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Don’t Copy/Paste Your Tax Return From Last Year

Due to the impacts of COVID-19, how Australians claim work-related expenses on their tax returns every other year is sure to be different this year. The ATO is warning Australians that they will be watching what is claimed and how the impacts of COVID-19 are reflected in tax returns.

During the 2020 tax return season, up to 8.5 million Australians claimed nearly $19.4 billion in work-related expenses, with new trends and figures of claims reflected in their returns.

Expenses in the 2021 tax return season are expected to reflect the changing nature of how Australians work, given the ongoing impact of COVID-19 is still being felt by workers.

In 2020, the value of car and travel-related expenses decreased by nearly 5.5% (as a result of lockdowns, office closures and the pandemic). There was a slight increase of up to 2.6% in terms of clothing expenses (in part a result of frontline workers’ first time needs for items such as hand sanitiser and face masks so that they could continue doing their jobs.

As an example, though working from home claims are expected to rise in this year’s tax returns, the ATO would not expect to see a marked increase in claims for travelling between worksites, laundering uniforms or business trips in those same returns for someone who was predominantly based at home, and not working out and about.

Though some work-related expenses may still be the same this year, the ATO is warning against simply copy-pasting tax returns from previous years, as without significant evidence or record of the claim, you may find yourself in legal difficulties.

So how can you ensure that you’re doing the right thing when making claims on your tax return? Knowing exactly how COVID-19 may have affected what exactly you can claim on your tax return is a good starting point.

As a result of COVID-19, the ATO introduced the temporary shortcut method to quickly calculate the expenses of working from home at an all-inclusive rate of 80 cents per hour for every hour that you work from home. All you need to do is multiply the hours worked at home by 80 cents, keeping a record such as a timesheet, roster, or diary entry showing the hours you worked.

Personal protective equipment that you may have purchased for use at work, paid for by you and not reimbursed by your work, can be claimed as a work-related expense on your tax return. These items could include gloves, face masks, sanitiser or anti-bacterial spray but must be linked back to use at your workplace. You must have a record to support the claim, but this can be done simply with a purchase receipt.

Similarly, with the marked decrease in the value of work-related expenses for cars, travel, non-PPE clothing, and self-education due to the introduction of travel restrictions and limits on the number of people who could gather in groups, tax returns are expected to reflect your claims regarding these amounts. If you are working from home due to COVID-19 but need to travel to the regular office sometimes, you will not be allowed to claim the cost of travel from home to work in this instance as these are private expenses.

If you are unsure about any of the expenses that you are looking to claim on your tax return this year or are concerned about claiming for the wrong expenses, you can come and speak with us for clarification on what you can and cannot claim on your tax return this year.

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Using A Corporate Trustee Instead Of Individuals For A Family Trust

Posted on July 19, 2021 by admin

A family trust is a great structure.  It provides tax flexibility whilst giving you asset separation in two directions.  But what does asset separation in two directions mean? And why might we suggest it to you as a recommendation?

First of all, why do you want asset separation? If there are multiple assets, you want to make sure that if someone makes a claim against the owner of a particular asset that your other assets can be quarantined from that claim. This isolation will mean that they can’t gain access to the assets that are yours and separate from the claim.

If you own a business and have a successful financial claim made against your business where the claim is for an amount that is more than the assets of the business, you will first need to use the business to cover the claim, and then find something additional to supplement the shortfall. In this case, if you also own your own home, and its worth is enough to cover that shortfall, it may be used to meet the claim by combining the business assets’ worth and the family home’s value. You could lose your family home!

However, if we structure your business in a particular way then the person making that claim will only have access to the assets in the business and you will be able to keep your family home.

This is what is called asset separation. Generally, it’s a good thing to employ, but it does have one flaw – it usually only goes one way.

If someone claims on your business, they won’t get the house but if they successfully make a financial claim against you, they will successfully get all of the assets that you own, including those of your business.  This is a risk that you must be willing to take if you own a business.

When you operate a business through a family trust instead of owning that business, you will merely “control” it, and have but a “mere expectancy” of being considered in the distribution of any profits or capital from that business.

The good part here is that although you only have a mere expectancy to be considered, we would set it up so it is YOU that “considers” who gets the money.  This means that if someone makes a claim against you then they can’t get access to assets in the family trust. What this does is give you two-way asset protection.

There is a bit of an issue with family trusts though – although you will see the debts of the trust as debts of the trust at law, they are in actual fact the debts of the trustee. If you are the trustee, all of the debts of the trust are your personal debts. You can use the trust assets to pay down those debts, but if the trust assets are insufficient to pay the debts, it will be up to you to pay off the rest.

When you’re an individual trustee of a trust, you lose the perk of asset separation, which is why a company may be used as a trustee, as the company does nothing other than act as the trustee of the trust. If there are insufficient funds in the trust to cover the debts of the trust, then those debts fall on the trustee and the creditors have no access to your personal assets because you have no individual debts owing.

Want to know more about asset separation? Interested in trusts? We’re here to help.

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