Biggest tax mistakes made before June 30
THE end of the financial year is almost here, prompting Australians to rush in and make last-minute purchases ahead of tax time.
This is often a mistake because many people do not realise they are unable to get back every single cent spent on work-related purchases.
Instead, they get lured in by retailers who come out in force in June enticing them to splash cash.
Let's not ignore the fact many retailers need us to spend right now as Australia navigates its way out of the coronavirus pandemic, but before you rush to spend in the final days before June 30 you need to be aware of what money you will get back.
Popular purchases at this time of year include computers, printers, mobile phones and furniture for home offices. But for employees, only items costing $300 or less can be claimed in full in the year they're bought - other items must be depreciated over several years.
And the entire cost of the purchase doesn't result in you getting the entire purchase amount back once you file your tax return.
It's not dollar for dollar.
Instead, you only get back a portion of the money shelled out on work-related expenses.
The purchase amount simply reduces your taxable income for the year, and from here the Australian Taxation Office determines tax payable on your taxable income.
Here's an example.
A person earning $80,000 a year is required to pay $17,547 in income tax if they have no deductions or any other things to declare when lodging their return.
But if they have $2000 of work-related deductions during the financial year it reduces their taxable income from $80,000 to $78,000.
This would then bring the person's tax payable down to $16,897.
That means the difference between the person's tax payable, after the deduction is factored in, is $17,547 minus $16,897.
That's $650 and is how much you would get back in your pocket for the $2000 outlay. So about a third of what you paid.
There's no doubt the EOFY can be a great time to spend money on work-related expenses because you can get money back on the expenses in the new financial year once you lodge.
And don't forget many of us will have been working from home during the pandemic, which means we can make claims at tax time that we haven't been able to make before.
The ATO's new special arrangement allows people to claim a rate of 80 cents per hour for running costs from working from home.
Or there's another option to claim a rate of 52 cents per work hour for heating, cooling, cleaning and the depreciation of work-related expenses, or simply working out all your running costs by calculating the amounts fairly.
Originally published as Biggest tax mistakes made before June 30