Are you wondering how your changed circumstances related to COVID-19 may affect your tax situation?
Well, you’re in good company.
The Australian Taxation Office has provided a lot of information on their website to assist you.
Here’s a list of the most frequently asked questions they are getting from individuals and employees as well as their answers…
I really don’t like saying that we live in unprecedented times – that phrase has been used to often, but how else can we describe the current situation?
Working from Home
Question: My employer is encouraging or requiring me to work from home.
Will I be able to claim a deduction for home office expenses?
Answer: Yes, if you work from home because of COVID-19 you may be able to claim a deduction for the additional running expenses you incur.
These include expenses associated with heating, cooling and lighting in the area you are working from, phone and internet and other running expenses.
We have introduced a temporary simplified method (shortcut method) for you to calculate the additional running expenses you incur as a result of working from home due to COVID-19.
The shortcut method allows you to claim 80 cents for each hour you work from home and covers all deductible running expenses.
Multiple people living in the same house can claim this new rate.
For example, a couple living together could each individually claim the 80 cents per hour rate.
You may still use one of the existing methods to calculate your running expenses if you would prefer to.
This includes calculating your actual running expenses.
Question: Can I claim working from home expenses when I’m on leave or if I’ve been stood down during the COVID-19 period?
Answer: No, you can only claim for the actual time that you spend working from home due to COVID-19.
For example, if you have been stood down and you are occasionally receiving email updates from your employer about the situation, the time you spend checking those email updates will not be treated as time spent working from home.
Question: I worked from home before COVID-19 and my work pattern has not changed as a result.
Am I entitled to claim the shortcut rate of 80 cents per work hour for my additional running expenses?
Answer: Yes, the new shortcut method is intended to cover all taxpayers working from home between 1 March and 30 June 2020, whether the working arrangements are a result of COVID-19 or not.
If you normally work from home, you can continue to claim your additional running expenses using one of the existing methods if you prefer:
- the work-related portion of your actual expenses
- the fixed rate of 52 cents per hour plus the work-related portion of expenses not covered by that rate.
Question: If I use the shortcut method to claim my expenses while I work from home, what records do I need to keep?
Answer: If you are using the shortcut method, you need to keep records showing the amount of time you have spent working from home.
This could be in the form of timesheets, rosters, a diary or similar document that sets out the hours worked.
Question: If I claim my actual running expenses, what records do I need to keep?
Answer: If you are claiming your actual running expenses, you need to retain receipts for expenses along with records showing your work-related use.
Using myDeductions in the ATO app is an easy and convenient way to keep your records in one place.
Question: Can I claim for my rent or mortgage and will this affect capital gains tax if I sell my house?
Answer: Occupancy expenses relating to your home – such as rent, mortgage interest, property insurance and land taxes – will not become deductible merely because you are required to temporarily work from home due to COVID-19.
People have asked whether working from home will disqualify them from claiming the main residence capital gains tax exemption when they sell their home.
Because working from home in the current circumstances does not, in and of itself, create an entitlement to claim deductions for mortgage interest, you will not lose any part of the main residence exemption.
Work-related car expenses
Question: I claim my car-related expenses using the logbook method.
Will I need to keep a new logbook for an updated representative period of private and business usage during COVID-19?
Answer: No, you are not required to keep a new logbook for the period in which your travel has been affected by COVID-19 as long as you account for any variation in the use of the car when working out your business kilometres and your business use percentage at the end of the income year.
When working out your business kilometres at the end of the income year, you need to make a reasonable estimate based on any logbooks, odometer records or other records you have.
For the period in which your travel has been affected by COVID-19, you may keep a new logbook if you think it will provide a more accurate indication of your business use of the car.
However if your overall business usage has not changed and you are merely using the car less, the odometer readings will reflect this and you will not need to keep another logbook.
Medicare levy surcharge
Question: If I suspend my private health insurance due to losing my job and my income for Medicare Levy Surcharge (MLS) purposes is above the threshold will I be liable for MLS?
Answer: If you and all of your dependants were not covered by an appropriate level of private patient hospital cover, and your income for MLS purposes is above a certain threshold, you may be required to pay the MLS.
The rate of MLS depends on your income for MLS purposes.
This applies unless you (and your dependents if you have them) are exempt from paying the Medicare levy (see Surcharge exemption categories).
The base income threshold (under which you are not liable to pay the MLS) is $90,000 for singles and $180,000 for families (plus $1,500 for each dependent child after the first).
However, you do not have to pay the MLS if your family income exceeds the threshold but your own income for MLS purposes was $22,801 or less.
This amount was increased from $22,398 to $22,801 as part of the government’s economic response to COVID-19.
If you are liable for the MLS, we will work it out based on the information you provide in your tax return.
We will include it with your Medicare levy and it will show as one amount on your notice of assessment called Medicare levy and surcharge.
If you want to calculate your Medicare levy surcharge, use the Income tax estimator.
Question: If I lose my job and suspend my private health insurance part way through the year will I get a partial exemption from the Medicare levy surcharge, if my income for MLS purposes is above the threshold?
Answer: If you hold hospital cover but temporarily suspend payments for that cover, then you may have to pay the MLS to account for the days that you did not hold the appropriate private patient hospital cover.
This will be determined from the information that you provide in your tax return and that is supplied to the ATO by your private health insurance provider.
If you were in an exemption category (see Surcharge exemption categories) for the whole of the year then you do not have to pay the surcharge.
At home learning expenses
Question: I am a working parent with school-aged children who are learning from home during the COVID-19 crisis.
Will I be able to claim a deduction for the costs associated with setting them up for learning?
Answer: No, costs relating to your children’s education are personal expenses and not deductible.
Examples of costs include:
- setting them up to do online learning
- teaching them at home
- purchasing school supplies or items like desks, iPads, or sporting equipment.
If you are an employee who is working from home, you can only claim a deduction for expenses that are directly related to your work.
Question: I have lost my job as a result of COVID-19 and have found another job.
Will I be taxed at a higher rate because it is considered a second job?
Answer: No, if you have lost your job, then you are entitled to claim the tax free threshold to reduce the amount of tax that is withheld from your pay from your new job.
Second jobs usually have a higher amount of tax withheld from your pay because you already have another job from which you are earning income and are claiming the tax free threshold. Withholding at a higher rate reduces the likelihood of you having a tax debt at the end of the income year.
When you start your new job, your employer will give you a tax file number declaration to complete.
Centrelink is also a payer and they will give you this form if you apply for their payments.
You tell your new employer that you want to claim the tax-free threshold by answering ‘Yes’ at question 8 ‘Do you want to claim the tax-free threshold from this payer?’
You do not have to claim the tax-free threshold if you want a higher amount of tax withheld from your pay.
You can see how much tax you employer will withhold from your payment by using the tax withheld calculator.
Not an Australian resident, temporarily in Australia
Question: I am not an Australian resident. I am staying in Australia for longer than I expected because of COVID-19. What are my Australian tax obligations?
(Updated) Answer: If you are not an Australian resident for tax purposes, you will be assessable only on income from an Australian source subject to the application of any applicable Australian double tax agreements (see the question on double tax agreements).
You may need to lodge an Australian tax return if you earn any assessable income from an Australian source.
Your Australian tax obligations will otherwise generally remain unchanged.
You may need to lodge an Australian tax return if you become an Australian resident for tax purposes.
As an Australian resident all Australian-sourced income, including salary or wage income and investment income, will be assessable.
All foreign-sourced income will also be assessable unless you are an Australian resident who is a temporary resident.
Question: Will my tax residency for tax purposes change as a result of me returning to Australia due to COVID-19?
Answer: Whether you are a resident for tax purposes in Australia is a question of fact that requires consideration of your circumstances.
If you are here temporarily for some weeks or months because of COVID-19 then you will not become an Australian resident for tax purposes as long as you:
- usually live overseas permanently
- intend to return there as soon as you are able to.
However the tax residency issue may be more complicated if you:
- end up staying in Australia for a lengthy period
- do not plan to return to your country of residency when you are able to do so.
We appreciate that there will be unique situations with a range of potential tax outcomes.
We will update and may revise this advice progressively as events unfold.
Question: What happens if I earn employment income that is paid leave while I am in Australia temporarily?
Answer: If you usually work overseas and earn foreign-source employment income and you have been on leave since arriving in Australia, the income you receive from your foreign employer for paid leave (such as annual or holiday leave) is not from an Australian source so you do not need to declare it in Australia.
Question: What happens if I earn employment income that is salary and wages from continuing my foreign employment (working remotely) while I am in Australia temporarily?
Answer: Whether employment income you earn is assessable depends on whether it is from an Australian or a foreign source.
It also depends on whether a double tax agreement applies (see the question on double tax agreements).
The source of income always depends on the facts.
Usually the place where the employment is exercised is very significant when deciding the source of employment income (salary or wages).
However, in certain circumstances other factors may be more significant.
COVID-19 has created a special set of circumstances that must be taken into account when considering the source of the employment income of a non-resident who usually works overseas but instead performs that same employment in Australia as a result of COVID-19.
In this situation, we accept that, if the working arrangement is short term (three months or less), the employment income will not have an Australian source.
Example: Short term working arrangement for three month period
Eric is a financial advisor who came to Australia for a holiday on 20 December 2019, intending to leave at the end of January 2020.
Eric decided not to leave Australia because of COVID-19 but intended to return to his usual country of residence as soon as it was safe to do so.
He started working remotely in Australia on 1 February doing the same things he would normally do in his country of residence for his foreign employer.
The three month period starts on 1 February 2020 and ends on 30 April 2020. It does not matter if Eric is a full-time or part-time employee.
Eric’s employment income for this three month period will not be considered to have an Australian source.
For working arrangements that last longer than three months, all your facts and circumstances will need to be examined to determine if your employment is connected to Australia.
This includes whether:
- the terms and conditions of your employment contract change
- the nature of your employment activities change
- you commence performing some work for an Australian entity affiliated with your employer
- the economic impact or result of your work shifts to Australia
- your economic employer – the entity to which you are providing your services – is in Australia (see Taxation Ruling TR 2013/1)
- you perform work with Australian clients
- the performance of your work is otherwise wholly or to a significant degree dependent upon you being physically present in Australia to complete it
- Australia becomes your permanent place of work
- your intention towards Australia changes.
In some limited situations your employment income may not have an Australian source.
This may be the case if all of the following apply:
- The only thing that has changed about your employment is that you are now doing it from Australia as a result of COVID-19.
- There are no other connections to Australia.
- You intend to leave Australia as soon as you are able to do so.
Example: Circumstances of employment change to an Australian source
Jane is an IT professional residing overseas servicing software applications for her employer.
She is able to undertake these tasks remotely from anywhere in the world.
On 1 March 2020 she decides to return to Australia temporarily as a result of COVID-19, continuing to work exclusively for her foreign employer from Australia for as long as she is able.
Everything else about her employment remains unchanged until 1 May 2020, when, due to a shortage of work with her foreign employer, she begins to also undertake similar work for a related Australian entity.
In relation to the Australian work, she is assigned work by, and reports to, an Australian manager.
The employment income Jane derives between 1 March and 30 April 2020 is foreign sourced as it is not connected to Australia.
The employment income Jane derives from 1 May 2020 is Australian sourced due to the change in her employment circumstances.
From 1 May 2020, Jane’s employment income is assessable to her in Australia, subject to the application of the 183 day exception, which is explained in the question on double tax agreements.
Question: What if I get a wage or salary in Australia and my home country has a double tax agreement with Australia?
Answer: Australia’s double tax agreementsExternal Link (DTA) provide that, in certain circumstances, employment income derived by a person who is a resident of the other country (after applying the DTA tie-breaker rules) from performing employment duties in Australia for a short period will not be taxed in Australia.
Each DTA must be checked carefully as the wording, conditions and time periods vary from DTA to DTA.
Generally, employment income will not be taxed in Australia if:
- you are a resident of a country with which Australia has a DTA (the DTA country)
- you are not present in Australia for more than 183 days in aggregate in either an income year or a 12-month period (depending on the applicable DTA)
- your salary and wages are paid to you by, or on behalf of, an employer that is not a resident of Australia
- your salary and wages are not deductible against the profits of an Australian permanent establishment of your employer.
For some DTAs, the 183 days do not necessarily all have to be in the same income year, and there may be breaks in the aggregate.
Example: accumulation of more than 183 days
Ian spent the following time in Australia:
- 15 December 2019 to 3 January 2020 (20 days)
- 10 March 2020 to 1 October 2020 (176 days)
As Ian’s period of time in Australia exceeds 183 days, the DTA does not apply to prevent Australia from taxing Ian’s salary or wages from an Australian source in the 2019–20 and 2020–21 income years.
Residents temporarily overseas
Question: I am working overseas because of COVID-19. What are my Australian tax obligations?
Answer: If you usually live and work in Australia but you are temporarily overseas as a result of COVID-19, there is no change to your Australian tax obligations.
If you are required to pay foreign income tax overseas, a foreign income tax offset will ordinarily apply to reduce your Australian tax payable.
Question: Under the COVID-19 early release of super arrangements, can I make more than one application in the same financial year as long as I don’t withdraw more than $10,000 in total in either the 2019–20 or 2020–21 financial years?
Answer: No. From now until 30 June 2020, a member can make one application for a determination in the 2019–20 financial year, up to $10,000.
From 1 July 2020 to 24 September 2020, a member can make one application for a determination in the 2020–21 financial year, up to $10,000.
A member who requests an amount of less than $10,000 in their application in either financial year cannot make a subsequent application in the same financial year, even if it is an application to release the difference between the originally requested amount and the $10,000 limit.
Question: I am a temporary resident. Can I access my super under the COVID-19 early access arrangements?
Answer: It depends on your situation.
Certain eligible temporary residents can apply to access up to $10,000 of their super until 30 June 2020.
Otherwise, if you have worked and earned super while visiting Australia on a temporary visa, you can apply to have this super paid to you as a departing Australia superannuation payment (DASP) after you leave.
Question: My income has decreased due to the downturn in the economy and I can’t afford to pay my expenses. Can I access my super?
Answer: You may be allowed to withdraw some of your super on compassionate grounds to help deal with the adverse economic effects of COVID-19.
From mid-April you will be able to apply online through myGov to access up to $10,000 of your superannuation before 1 July 2020.
You will also be able to apply to access up to a further $10,000 from 1 July 2020 until 24 September 2020.
To apply for early release, you must satisfy one or more of the following requirements:
- You are unemployed.
- You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance.
- On or after 1 January 2020, any of the following happened
- You were made redundant.
- Your working hours were reduced by 20% or more.
- You were a sole trader and your business was suspended or your turnover decreased by 20% or more.
The amount of super released early under these circumstances will not be included in your assessable income.
Buying protective items
Question: Can I claim a deduction for gloves, face masks, sanitiser, anti-bacterial spray that I use at work due to COVID-19?
Answer: You may be able to claim a deduction for protective items you purchase and use at work. To be deductible both of the following must apply:
- You must have incurred the expense yourself.
- It must have a sufficient connection with the earning of your assessable income, which means
- you are exposed to the risk of illness or injury in the course of carrying out your income earning activities
- the risk is not remote or negligible
- the protective item is of a kind that provides protection from that risk and would reasonably be expected to be used in the circumstances
- you use the item in the course of carrying out your income earning activities.
If your specific employment duties require you to have physical contact or be in close proximity to customers or clients while carrying out your duties or you are involved in cleaning premises, you can claim a deduction for expenditure on protective items.
Examples of this type of work include the:
- medical industry (such as doctors, nurses, dentists and allied health workers)
- cleaning industry
- airline industry
- hairdressing and beautician industry
- retail, café and restaurant industry.
If you work in these industries or occupations, the risk is not remote or negligible.
If you use items for both work-related and private purposes, you can only claim a deduction for the portion of the expense that relates to your work-related use.
Residential rental properties
Question: My tenants are not paying their full rent or have temporarily stopped paying rent because their income has been adversely affected by COVID-19.
Can I still claim deductions on my rental property expenses?
Answer: Yes. If tenants are not meeting their payment obligations under the lease agreement due to COVID-19 and you continue to incur normal expenses on your property, then you will still be able to claim these expenses in your tax return.
Question: I’m considering reducing the rent for tenants whose income has been adversely affected by COVID-19 to enable them to stay in the property.
The tenants are not in default of their rent.
Will my deduction for rental property expenses be reduced because of this?
Answer: No. If you decide to reduce the rent to enable your tenants to remain in the property (thereby maximising your rental return in a changed rental market), your deduction for rental property expenses will not be reduced.
Question: If I receive a back payment of rent or an amount of insurance for lost rent, is this amount assessable income?
Answer: Yes. These amounts should be declared as income in the tax year in which you receive the amounts.
Question: If the bank defers loan repayments for a period of time as a result of COVID-19, can I continue to claim interest on the loan as a deduction?
Answer: Yes. If interest continues to accumulate on your loan, it will be an expense that you have incurred and is therefore deductible.
Interest remains deductible on the loan even if the bank defers the repayments.
Question: Can I access the new instant asset write-off for my property?
Answer: No. If you are a property investor, you cannot access the instant asset write-off deduction.
Short-term rental properties
Question: COVID-19 is adversely affecting demand, including cancellation of existing bookings, for a property that I currently rent out as short-term accommodation.
I have previously had some private use of the property.
Will I be able to continue to deduct expenses associated with this property in the same proportion as I was entitled to claim before COVID-19 for the period that demand is adversely affected?
Answer: The amount you can claim will depend on how the property had been used before COVID-19 and how you had planned to use it during the COVID-19 period.
If the reason for the adverse effect on demand for your property is because of COVID-19 (or the bushfires before this), you can continue to deduct expenses associated with your property in the same proportion as you were entitled to deduct before COVID-19.
If you had started to use the property in a different way than before COVID-19, the proportion of expenses you can claim as a deduction may change.
Examples of changed use include:
- increased private use of the property by you, your family or your friends
- a decision to permanently stop renting out your property once the COVID-19 restrictions end.
Question: I would like to stop paying for advertising on my short-term rental property during COVID-19 as I am not getting any queries for the property. Can I still claim deductions associated with holding the property?
Answer: It depends on a wider range of factors, not just one.
Whether active and bona fide efforts are made to ensure a property is available for rent is only one factor to consider when determining the appropriate method to apportion deductions for a short term rental property.
You would need to consider how the property had been used before COVID-19 and how you plan to use it during the period now adversely affected by COVID-19.
During this time we acknowledge it may be a reasonable commercial decision to temporarily reduce the level of paid advertising for your property, depending on the restrictions in your property’s locality.
However this factor alone doesn’t necessarily determine the allowable proportion of your deductions.
Question: I am using my holiday home privately for myself and my family so we can isolate during COVID-19. Can I continue to claim deductions for the property for this period, as I am unable to rent the property commercially?
Answer: No. If you are using the property yourself or providing it to friends or family, this will increase your private usage of the property and reduce the deductions you can claim.
Note: This is not Financial or Taxation Advice, but was sourced from The Australian Taxation Office. Find out what support is available, including JobKeeper payments, early release of superannuation and minimum drawdown rate options at the ATO Website
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