Tax time: 7 things to know ahead of lodging your tax return

Tax time is upon us once again. Here are seven things it can pay to know before you lodge your return.

If you haven’t already lodged your tax return for the 2022-2023 financial year, then it’s time to start thinking about it. If you’re completing your own tax return you have until 31 October to lodge it. It can be quick and easy – you can even do it from your living room just by logging onto myTax via the myGov portal.

If you are using an accountant or tax agent then you may have more time up your sleeve – just make sure you get in touch with them before 31 October to confirm the deadlines applicable to you. This is especially important if you’re using a tax agent for the first time or using a different one.

Of course, if you are likely to get a refund then the sooner you lodge the quicker you’ll get any money owing to you.

Although many of the usual rules apply when it comes to your tax return, there have been some changes for the 2022-2023 financial year that it can pay to be aware of as they may affect you.

If you’re unsure about the rules or how they may apply to your situation it can be a good idea to get advice from a tax agent or the Australian Taxation Office (ATO).

Here are seven things to consider ahead of lodging your tax return, including what may be different for the 2022-2023 financial year.

1. Working from home deductions have changed

One of the biggest changes this financial year affects those who want to claim a deduction for working from home. The shortcut method, which was introduced in response to COVID-19, is no longer available.

You now only have two options – the fixed rate method and the actual cost method. While both have been around for years, there have been a number of tweaks to the fixed rate method this financial year.

You can now claim 67 cents for each hour you work from home (up from 52 cents) but it’s important to understand that the revised fixed rate method covers energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. Under the old method, you could claim a deduction for work-related phone, internet and stationery on top of the 52 cents per hour.

There are some items you can claim separately under the revised method. These include:

• The decline in value of assets used while working from home, such as computers and office furniture.
• The repairs and maintenance of these assets.
• The costs associated with cleaning a dedicated home office.

It’s also worth noting that from 1 March 2023 onwards you need to have kept more detailed records of the hours you worked from home. Estimates or a four-week representative diary no longer cut it. So for the period between 1 July 2022 and 28 February 2023, the ATO will accept a record that represents the total number of hours worked from home such as a four-week diary. But, from 1 March 2023 onwards, you need to have recorded the total number of hours you worked from home.

Finally, you no longer need to have a dedicated home office space to claim working from home expenses.

There haven’t been any changes to the actual cost method. It essentially lets you claim the work-related portion of the actual additional expenses you incur as a result of working from home.

It can be a good idea to do some calculations to work out which option will give you a better result. If you’re not sure, think about talking to a tax agent.

2. The cents per kilometre rate for car expense claims has changed

If you use a car for work you may be able to claim a deduction for car expenses. One method you can use to calculate deductions is cents per kilometre. You simply multiply the number of work-related kilometres you travelled in the car in the financial year by the rate per kilometre. The rate for 2022-2023 is 78 cents per kilometre – up from 72 cents per kilometre. (It will increase to 85 cents per kilometre for the 2023-2024 income year.)

You also need to keep records showing how you worked out your work-related kilometres. The maximum you can claim is 5,000 kilometres per car. It’s also important to note that you can’t claim any other expenses such as registration, insurance or repairs when you use this method.

The other method you can use is the logbook method which involves keeping a logbook that shows your work-related trips for a continuous period of at least 12 weeks.

If you are thinking about claiming car expenses, keep in mind that simply driving to and from home and work doesn’t generally count. You may be able to claim a deduction if you drive to meet clients, attend work-related conferences or go between two or more separate places of employment.

3. There has been a change to self-education deductions

If you have spent money on self-education or professional development for work then you may be able to claim a tax deduction for some of the costs you incurred. This could include courses at an educational institution, work-related conferences or seminars and self-paced learning and study tours.

To be able to claim a deduction for a self-education expense the ATO says it needs to have a “sufficient connection to earning income from your employment activities”. So the course would need to maintain or improve the specific skills or knowledge you need for your job or is likely to result in a pay rise from your current role.

You can’t claim a deduction if it only relates generally to your job. The ATO offers the example of undertaking a full-time fashion photography course and working as a casual sales assistant on the weekends. It also can’t be something that helps you get a new job or change your career.

In previous years you couldn’t claim the first $250 of self-education expenses but that has now changed. For any self-education expenses incurred from 1 July 2022 onwards, you no longer need to reduce your allowable expenses by $250.

4. Make sure you include all your income

When you think of the income that you need to list on your tax return, the obvious ones such as salary from your employer, interest on your savings and dividends from your investments probably come to mind. But there are other types of income that you need to include that may surprise you.

For example, you need to include all taxable government payments you receive in your tax return. Some examples include JobSeeker, Age Pension, Austudy and Carer Payment. Other types of payments that you need to declare include Parental Leave Pay or Dad-and-Partner Pay and payments from an income protection insurance policy or workers compensation scheme.

And, if you have taken up a side hustle or are using the gig economy to make some extra cash, make sure you declare the additional income in your tax return.

You might not think it counts because it’s just a side hustle but the ATO says if you earn money through continuous and repeated activities for the purpose of making a profit, then it’s likely you’re running a business.

This can include animal breeding, ride share, food delivery, online content creation and even running weekend bootcamp sessions.

On the plus side, that means you can claim a deduction for any expenses related to earning your income. Check with your tax agent if you’re unsure what you may be able to claim.

5. Be prepared for a lower tax refund or even a tax bill

The ATO has warned Aussies that the outcome of their tax return may be different than in previous years and that they may have a lower refund or worse still they may end up with a tax bill.

One of the main reasons is the fact that the low and middle income tax offset (LMITO), which was worth up to $1,500, ended on 30 June 2022 and therefore doesn’t apply this tax time. This is likely to have a pretty big impact on many Aussies.

The changes to work from home claims (see point 1) could also potentially impact your tax return this year, although it’s likely to be to a lesser extent than the removal of the LMITO.

And, if you have a HECS-HELP debt you might also find your tax return is affected. HECS-HELP debt is indexed in line with inflation which in the past has been fairly low. This year, however, the indexation rate was a massive 7.1% which kicked in on 1 June, hiking up the balance of your debt before the end of the year. This will mean you’ll need to pay extra tax to cover the shortfall. If you have student debt and also salary sacrifice you may be in for an even nastier surprise.

If you’re worried you’ll end up owing the ATO money it’s important to not dig your head in the sand. One option is to use a tax agent as they can lodge your return at a later time which can buy you some time to get the cash together.

You could also request a payment plan that will allow you to pay off your tax bill over a fixed period of time. You will be charged interest (currently 10.9%) so if you take this route you should try to pay it off as quickly as possible.

6. The three areas the ATO has its eyes on this tax time

Each year the ATO releases a watchlist outlining what it has in its sights for that financial year. They tend to be areas where the ATO has noticed mistakes being made and this year is no different. There are three key focus areas this tax time.

The first is rental property deductions. The ATO found that nine in 10 rental property owners are getting their tax returns wrong. Examples include leaving out rental income and overclaiming expenses but one thing the ATO will be watching especially closely is interest expenses to ensure rental property owners aren’t claiming interest expenses where part of the loan was used for private purposes.

The second is work-related expenses – in particular it is focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims (see tip one). “Don’t be tempted to just copy and paste your prior year’s claims,” warned ATO Assistant Commissioner Tim Loh. “We know a lot of people are working back in the office more compared to last year.”

The final item in the ATO’s sights is capital gains from selling shares, crypto, managed investments or property. If you make a gain from selling an asset then you need to make sure you declare it as you may have to pay capital gains tax (unless an exemption applies). “Don’t fall into the trap of thinking we won’t notice if you sell an asset for a gain and don’t declare it,” Mr Loh cautioned.

Something worth noting is that this could potentially include the family home. Generally, you don’t have to pay capital gains tax on your main residence but this could go out the window if you have used your home to produce income.

So if you have rented out your home or even part of it through the sharing economy, for example Airbnb or Stayz, or if you are running a business from home, then capital gains tax may apply.

7. It may pay to get professional help

If your tax affairs are simple you might feel confident to complete your tax return yourself but it could pay to get professional help. A tax agent can make sure you are claiming every deduction you’re entitled to, so you’re not paying more tax than you have to.

Data from the ATO shows that those who used a tax agent to prepare their tax return received a higher average refund than those who went it alone. According to the ATO, as at 30 June 2023, more than 11.2 million individual 2021-22 refunds had been issued, totalling more than $35.1 billion with an average refund of $3,129. The average refund for self-preparers was $2,576 and the average refund for tax agent-prepared returns was $3,550.

There could be a number of reasons why this is the case and, of course, there is no guarantee your refund will be higher if you use a tax agent rather than opting for a DIY approach. The good news though is that the fee you’ll pay the tax agent is tax-deductible so if it means getting your tax done on time and correctly it could be worth the upfront cost.

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