Individual taxpayers are expected to rush in to lodge their returns early this year as they look to secure refunds, as well as the up to $1,080 low and middle income tax offset (LMITO).
“Loss of employment; reduced earnings; rental property losses due to tenants being unable to pay or have negotiated a lower occupancy rate; deductions for protective COVID-19 measures such as gloves, face masks, sanitisers; and increased working-from-home expenses, are some of the reasons why individuals are planning on lodging early this year with an expectation of a larger than normal refund on offer,” said Andrew Conway, chief executive of the Institute of Public Accountants.
However, a range of COVID-19-related payments — including JobKeeper, JobSeeker and the cash-flow boost — will come into play this tax time, alongside other pandemic-related variables that are set to impact claims.
Mr Conway has cautioned taxpayers from lodging before such information is available on the ATO’s pre-fill, a message that the ATO has been broadcasting in the weeks leading up to 1 July.
“Our strong message is to wait for the information to become available before you lodge; otherwise, you may end up with an unexpected tax bill and angst down the track. Discrepancies will create reverse workflow and expose taxpayers to interest and/or penalties,” Mr Conway said.
“Those who have lost their employment this year and have received JobSeeker will need to wait for Services Australia to load this information into the pre-fill as this entitlement represents income which is taxable and needs to be added to other income.
“Services Australia does not normally withhold tax, so this may adversely impact on the individual’s overall tax situation which may turn a refund into an amount payable depending on personal circumstances. Similarly, if the employers have not withheld the proper amount of tax from JobKeeper payments, this, too, can have an impact on the refund amount.
“Another COVID-19-related issue this year is where a sole trader is receiving JobKeeper as an active participant. This represents income and needs to be included as part of their business income. Also, the cash-flow boost is tax-free and can be excluded from business income.”
Likewise, the Tax Institute’s senior advocate, Robyn Jacobson, believes taxpayers will save themselves the trouble of possible amendments if they wait a few weeks before lodging.
“It is not necessarily optimal to lodge your return as soon as 30 June ticks over. This is primarily because third-party information, such as from banks, health insurance providers and public companies that have paid dividends, takes a little while to come through to the ATO,” Ms Jacobson said.
“If you rush to lodge your tax return early and not all the right information is available, you run the risk of making mistakes or inadvertently omitting income and having to amend your tax return. Why do your tax return twice when you can get it right the first time with a little patience?”
Single Touch Payroll
Employers with 20 or more employees will have until 14 July 2020 to make a finalisation declaration for their Single Touch Payroll data, while employers with 19 or fewer employees will have until 31 July 2020.
Once finalised by employers, the ATO will pre-fill the employee’s income tax return and display the information as “tax ready” in myGov.
“It’s important to check that your employer has finalised the information in your income statement and it is marked as ‘tax ready’ before you lodge,” ATO assistant commissioner Karen Foat said.
“Other information from banks, health funds and government agencies will also be automatically inserted into your tax return. For most people, this will happen by the end of July.
“Lodging once we have included all of your information in your tax return makes it even easier, but if you are lodging before then, make sure the information provided is complete, accurate and up to date to avoid delays or a debt later on.”
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.