Keep in mind the following information is General Advice and is obviously not personalised for your unique needs, objectives or financial situation. Please get in touch with your advisor before taking any action on the below points so they can advise on the appropriateness of this for you.
With the cheers, party poppers and champagne clinks on New Year’s Eve also inevitably came a collective sigh of relief in lieu of the traditional fireworks, with the realisation that the fabled 2020 had finally drawn to a close. With the days of lockdown, constant sanitisation and toilet paper panic buying behind us we can all start focusing on the good stuff – holidays, socialisation, elective surgery and of course – tax.
2021 heads both new and familiar tax players to create the dream-team to achieve those be-more-tax-savvy New Years’ resolutions. Super contribution perks are the number one draft pick with personal contributions more accessible and desirable than ever, COVID concessions and grants continue to pulse the 2020 hangover, and we also enclose a cautionary nugget of wisdom on substantiation. Read on to arm yourself with the fool-proof 2021 tax artillery.
- Carried forward personal superannuation contributions threshold
- Downsizer superannuation contributions
- COVID-19 working-from-home personal tax deduction rate extension
- Small business immediate asset write-off threshold
- Non-assessable non-exempt Victorian government grant income
- Substantiation and logbooks
Carried forward personal superannuation contributions threshold
While it is widely known that individuals are allowed a deductible concessional contribution each financial year to the extent of the deemed cap ($25,000 for the 2018 financial year onwards), we want to shed some much-needed light on the reality that individuals can carry forward unused cap amounts from up to five previous financial years (starting from the 2019 financial year) – subject to the individual’s superannuation balance being $500,000 before the start of the financial year in which the unused cap is to be utilised. For 2021 tax returns, this means a best-case scenario deduction of $75,000 – a huge clawback of tax for contributing money to your superfund that you are going to be able to access anyway (eventually).
Irregular income-earners, in particular, will benefit from this, as they can ‘catch up’ on their personal superannuation contributions if they have the financial capacity to do so – for instance, individuals who have received money from a sale and/or incurred a taxable capital gain.
|Financial year||Concessional cap||Maximum deduction with no concessional cap used in the previous year|
Think of it as a particularly longstanding term deposit – with a return on investment at the rate of your marginal tax rate (if you can stand to wait a few years to access the principal). Speaking of waiting, if you want to hit pause on this tax tip, feel free to get utilising any time over the next few years – regardless, you’ll only ever have the previous five financial years of unused cap available to you. In any case, a lot of the big player superfunds require a stifling three or four weeks’ notice if you’re to get your contribution in and processed before 30 June 2021 cut-off – so if not this year, then next.
Something to watch out for before you start daydreaming about how you’re going to spend all that sweet tax refund money – your concessional cap is eaten away by employer contributions (whether it be the compulsory 9.5% SGC or otherwise) as well as personal contributions.
Downsizer superannuation contributions
If you are 65+ and meet the eligibility requirements* (see below for an excerpt of the ATO website) you can make a contribution to your superfund from the proceeds of selling your home of up to $300,000, without eating up your contributions cap or superannuation balance (and even if you have a total super balance greater than $1.6m). It’s a great opportunity to top up what you’ve saved in super if you haven’t had the chance (or if you’ve just been devoted to traversing Europe), and there’s no requirement to buy a new home if you’re planning on moving into your firstborn’s granny flat for some well-deserved pay-back free rent.
A couple of important factors to take into consideration:
- It will count towards your transfer balance cap
- You can only make the downsizer contribution once
- The contributions are non-deductible
An added bonus is that if the home that was sold was only owned by one spouse, the non-ownership spouse can also make a downsizer contribution (provided the other eligibility criteria are met). All’s fair in love and real estate!
Speak to your trusted Morrows superannuation advisor today to learn more about the carried forward personal superannuation contributions threshold and the downsizer superannuation contributions scheme.
COVID-19 working-from-home personal tax deduction rate extension
Long ago (April 2020) in a galaxy not so far, far away, the ATO announced they would be introducing a temporary, 80c per hour worked from home tax deduction for the period 1 March 2020 to 30 June 2020 requiring minimal substantiation. This method has now been extended to 30 June 2021, and workers should continue to keep a record of the hours they work from home (through timesheets, rosters, diaries or similar). Hot tip – as the shortcut method covers all eligible home office expenses this means you cannot claim usual expenses such as mobile phone or internet costs concurrently. If you feel the 80c per hour does not accurately represent the costs of your home office you can continue to use the old method and claim 52c per hour, whilst still being able to claim other applicable home office expenses – rest assured your trusted Morrows advisor will investigate all options to maximise your deduction.
Another unfortunate drawback is that despite caffeine being as necessary as a computer for many, the ATO has deemed coffee, tea and snacks consumed while working from home ineligible as office expenses. R.I.P. to the daily $5 spent on a coffee down the street.
Small business immediate asset write-off threshold
If you read the riveting Morrows Federal Budget blog, you might remember the Budget’s crown jewel – the unlimited asset write-off threshold. Up to 30 June 2022, businesses with an aggregated turnover of up to $5 billion can claim an immediate deduction for the value of:
- New depreciating assets;
- The cost of improvements to existing eligible assets; and
- For small and medium-sized businesses (aggregated annual turnover of less than $50 million) – second-hand assets
Assets must be installed and ready for use by 30 June 2022 – plenty of time to window-shop. As well as a tax deduction, combined with the new loss carry back rules a high-cost asset purchase could tip your business into loss territory which could then be carried back to prior year profits – so a refund of tax already paid could be on the cards as well.
Before you hit up the Lamborghini dealers, remember that the luxury car limit remains at $59,136 for the 2021 financial year, meaning only the business portion of this amount can be immediately deducted in the year of purchase.
NANE Victorian government grant income
As if grant income isn’t delightful enough in its own right, the government has announced that grants from the Business Resilience Package are non-assessable, non-exempt (NANE) income – meaning businesses don’t have to pay tax on it. This ploy is still green – grant payments that are not deemed by the government as explicitly NANE will continue to be taxable income, and NANE-status will be determined on an application by application basis (currently restricted to grant programs announced post-13 September 2020).
While the tangible benefits may still be unclear, this measure takes an important step to ensure that the full amount of these COVID-inspired grants remain in the hands of businesses in need; rather than requiring them to serve the Tax Office up a generous slice of the pie months later.
Substantiation and logbooks
Before you hit snooze on the word ‘substantiation’, heed this warning: in light of an expensive year for the government, and somewhat trust-based cash flow boosts, grants and JobKeeper payments, the ATO will be more stringent than ever ensuring their dollars have gone to the right pockets. Be prepared to justify your grant and JobKeeper applications, as that knock at the door could come at any time over the next few years.
Individuals should also tread lightly with work-related expense deductions and check that logbooks are up to date were using this method to claim work-related car expenses. Logbooks are valid for five years, and receipts, loan documents and tax invoices should also be kept for five years.
Get in touch with your Morrows tax and business advisor to find out how you can not only stay on top of but take advantage of those updates and COVID-19 concessions.
*Eligibility for the downsizer measure
You will be eligible to make a downsizer contribution to super if you can answer yes to all of the following:
- you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
- the amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged on or after 1 July 2018
- your home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale
- your home is in Australia and is not a caravan, houseboat or other mobile homes
- the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
- you have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution
- you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
- you have not previously made a downsizer contribution to your super from the sale of another home.