Article | 6-minute read
This tax-return season, Australians will have to take into account a global pandemic that was already impacting the economy on 1 July 2020 and continued to do so for the next 12 months.
Tax time is often demanding for affluent Australians, who are disproportionately likely to have investment properties, share portfolios and trusts. But, like all Australians, the affluent are likely to find finalising their tax returns particularly challenging this time around given the extraordinary events that have unfolded since March 2020.
Below, Scott Riddell, a Senior Financial Adviser at ANZ Private Bank & Advice, highlights the issues high-income earners (typically considered to be those with an annual household income above $250,000) need to keep an eye on in the lead up to 30 June.
Scott suspects few affluent Australians needed to dip into their super due to financial hardship during 2020. But he’s got reassuring news for those that did. “Withdrawing super under the COVID-19 early release of super scheme – or for any reason at all once you’ve reached 60 – has no tax implications,” he says. “If you earned $250,000 from your job or business and also withdrew $20,000, your assessable income is $250,000 not $270,000.”
The two things to be aware of with super, Scott says, is that the Transfer Balance cap, which has remained at $1.6 million since 2017, will be rising to $1.7 million on 1 July and the standard arrangements about minimum annual payments will be coming back into force after being temporarily relaxed during the pandemic.
“From 1 July, people may be able to contribute a little extra money in their super,” he says. “Also, if you’re, say, a 65-year-old, you’ll need to go back to drawing down at least 5% of your super balance every year, rather than only half that amount, which was the temporary arrangement put in place during the 2020-2021 financial year.”
Scott’s final suggestion regarding super is for the self-employed to maximise their contributions before the end of the financial year.
“If you’re a highly paid employee, you may have already maxed out your allowable contributions,” he notes. “But with everything going on over the last 12 months, many self-employed high-income earners may have neglected to pay themselves as much super as they can without going over the $25,000 cap.”
As usually happens, there will be some tweaks to the taxation arrangements around trusts coming into effect on 1 July, but there is nothing much to see here, Scott reports.
Unsurprisingly, the tax implications of JobKeeper have generated confusion among Australians of all income levels. Especially once certain businesses began giving in to pressure to return JobKeeper payments.
Scott has reassuring news for those worried about being penalised for taking advantage of the Federal Government’s largesse.
“While some big businesses chose to repay JobKeeper payments, no business is under a legal obligation to do so,” Scott says. Likewise, there’s no need to panic if you’re a business owner who claimed JobKeeper yourself but ended up suffering less of a financial hit than you expected this financial year.
“Few well-paid employees needed to avail themselves of JobKeeper; they just shifted from their office to their home office and kept working,” Scott says. “The situation for business owners was more complicated. Plenty of them had to shutter their business during the lockdowns and many of them received JobKeeper. But they don’t have to pay the JobKeeper money back as the original ‘decline in turnover’ test only needed to be met once to qualify for payments through to September 2020, even if it turns out their business revenue declined by less than 30% over the entire 2020-2021 financial year. To put it more simply, those who qualified for JobKeeper payments won’t have to pay that money back just because their financial situation didn’t end up being as dire as they feared.”
Scott found few of his clients increased or decreased their charitable giving after the pandemic struck. However, it wasn’t uncommon for them to assist family members, especially children, who had been affected by COVID-19.
“Some of my clients gave money to family members whose incomes had fallen or disappeared due to the lockdowns to tide them over,” he says. “And some of them encouraged their kids to purchase a home while it was a buyer’s market and gave them money towards a deposit.”
These kinds of gifts don’t have any tax implications for either the giver or receiver. “It’s a different story if you’re signing over ownership of an asset such as a property or shares, but there are no tax implications for either party if a parent gives their child, for instance, $200,000,” Scott says. “The child doesn’t have to declare that $200,000 as assessable income to the ATO.”
(It should be noted that gifting money can have consequences in other contexts. For instance, those approaching retirement can’t gift lots of money to their children in order to drop beneath the threshold where they qualify for a full or partial age pension.)
In relation to rental properties, Scott says landlords should check if granting their tenant a rent holiday has propelled them into negative-gearing territory. “There are no positive or negative tax implications for either party if a landlord and tenant agreed to suspend rent payments for a period of time,” Scott says. “But if receiving less rent than usual meant your outgoings were greater than the income you received from an investment property this financial year, you can negatively gear it.”
Working from home expenses
If you spent money on a new laptop or a chair for your home office, you can claim those expenses. You have the option of either presenting the ATO with an itemised list of work-related expenses, as you would at the end of any other financial year, or taking advantage of the ATO’s pandemic-era ‘shortcut method’. This allows Australians to claim a deduction of $0.80 for each hour worked from home during the 2020-2021 financial year.
Instant asset write-offs
“The instant asset write-off has been around for a while and most business owners understand how it works,” Scott says. “But they should be aware that, post-pandemic, the threshold for claims went from $30,000 to $150,000. Any business with a turnover of less than $500 million – which is pretty much all of them bar multinationals – was eligible to immediately deduct the cost of business equipment costing $150,000 or less this financial year.”
In Scott’s experience, most high-income earners are well insured. But he says that any Australian who was motivated to take out income-protection insurance by the pandemic should be aware that it’s tax-deductible. “Unfortunately, life insurance isn’t tax-deductible, but you will receive a 15% tax rebate if you establish it via your super fund rather than directly,” he adds.
Planning for the post-pandemic future
Scott’s clients largely took a business-as-usual approach to their finances throughout 2020 and the first half of 2021, with one exception. “Unsurprisingly, there was a widespread wait-and-see mindset during the worst of the pandemic, with people putting off making any big decisions,” Scott says.
But big decisions can’t be postponed indefinitely. And with both the Australian economy and global economy bouncing back more strongly than expected, those who continue to sit on their hands during the 2021-2022 financial year risk missing out on lucrative investment opportunities.
“There’s never a bad time to speak to a financial expert about achieving your financial and life goals,” Scott says. “But it’s hard to think of a better time than now to book a free, no-obligation first meeting with an ANZ Financial Adviser.”