne, Newcastle, Perth and Sydney.

1. Holding shares: Revenue or capital account

Be clear on whether you are holding your shares on a capital account or a revenue account. If you hold shares on a revenue account, you cannot get the CGT discount when you sell.

Mok said there was expected to be an increased focus on this matter from the ATO due to a recent decision in which an investor’s shares were held on a revenue account despite limited trading and business sophistication.

2. Trading stock rules for valuing shares

If you hold shares and trade, you can use the trading stock rules to value down shares held at June 30 to market value if they have fallen in value.

3. Follow capital loss rules

Beware if you have exited positions to crystallise a capital loss before June 30 and acquired the same shares again shortly after.

The ATO does not look kindly on such arrangements and has threatened to apply integrity rules to remove any tax benefit if they do come across any.

4. Capital gains events

If you have had multiple CGT events from the sale of multiple tranches of shares during the year, make sure any capital losses are firstly applied against gains that do not qualify for the CGT discount.

5. Discretionary trusts

If you have invested via a discretionary trust and beneficiaries have received franked dividends, make sure you know whether a family trust election is required so that the beneficiary is a qualified person for the purposes of the holding period rule in order to benefit from the franking credits.