2020/21 has been challenging for almost all of us. Australian government came up with the COVID‑19 Economic Recovery Plan with specific measures to help individuals and small businesses financially impacted by COVID-19. As a result, 2020/21 tax return has some changes individuals and sole traders should be aware of.
Here are some of the changes more commonly applying to individuals and sole traders.
1. Low-Income Tax Offset and Low-and-Middle-Income Tax Offset!
Federal Budge 2020/21 increased low-income tax offset for FY 2020/21 to $700 from $445. Full low-income tax offset of $700 will be available for taxable income of $37,500 or less.
Low- and middle-income tax offset will continue to be available for 2020/21 and as a result individual taxpayers may get a maximum of $1,080 tax offset. This is in addition to the low-income tax offset.
Please note that a tax offset is not a refund and this can only reduce the amount of tax payable. Further, this offset will automatically be calculated based on the income level and individuals and sole traders don’t need to complete any section in their tax return to get this offset.
2. Change in tax threshold for lower individual income tax!
Stage two of the Personal Income Tax Plan was brought forward from 1 July 2022 to 1 July 2020 resulting in below changes for 2020/21.
• the top threshold of the 19% personal income tax bracket increased from $37,000 to $45,000
• the top threshold of the 32.5% personal income tax bracket increased from $90,000 to $120,000
Amounts withheld under the old schedules before Federal Budget 2020/21 will be automatically taken into account when lodging 2020/21 tax return.
3. Jobkeeper and Jobseeker payments
Both Jobkeeper and Jobseeker payments are taxable for individuals and sole traders and need to be declared as income on tax return.
Jobkeeper payments: For employees, their employer will report the payments as salaries or wages on employees’ income statement. Therefore, for employees Jobkeeper payments will automatically pre-fill.
It is important for sole traders who received Jobkeeper payments on behalf of their business to include the payments as assessable income for the business on their individual tax return. When using a tax agent for their tax returns, sole traders should provide the Jobkeeper payment amount.
Jobseeker payments: Jobseeker payments will be pre-filled as “Australian Government allowances and payments”. However, please note that this may take couple of weeks after the end of the Financial Year.
4. Working from home
Temporary ‘short-cut method’ for working from home which was available for 1 March 2020 to 30 June 2020 has been extended for 2020/21 full financial year. The short-cut method allows deduction at 80 cents per hour for every hour worked from home.
For further details on working from home rules, you can refer to our post on ‘working from home rules’; here is the link.
5. Early release of superannuation due to COVID-19
Early super accessed under the COVID-19 early release of super program is not further taxable and therefore doesn’t need to be declared in the tax return. However, amounts early released under other circumstances must be included in the tax return.
6. Changes to payment summaries
Most of the employers have now implemented single touch payroll (STP) through which employees’ income, tax and super information is directly reported to ATO. Individual tax payers can now access income statement with details of income, tax and super through myGov. For this reason, employers now usually don’t send payment summary to employees. When registered tax agent is used for tax returns individual taxpayers don’t need to provide payment summary or income statement to the agent. Employers should finalize and mark income statement of their employees “Tax Ready” by 14 July.