In this time of uncertainty, many practitioners will be wondering how they can manage their finances to ensure they are in the best position to see themselves through this period. We have prepared a simple summary below of the key things to consider.
Staying on top of your cashflow
A common financial mistake we see people make is increasing their spending as their income rises. The opposite needs to be true if your income has declined due to COVID-19 and if you do have reduced income, you need to consider what you can do to reduce your expenses accordingly.
Varying tax instalments
The Australian Taxation Office (ATO) is currently allowing taxpayers to vary their quarterly PAYG instalments to a lower amount (or even nil). Taxpayers can also claim a refund for any instalments paid for prior quarters without penalties or interest charges. While this may seem like a great opportunity to increase cashflow, you should first estimate your tax position for the 2019-20 year before deciding whether to vary your instalments. This will prevent you from having a large tax bill when you lodge your 2019-20 tax return.
Varying rent for rooms
It may be worthwhile communicating with your landlord to seek a reduction to your room’s rent. The states and territories have introduced regulations to assist with this process. Seeking a rent reduction may be an easier task if a related party owns the property. Where rooms are owned by a related self-managed superannuation fund (SMSF), the ATO has confirmed that it will not act in relation to temporary rent reductions provided to related party tenants due to COVID-19 during the 2019-20 and 2020-21 financial years.
Use of mortgage offset accounts and redraw facilities
If you have both a home mortgage and an investment property loan / business loan, the home mortgage should generally take priority when making repayments as that loan is generally not tax deductible and thus the after-tax cost is likely to be more than those other loans. You can always park funds in an offset account or use a redraw facility if you wish to access funds.
Understanding your stimulus cashflows
The JobKeeper Payment scheme is a temporary subsidy available for businesses significantly affected by COVID-19. Eligible employers, sole traders and entities can apply to receive $1,500 per eligible employee per fortnight. The scheme will apply until 27 September 2020.
If you are an employer and you have lodged your March 2020 or later activity statement you may have received a Cash Flow Bonus for Employers credit. The first round of credits are paid on the March 2020 – June 2020 activity statements with a minimum of $10,000 up to a maximum of $50,000 credited to each employer during the period. A second round will be credited in the June 2020 – September 2020 activity statements, with the total credits equal to the same amount received in the first round. The timing and amounts depend on how much is reported for PAYG withholding and whether you lodge monthly or quarterly activity statements.
Some states and territories have introduced further assistance to help businesses, including payroll tax relief and grants for small businesses.
The early access initiative allows individuals to access up to $10,000 tax free from their superannuation funds in the 2019/20 year and a further $10,000 in the 2020/2021 year. The main criteria is a loss of working hours or turnover of 20 percent or more. The early release initiative is appreciated in these unprecedented times and may hopefully allow employees and self-employed individuals to remain afloat through this pandemic. However, it is important that individuals understand the consequences of removing large sums from their superannuation balance and the impact it may have on their retirement.
The quickest ways to add to your superannuation are by taking advantage of the $25,000 concessional contribution cap (pre-tax contributions) and by making additional non-concessional contributions of $100,000 per annum (post-tax contributions). These can be accelerated by making three years of non-concessional contributions in one go if under age 65. Furthermore if you have less than $500,000 in superannuation there is the ability to catch up unused concessional contributions from 2018/19 onwards.
Expanded tax deductions available
As more Australians are working from home, the ATO has introduced three ways to calculate tax deductions for additional running expenses in a home office:
- 80 cents per working hour for all additional running expenses
- 52 cents per working hour for electricity and depreciation on office furniture plus the work related portion of phone, internet, stationery, consumables and depreciation on computer devices
- Actual work-related portion of all running expenses