Things to Consider for your 20-21 Tax Return

For many Australians, tax time means receiving a massive bill from the ATO – but it doesn’t have to. Here are some things to keep in mind when filing your tax return.

Since the COVID-19 pandemic, the world has changed in drastic ways. Lockdowns, social distancing and economic hardship have become commonplace for many. In Australia, however, we’re seeing a very surprising turn of events.

The housing market has soared to new heights, cryptocurrency entered the mainstream, and Australians managed to save billions during the pandemic.

Admittedly, much of Australia’s success could be attributed to effective government policies like Jobkeeper and financial incentives centred around the property market. Combine those with historically low interest rates, and it’s undeniable that Australia has yet again proved itself to be the “wonder down under.” 

However, with many Australians now dipping their toes into investing in property, shares or cryptocurrency, their tax bill could be substantially larger this year. 

In order to help out, we’ve made a list of some things you will want to keep your eye on when filing your return.

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When to pay tax on your Capital Gains

Capital Gains Tax (CGT) is a tax that you pay on the gain you’ve made after selling or disposing of an asset such as property, shares, leases, currency and personal-use assets.

The CGT you pay is determined by subtracting the cost of purchasing and holding the asset from the proceeds made upon the sale of the asset. From there, you add the net gain made on the asset to your other taxable income.

For example: if you earn $100,000 annually and make a $50,000 net gain from an investment, your taxable income then becomes $150,000.

Capital Gains Tax on Investment Properties

With property markets at record highs and the big four banks predicting that this upward trend will continue, many Australians have turned to investing in property to generate supplementary income.

As such, this will be the first time for many to pay capital gains tax.

In order to work out how much CGT you must pay on the sale of an investment property, you must first work out your cost base.

The cost base of your investment property is the purchase price plus any fees and other expenses you had to pay to acquire it. 

This generally includes stamp duty, legal fees and agent fees. After figuring out the total costs involved to acquire your property, subtract any government grants and depreciable items, and you are left with the cost base of your asset.

Your net capital gain is then determined by subtracting the cost base of your property from your capital proceeds.

Additionally, if you have held an investment property for 12 months or more, you may be eligible for a 50% discount on the capital gain that you need to disclose as income. Be sure to check with your accountant.

To use the prior example, if you are earning $100,000 per year and make $50,000 in net capital gains from selling an investment property that you’ve held for over 12 months, your taxable income would be $125,000.

Landlords

The moratorium on rental evictions ended in the 20-21 financial year, meaning that many landlords have had to negotiate their tenant’s rental payments.

If you were a landlord that provided affordable housing to your tenant and negotiated a lower rate of rental payments, you can claim an affordable housing capital gains discount of up to 10%, assuming you provided your rental reduction through a registered community housing provider.

Additionally, if you are a land owner providing a commercial lease to a retail tenant between the 1st of January and the 28th of March this year, and you provided a reduction in the rental payments of your tenants, you may be eligible for a reduction in your land tax. 

Businesses

Jobkeeper payments ceased on March 28th this year, taking away the financial lifeline that many businesses relied upon during the pandemic. 

It was unclear how companies would fare after the cessation of Jobkeeper, and many feared that the program had simply delayed the inevitable economic fallout from the pandemic. 

However, since the Jobkeeper program ended, unemployment has now returned to pre-pandemic levels – indicating that the Jobkeeper program ultimately was a success, at least in the short term.

On top of this, the Australian government introduced many temporary measures to help keep businesses afloat during the pandemic, particularly as it relates to tax.

If you’re a business owner, there are a lot of initiatives and incentives that you will want to be on top of.

For example, the government has introduced:

•         temporary full expensing of depreciating assets 
•         new deductions for start-up business expenses
•         an increase in the small business turnover threshold from $10m to $50m
•         a lower company tax rate for eligible companies

You can see an overview of the key changes and new measures introduced during the pandemic here. 

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Stock Market

If you’re invested in the stock market and bought and sold shares recently, it’s likely that you’ll have some taxes to declare, whether they be capital gains or capital losses if you lost more than you gained in profits due to investments on the stock market. Depending on your situation, you can choose to carry those losses forward to a future financial year to be deducted from future capital gains.

Additionally, if you dispose of shares in a company as a result of a takeover, you may be able to defer both capital gains and losses until another CGT event occurs.

Cryptocurrency

When Bitcoin’s market cap exceeded $1 trillion in February of this year, it became clear that cryptocurrency had truly entered the mainstream. Not only did Bitcoin soar, but other cryptocurrencies like Ethereum and Dogecoin saw exponential spikes in their market caps too.

In fact, the hype around cryptocurrencies was so large in the last 12 months that the ATO has had to issue a notice to those that had invested in crypto recently to ensure they pay taxes on the gains they made during the crypto boom.

If you jumped onto the cryptocurrency train recently, you must ensure that you declare every trade of cryptocurrencies that you engaged in, including each time you convert a cryptocurrency into a fiat currency such as the Australian dollar.

Like any asset, making a profit from cryptocurrencies will mean that you must pay capital gains tax.

And, like other forms of CGT, if you held a cryptocurrency for 12 months, you get a 50% discount on your CGT.

It’s important that you keep records of every cryptocurrency transaction that you engage in, including the date of the transaction and the price of the cryptocurrency at the time of purchase or sale, to get your tax declaration in order.  

CGT Rollover

There are instances in which you can potentially defer or disregard CGT, some examples include: business re-structures, a scrip-for-scrip takeover, and assets transferred following a relationship breakdown.

The cost base of the asset will be transferred to the spouse, but CGT can be disregarded until they themselves dispose of the asset.

Speak with one of our tax specialists to optimise your 20-21 tax return.