How to maximise your tax refund this new financial year

The end of financial year is here, and before you lodge your tax return it’s worth making sure you’ve dotted your t’s and crossed your i’s to maximise your potential refund.

There are a range of factors that everyday Australians may be able to claim a tax deduction from. And, thanks to COVID-19 regulations seeing more people working from home than ever before, it’s crucial you know exactly what and how much you may claim.

Let’s explore how to maximise your tax refund this new financial year.

Work-from-home expenses

Australians who had to work from home due to COVID-19 restrictions in the last financial year will remember that they could claim more than they otherwise could have previously for the privilege.

In fact, ABC News noted that in 2019-20, around 8.5 million Australians claimed almost $19.4 billion in work-related expenses. Work-from-home expenses increased by 40 per cent during the COVID-related lockdowns.

According to the ATO, these additional expenses include:

  • “Electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
  • Cleaning costs for a dedicated work area
  • Phone and internet expenses
  • Computer consumables (for example, printer paper and ink) and stationery
  • Home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the
  • Full cost of items up to $300
  • Decline in value (depreciation) for items over $300.”

Items you cannot claim include general household items like coffee, tea or milk, costs of educating children, costs your employer has reimbursed you for or any time spent not working – such as lunch breaks or home-schooling hours.

For the 2019-20 income year, there were three main ways of calculating home office expenses: the shortcut method (80 cents per work hour) the fixed rate method (52 cents per work hour) and the actual cost method.

ABC News reporting found that one million Aussies used the shortcut method last year for their work-from-home expenses.

However, according to Ashley Debenham of ETax Accountants, if an individual works from home three days a week, on average they may be $580 better off using the fixed-rate method, as they will have to have “a dedicated workspace or office at home” to claim it

Comparatively, the shortcut method may suit those who work from home on a more casual basis. This is because this method requires less meticulous recordkeeping of home costs, as well as timesheets, rosters, or documents indicating the hours you’ve worked.

Work-related expenses

Work expenses also go beyond the new work-from-home world we've all had to get acclimatised to. Here are some of the stock-standard work-related expenses that Australians can consider claiming a deduction for:

  • Vehicle and travel expenses – personal vehicle, ridesharing, flights, and public transport
  • Clothing, laundry, and dry-cleaning expenses – must fall in categories of occupation-specific or protective clothing, as well as compulsory or registered non-compulsory uniforms.
  • Self-education expenses – Course and tuition fees, home office costs etc.
  • Tools, equipment, and other assets – computers, software, hand tools, safety equipment etc.
  • Other expenses – Books, periodicals and digital informational, phone and internet expenses, income protection, overtime meals and more.

There are a range of expenses that Australians may be eligible to deduct, so it’s worth doing your research and looking at the full list on the ATO’s website.

Personal super contributions

Another area where you may be able to claim deductions is through personal super contributions made prior to July 1, 2021.

Personal contributions are separate to those paid by your employer, including the compulsory super guarantee, salary sacrificing and reportable employer super contributions. Instead, it refers to personal contributions made into your super fund from your after-tax income.

Keep in mind that you must meet the age restrictions, and you must provide your super fund with a “notice of intent to claim or vary a deduction for personal contributions” (NAT 71121) then receive an acknowledgement from your fund. If eligible, in your tax return you may claim a deduction for contribution stated on the notice of intent.

If you’ve never made personal super contributions, it’s worth keeping in mind as it may offer some benefits:

  • Boosting your super – thanks to compound interest, any additional funds you add to your super balance outside of the standard super guarantee amount may make a serious difference in terms of the final balance at retirement.
  • Government bonus – If you make after-tax contributions and your income is below $54,837, you may be eligible for the government to make co-contributions of up to $500 a year. Keep in mind that you may not be eligible for co-contributions on any amount claimed as a tax deduction.

For more information, please read RateCity’s guide to after-tax superannuation contributions.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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Learn more about superannuation

Can I buy a house with my superannuation?

First home buyers are the only people who can use their superannuation to buy a property. The federal government has created the First Home Super Saver Scheme to help first home buyers save for a deposit. First home buyers can make voluntary contributions of up to $15,000 per year, and $30,000 in total, to their superannuation account. These contributions are taxed at 15 per cent, along with deemed earnings. Withdrawals are taxed at marginal tax rates minus a tax offset of 30 percentage points.

Voluntary contributions to the First Home Super Saver Scheme are not exempt from the $25,000 annual limit on concessional contributions. So if you pay $15,000 per year into the First Home Super Saver Scheme, you have to make sure that you don’t receive more than $10,000 in superannuation payments from your employer and any salary sacrificing.

What are personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

 

 

What is the age pension's assets test?

The value of your assets affects whether you can qualify for the age pension – and, if so, how much.

The following assets are exempt from the assets test:

  • your principal home and up to two hectares of used land on the same title
  • all Australian superannuation investments from which a pension is not being paid – this exemption is valid until you reach age pension age
  • any property or money left to you in an estate, which you can’t get for up to 12 months
  • a cemetery plot and a prepaid funeral, or up to two funeral bonds, that cost no more than the allowable limit
  • aids for people with disability
  • money from the National Disability Insurance Scheme for people with disability
  • principal home sale proceeds you’ll use to buy another home within 12 months
  • accommodation bonds paid on entry to residential aged care
  • any interest not created by you or your partner
  • a Special Disability Trust if it meets certain requirements
  • your principal home, if you vacate it for up to 12 months
  • granny flat rights where you pay more than the extra allowable amount

For full pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$253,750

$456,750

Couples living together

$380,500

$583,500

Couples living apart due to ill health

$380,500

$583,500

Couples with only one partner eligible

$380,500

$583,500

For part pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$550,000

$753,000

Couples living together

$827,000

$1,030,000

Couples living apart due to ill health

$973,000

$1,176,000

Couples with only one partner eligible

$827,000

$1,030,000

For transitional rate pensions, reductions apply when your assessable assets exceed these thresholds:

Category

Home owners

Non-home owners

Singles

$503,250

$706,250

Couples living together

$783,000

$986,000

Couples living apart due to ill health

$879,500

$1,082,500

Couples with only one partner eligible

$783,000

$986,000

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How does superannuation affect the age pension?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

What happens to my superannuation when I change jobs?

You can keep your superannuation fund for as long as you like, so nothing happens when you change jobs. Please note that some superannuation funds have special features for people who work with certain employers, so these features may no longer be available if you change jobs.

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

What are the age pension's residence rules?

On the day you claim the age pension, you must be in Australia and you must have been an Australian resident for at least 10 years (with no break in your stay for at least five of those years). The following exceptions apply:

  • You’re exempt from the 10-year rule if you’re a refugee or former refugee
  • You’re exempt from the 10-year rule if you’re getting Partner Allowance, Widow Allowance or Widow B pension
  • You can claim the age pension with only two years of residency if you’re a woman whose partner died while you were both Australian residents
  • You might be able to claim the age pension if you’ve lived or worked in a country that has a social security agreement with Australia

How do you calculate superannuation from a total package?

Superannuation is calculated at the rate of 9.5 per cent of your ‘ordinary-time earnings’. (For most people, ordinary-time earnings are their gross annual salary or wages.) So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

As the Australian Taxation Office explains, some items are excluded from ordinary-time earnings. They include:

  • Overtime work paid at overtime rates
  • Expense allowances that are fully expended
  • Expenses that are reimbursed
  • Unfair dismissal payments
  • Workers’ compensation payments
  • Parental leave
  • Jury duty
  • Defence reserve service
  • Unused annual leave when employment is terminated
  • Unused long service leave when employment is terminated
  • Unused sick leave when employment is terminated

Although the superannuation guarantee is currently at 9.5 per cent, it is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do you find superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

Who can open a superannuation account?

Superannuation accounts can be opened by Australians, permanent residents and temporary residents. You’re automatically entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month