Tax time: How to secure an extension and get COVID-19 help

Tax time: How to secure an extension and get COVID-19 help

The deadline for people preparing their own taxes is October 31, but there’s plenty of options available if you haven’t had the chance to take care of the paperwork.

Among the quickest ways to submit a tax return is online using the Australian Taxation Office’s (ATO) myTax portal. The average application takes about 30 minutes, and much of the information is already pre-filled, simply requiring that you review it.

“While much of your information will already be in your return, we recommend taking the extra minute to get your return right,” Karen Foat said, assistant commissioner at the ATO.

“Things like not updating bank account details, forgetting to include all income, or claiming deductions you are not entitled to can result in your refund being delayed.”

Tax refunds submitted via the government’s myTax portal typically take about 14 days to show up in your bank account, provided there’s no hiccups.

If I submit my tax late, will I be charged a late fee?

The standard fee for a tax return that’s lodged late starts from $220, but the ATO offers some understanding for people who miss the deadline.

“We recognise that sometimes people don't meet their lodgment obligations on time, even with the best intentions,” the ATO said. “Generally we don't apply penalties in isolated cases of late lodgment.”

Typically you’ll receive a phone call or email letting you know that you’ve failed to lodge your yearly tax return.

Leave it too late however and you may be hit with the fee -- and possibly interest charges calculated on any tax owing.

Accountants can lodge a little later

A registered accountant could buy you a little more time as they have a special lodgement program, but in order to take advantage of it, you’ll need to get in contact with them by October 31.

“If you plan to lodge with a tax agent, you may have a later lodgement date,” Ms Foat said.

“But it’s important to contact your agent and get on their books now.”

How much extra time an accountant will secure will depend on your personal circumstances.

What if I can’t afford to repay my tax?

There’s a range of support options available for people worried they’ll have a potential tax debt they can’t afford.

By putting off your taxes, you could be charged late fees and interest on a debt, so it’s best to contact the ATO and see what options are available. These could include payment plans or deferrals, depending on your circumstances.

“You still need to lodge your tax returns on time if you can, even if you can't pay by the due date,” Ms Foat said.

“This will show us that you're aware of your obligations and doing your best to meet them.

“Once we understand your situation we can discuss whether a deferral or a payment plan is best for you.”

There’s still some flexibility associated with a payment plan. It’s possible to suspend, vary or cancel it if there’s a change in circumstances.

“We will also make sure you are not charged interest on the outstanding debt while you are affected by COVID-19,” Ms Foat said.

Tax Help, a community-based tax return preparation service, is available to people who earned $60,000 or less in a year until 30 November. This does not include contractors, sole traders and some people with “complicated tax affairs”.

Working from home during COVID-19?

There’s a blanket formula being used to calculate expenses for people working from home since the COVID-19 pandemic struck in March.

Instead of having to calculate costs for specific running expenses, you simply need to keep track of how many hours you’re working to claim 80 cents per dollar on tax.

“Unfortunately, we are seeing a small number of people not taking care to adjust their claims to their altered circumstances or making claims without sufficient evidence,” Ms Foat said.

“Not being able to support your claim if asked, may delay your refund and result in a penalty in the most serious cases.”

The ‘shortcut method’, as it’s now known, has been extended until 31 December, so that people still working from home due to COVID-19 will be able to easily claim their expenses.

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Learn more about savings accounts

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO. 

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.