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It’s no secret that the global COVID-19 pandemic changed many aspects of our lives and now that COVID appears to be here to stay, it’s time to learn what it means for your tax return.
If you’re like the millions of other Australians who’ve had their work arrangements change, it’s important you understand how your tax refund could change as a result.
4 ways COVID can impact your tax return
The following items can be listed on your tax return – and they will often boost your tax refund:
- Working from home expenses
- Work related COVID purchases like RAT tests
- Change of income
- Government support payments
1. Working from home COVID tax deductions
If you made the switch to a hybrid (or full time work from home) working style due to COVID, then you could be eligible to claim your work from home expenses and boost your refund.
Work from home deductions are the expenses you incur while working from home (e.g lighting, heating, cooling, phone, internet expenses and home office equipment).
From 2023 there are two methods individuals can use to calculate work from home expenses:
Revised Fixed Rate Method
67c per hour worked at home, which covers things like your internet, mobile phone, electricity, and stationery.
Actual Cost Method
The amount of actual running expenses incurred. This method allows you to claim your deductions separately at the rate you use them.
Which work from home deduction method should I choose?
Don’t worry if you’re not sure which method is best for you. The Etax tax return has inbuilt smarts which automatically calculates all work from home deduction methods in the background and selects the method which gives you the biggest possible refund!
2. Work related COVID purchases
Some of the most common COVID work related purchases that may be tax deductible include:
- Working from home purchases such as Laptop, Furniture, Printers etc. (above mentioned work from home rules apply)
- Rapid Antigen Tests (RATs) and Personal Protection Equipment (PPE)
Are Rapid Antigen Tests (RATs) tax deductible?
Yes! Provided that your RAT expenses satisfies the following conditions:
1. It is a requirement of your employer. This means you are required to show a negative test result before starting work.
2. RATs are not supplied by your employer and they do not reimburse you for the cost of purchasing your own.
3. You have detailed records (and receipts) of how many RATs you used during the financial year for work. If you purchased your RATs in bulk, you can only claim the ones you used for work related purposes, not the whole lot. For example, if you purchase 100 RATs for $1,000 ($10 per RAT) but only use 30 RATs for work purposes, then you can only claim $300 (30 x $10 per RAT) as the tax deduction on your return.
More broadly speaking, the same three criteria above will also likely apply to other PPE equipment you buy for work such as masks, gloves and sanitiser.
When can’t I claim an item on my tax return?
You can’t claim a purchase on your return if your employer already provides them at your workplace.
For example; if your workplace has supplied equipment to facilitate working from home (such as a computer or monitor) then you cannot buy another one of the same item and claim it back on your return.
Same applies to facemasks. If your workplace has introduced a policy where facemasks must be worn at all times, but have supplied all staff members with facemasks, then your individual purchase of facemasks cannot be claimed on your return.
COVID work purchases over $300
If you purchase a work-related item such as a laptop that costs over $300, you can’t claim it in full on your next tax return. Instead, it is claimed over the ATO defined working life of the item. Assets you purchase all have different “working lives” so it’s important to check with your Etax accountant about this one.
3. Change of Income due to COVID
Loss of income
If your income decreased due to COVID, then you may find yourself with a larger than expected tax refund. Here’s why…
Each week, your employer taxes you a set tax rate. This is calculated based on your expected yearly income.
However, if you lost your job, or had your hours reduced, the tax rate from the start of the financial year might have been too high for what your yearly income ends up being.
If you fall into this category any extra tax you paid during the year will be used to bump up your tax refund.
Increase of income
If you had an increase in your income due to COVID, then the opposite may apply to you.
As your final tax rate is calculated on your end of year income, if you had a substantial increase in income it may mean for the portion of the year where your income was lower you may not have been paying enough tax. Especially if your new income stream pushed you into a new tax bracket.
You can read more about tax brackets here.
4. COVID Government support payments
The Australian Government provided a number of economic support payments to assist individuals during the Pandemic. You can read more about the type of support payments here.
Some payments are considered to be taxable income and need to go on your tax return, while others are tax free and do not need to be included.
COVID support payments you must declare on your tax return
JobSeeker and JobKeeper payments
Both JobSeeker and the JobKeeper payments are considered taxable income and need to be included on your tax return.
If you were a Sole Trader and received the JobKeeper payment, this is also considered to be part of your taxable income.
The JobSeeker payment will be issued as an income statement by Centrelink. Whereas the JobKeeper payment will appear on your income statement issued by your employer as they’re the ones who paid you the JobKeeper payments.
Support for those who can’t earn an income because you tested positive to COVID-19 and work in a high-risk setting as determined by the Australian Government, read more here.
COVID support payments which are NOT taxable income
The following payments are not considered taxable income and therefore do not need to be included in your tax return.
COVID-19 Disaster Payment
Lump sum payments made via Services Australia to assist people who were unable to work in their usual job, due to lockdowns or restrictions.
IMPORTANT: Covid-19 Disaster Payments were originally classified as taxable income when they were introduced but have since been re-classified.
If you included Covid-19 Disaster Payments in your 2020-2021 tax return, you should lodge an amended tax return. It’s possible you’ll get a refund!
You do not need to include Covid-19 Disaster Payments for the 2021-2022 financial year in your tax return.
Economic Support Payments
One-off payments made between:
- $750 – March 2020 to July 2020
- $250 – December 2020 to March 2021
Early Access Super
One-off payments of up to $10,000 from your superannuation fund, prior to July 1 2020. After July 1, eligible Australians were able to access an additional sum of up to $10,000 for a further 3 months. Only eligible to those who suffered financial hardship as a result of COVID.
Need more help?
That’s ok, we are here! If you’re unsure how to maximise your claim from COVID, our Etax Accountants are ready to help. Simply use the live chat or the message function in your Etax account and let us know how we can help!
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