Tax tactics you should consider now for bigger deductions in 2021

Leaving tax planning until the last minute can be costly, so here are some early bird strategies to grab bigger deductions this year.

Tax isn’t top of mind for most people during late January, but now is the time to make some clever moves to deliver a welcome financial windfall later this year.

Workers, investors, business owners and super fund members who make tax tweaks early can save stress and money, accountants and lawyers say.

H&R Block director of tax communications Mark Chapman says many people don’t think about minimising tax until mid-June “but by then it can be too late”.

“Think about putting in place diaries and logbooks,” he says.

“A logbook gives you the best deduction for a car and you need to do that for 12 weeks, and if you kick off the process now it will be done in good time before the end of financial year.”

Many people worked from home this financial year, and Chapman says claiming your actual costs “will almost always give you a bigger deduction that the Australian Taxation Office’s flat rate methods”. You will need a diary spanning at least four weeks to claim for costs such as work-related phone use.

H&R Block’s Mark Chapman. Picture: supplied

Many Australians were hit hard by COVID-19 but others enjoyed cash windfalls as holidays and other big-spending plans were cancelled.

“Now is a good time to think about making additional contributions into superannuation – you can get a tax deduction this year,” Chapman said.

There’s a $25,000 annual cap on these tax-deductible contributions, which include employers’ compulsory payments, but many Australians can now make catch-up contributions for previous unused portions of the cap.

Cashed-up landlords can pay for repairs and maintenance on their properties and then claim a tax deduction from July.

“If you leave it to the last minute you run the risk that tradies are too busy,” Chapman says.

NDA Law senior associate Lisa Christo says keeping records as you go lowers the risk of missing out on deductions you could have claimed.

“It also means that if the ATO comes knocking, you have the documentation handy to explain what you claimed,” she says.

“The ATO is wary of people trying to rort the system so they may ask you to justify your figures.”

Christo says deductions to consider include:

• Working from home expenses – the ATO has three methods available.

• Self-education expenses, but only if related to your current employment.

• Charitable donations of $2 or more.

• Rental property repairs.

• Personal deductible contributions to super.

“Before claiming the super deduction, you will need to lodge a Notice of Intention to Claim form with your super fund,” she says.

NDA Law senior associate Lisa Christo says the ATO may ask you to justify your tax deductions. Picture: Tricia Watkinson

“You may be able to access bring forward rules to get more into super in one year if you have a large windfall gain like an inheritance that you want to contribute to your super fund. It is always essential to get professional advice as these rules can be complex.”

LCI Partners managing director Gerry Incollingo says the ATO’s free myDeductions record-keeping tool, part of the ATO app, can help track expenses, record work-related car trips and store photos of receipts.

“When it’s time to lodge your return, you can export and email the data to your tax agent or to yourself and you can also upload the data to pre-fill your tax return, which your tax agent can also access through their online portal,” he says.

Investors who made short-term gains from shares or other assets should think before they sell, because the ATO’s 50 per cent capital gains tax discount only applies to investments held for more than a year.

Landlords should tread carefully and keep all records, including for short-term room rentals through online platforms such as Airbnb.

“Investment property owners should heed the ATO’s warning that it will target mistakes with rental property deductions this tax time,” Incollingo says.

HOW YOU’LL BE TAXED FOR 2020-21

Taxable income Tax on income

$0-$18,200 Nil

$18,201 to $45,000 19c for each $1 over $18,200

$45,001 to $120,000 $5092 plus 32.5c for each $1 over $45,000

$120,001 to $180,000 $29,467 plus 37c for each $1 over $120,000

$180,001 and over $51,667 plus 45c for each $1 over $180,000

Source: ato.gov.au, rates do not include 2% Medicare levy

Originally published as Tax tactics you should consider now for bigger deductions in 2021