Tax return considerations for the 2019-2020 financial year
David Chu, Head of International Business, discusses tax return considerations for the 2019-2020 financial year.
David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss a number of tax return considerations for the 2019-2020 financial year amidst the pandemic. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.
Host: David, I understand there have been rumours recently that the ATO have been telling people not to rush with their tax returns. How likely is this news to be true? I know you professionals also have a view, right?
David: Yes. You mentioned the ATO has been telling people not to rush with their tax returns. The ATO did not say that, however, some accounting professionals did. That is not wrong. Everyone needs to file a tax return every year. Due to the pandemic this year, people want to do it earlier and get tax refunds sooner. In fact, the ATO has also released some data, noting that as of mid-July this year, more than 1.7 million tax returns have been lodged, and the ATO has already processed 457,000 tax claims, making refunds of more than $1 billion, averaged at about $2,300 for each claim. The ATO reported that more people filed their tax returns earlier this year than in previous years, an increase of 10% year-on-year.
Host: Are they doing this in order to receive tax refunds as soon as possible?
David: Yes. In the current situation, the unemployment rate has gone beyond 7%, and some informal statistics even show figures above 10%. Even when you are out of work, life has to go on, so some people want to file tax returns and get tax refunds earlier. We note that every time we receive our pay, the employer withholds income tax for us. As some people were underemployed during the first half of this year, and some even lost their jobs, their annual income would naturally decrease. Given the decreased income, the tax withheld by the employer would be more than necessary. By lodging the tax returns earlier, people will get back the refunds sooner. This is reasonable.
Host: Then why did the accountants ask us to slow down our tax filing?
David: There are two reasons. First, when you file your tax return in July, a lot of information about your income has already been submitted to the ATO electronically. Your employer or banks have already submitted your pay or interest information to the ATO. When you file your own tax return, you can read about all your income by logging in to your MyGov account. It is all displayed online and your tax return can be submitted by just one click. However, some organisations might not have done their submission to the ATO in time. Some accountants are worried that if you file your tax too early while some organisations have not done their reporting to the ATO in time, the income information you read on the ATO’s website may not be complete. Then you will need to make supplementary submissions later. Sometimes the ATO will send you a letter asking why you have under-reported. If it is not a large amount, then you can just do a supplementary filing. However, if it is a larger amount, a fine may be imposed. Early tax filing might have consequences of income under-reporting and leave problems for yourself.
In addition, due to the pandemic this year, employees may need to work from home and cannot go back to the office. Therefore, there will be tax relief offered since you will have consumed more water, electricity and gas at home. The ATO will allow deductions for you to claim this year. These expenses can be claimed against your income in tax filing. For these deductions, the ATO provides an option of three methods. The easiest one is, no matter how much water, electricity and gas you use, working from home entitles you to $0.80/hour against your income, and then you just multiply it by the time spent working. Another method is $0.52/hour, plus the work-related proportion of other expenses incurred at home. For example, if a lamp is used at work for two hours, then you will work out a percentage. The third method is reporting your actual expenses, which means your actual costs of working from home. Each method has advantages and disadvantages. The easiest is the $0.80/hour method, which saves you time in keeping detailed records, but it may lead to under-reporting. You will need to figure out which method works best for you. If you file your tax too early and have used the $0.80/hour method, your accountant might say you have underreported it, as the actual amount might be higher than $0.80/hour. Therefore, some accountants will advise you to slow down and do precise calculations, which may be good for you. This suggestion is understandable, for the purposes of claiming more deductions for clients, and reducing tax payments. However, if you use the actual expenses method, the difficult part is keeping all of your invoices and receipts. Can everyone keep these documents properly? Not necessarily.
Host: From the perspective of accountants, which method is advisable? For example, the first one, or the reporting your actual expenses method, which truthfully reflects the situation of the taxpayer, but the third type seems to be the fastest and easiest.
David: Of course, if you can keep complete documents properly and you can show that they can substantiate the actual costs of working from home, then this method might work better for you, as you only need to add up the costs as of 30 June. However, not everyone is able to do so. From the beginning of the pandemic to being advised to work from home, from March to June, if you have kept these documents since the onset, that is undoubtedly excellent. However, if you don’t have these documents, you might not be able to find them, especially those from March. If you rely solely on guessing, you might guess it wrong. A wrong guess may mean over-deduction and tax underpayment, for which there may be penalties in the future.
Host: OK. One last question: It is already the tax filing period, which cuts off at the end of October. When is an advisable time for people to file their taxes? How should they prepare for tax filing?
David: The ATO has always encouraged taxpayers to keep their invoices and receipts. Australia is different from other countries. In Australia, the ATO would initially believe whatever tax deductions you claim, and will give you a tax refund. Nevertheless, the ATO’s system is very sophisticated. How much do people in the same industry report as expenses, and what about people from the same suburb? What about people in the same occupation? The ATO has a sufficiently large pool of information. If the information you provide deviates from the industry or occupation average, the ATO is entitled to investigate you. If you are found to have under-reported your income and over-reported your expenses you may be fined, in addition to making a supplementary tax payment. Therefore, the key is to keep receipts and invoices for all expenses. If you are already doing so, that is great. There is no single rule as to the time of filing. If you have had all the information, of course you can do it as soon as possible. However, if you are not sure that the information is complete, it is not a bad idea to hold off for some time and get the information complete and ready for filing. Many organisations spend a month after 30 June sorting out the information for submission to the ATO. Most of the information should be ready by August. However, if you want to get your tax refund earlier and do not want to wait that long, it is up to you. Some complicated tax filing may need to enlist the help of an accountant. This is helpful because if you file it by yourself, you need to do it before 31 October. If you have an accountant to act on your behalf you will have until early next year or the middle of next year to file your tax. However, if you have a tax claim and file the return a bit later, you will receive the refund later. This is a personal choice. The key is always to have complete records.
Host: This is the most important. If the records are not complete, you have to guess. When the ATO asks you to show the data you filed and you are unable to produce it, the consequences will be serious if you have over-reported your expenses.
David: Yes. Of course no one wants trouble. Keep it as accurate as possible.
Host: Ok. We are very grateful to Mr. David Chu, Head of International Business of ShineWing Australia, for his analysis, and it is advisable that you collect the documents and information during this time and put them in order before filing your tax return. That may be better. Thank you!
David: Thank you Thomas! Thanks everybody.
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David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.
This podcast was originally published on SBS Cantonese Radioon 27 July 2020. Disclaimer: The material contained in this page is in the nature of general comment and information only and is not advice. The material should not be relied upon. ShineWing Australia, and related entity, or any of its offices, employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in the publication.