Tax time has arrived, so it’s time to get your books in order. Here are some key points HR needs to be across for EOFY.
This article provides general advice and may not be relevant to your circumstances.
The end of the financial year (EOFY) is typically a busy time even for the most organised HR professionals.
From the recent wage and superannuation increases to COVID-related deductions and working from home expenses, there’s a lot for HR to get across.
HRM has wrapped up some of the main things to keep in mind to ensure your business is as prepared for tax time as possible.
1. Wage and superannuation increases
Earlier this month, the Fair Work Commission announced a 5.2 per cent increase to the national minimum wage – a significant increase compared to the 2.5 per cent jump last year. This brings the minimum wage from $20.33 to $21.38 per hour.
“HR professionals need to be across this, and communicate the change clearly to their management and staff,” says Mark Chapman, Director of Tax Communications at H&R Block.
“This could potentially require additional administrative time to payroll. First of all, they need to learn about the increase in the minimum wage. Then applying that to your firm’s wages is quite a lengthy, intensive process. So this could potentially require additional administrative time to payroll.”
Changes to the superannuation guarantee percentage are also set to come into effect. From 1 July 2022, the guarantee will lift from 10 to 10.5 percent, in accordance with the government’s plans to increase the guarantee by five per cent each year to reach 12 per cent by 2025.
Employers that pay their employees a super-inclusive package will need to ensure they are distributing the correct amount into each employee’s superannuation fund, as opposed to their take-home pay. Employers that pay a super-exclusive package may need to pay their staff an additional amount in superannuation.
Some employees may not be aware that they can claim a deduction for any personal contributions made into their superannuation fund, so this is worth communicating to employees as they prepare their personal taxes.
If employees want to pursue that path, time is of the essence, says Chapman.
“We’re now less than a week and a half from the end of the financial year, so they’ll realistically need to get their payments into their superannuation account by the beginning of next week,” he says.
“In addition, they would need to complete a deduction form and get that into the superannuation organisation and get a response from the organisation by the time they lodge their tax return.”
2. COVID-19 deductions
In the thick of the pandemic, many employers made health and safety related purchases.
For example, it wasn’t uncommon for organisations to require employees to take a rapid antigen test before attending work or to wear a mask in the workplace.
If employers made these COVID-19 related purchases, they may be able to claim a deduction for the costs.
“It could include face masks, hand sanitizers and antibacterial spray if an employer has purchased them so that their staff can have face-to-face interactions with other employees,” says Chapman.
On the other hand, if employers required their staff to make these purchases themselves, it would be the employees claiming the cost as a deduction. HR should communicate this option to their staff, says Chapman.
“Employees would be able to claim a tax deduction for the cost of obtaining the test, but they wouldn’t be able to claim a tax deduction for the cost of going to get it. So that includes any transport costs they incur from home to the supermarket or the chemist.”
It’s important to delineate between any work and personal-related use. For example, if an employee buys a pack of rapid antigen tests and only one of those is used in order to attend the office, the employee can only claim a deduction for that one test, not for the whole pack.
3. Working from home
As was the case last financial year, employees can claim a deduction for working from home expenses in one of three ways:
- The shortcut method enables individuals to claim 80 cents per hour.
“This basically wraps everything up into one fixed rate. It’s available until the end of this tax year, but it won’t be available next year,” says Chapman.
The following two methods are slated to remain options for employees in the coming years.
- The actual cost method allows individuals to calculate their working from home expenses.
“This is where you claim the actual costs that you’ve incurred during the course of the year,” says Chapman.
“It generally produces the biggest reduction, but it also has the largest substantiation requirement, so it can be very involved to keep all the records. You have to keep individual receipts of all expenses, you have to keep a diary so you can apportion between them between work use and private use. It’s quite a complex method.”
- Through the fixed-rate method, employees can claim working from home expenses at 52 cents per hour.
“The 52 cents per hour covers most expenses, but not everything,” says Chapman. “It won’t cover your home internet, your home phone, or the depreciation of computer equipment. So by the time you claim those as well, you usually end up making a bigger claim than if you used the 80 cent rate.”
While HR can communicate these options to its workforce, employees should seek personal advice from a tax agent, says Chapman.
“WFH will be a big one for many people this year. It’s about working out the best method for you. It’s really on a case-by-case basis for the particular circumstances.”
4. Common deductions for businesses
Businesses may be able to claim an immediate deduction for expenses through the temporary full expensing measure. This allows a business to claim an immediate deduction for new assets if they have a turnover of less than $5 billion, and for second-hand assets if the business has a turnover of less than $50 million.
The assets must be first held, used or installed for use between 6 October 2020 and 30 June 2023.
For many businesses, deductions made through the temporary full expensing measure this EOFY are likely to include digital transformation costs.
“Digital upscaling is going to be a substantial deduction for many organisations this financial year,” says Chapman. “Everybody wants to have the best interface with their customers, they want to have the most efficient website possible. All these sorts of costs are typically tax deductible.”
The same applies for education courses undertaken for professional development. If the business has paid for the course, it will typically be able to claim a tax deduction. This is likely to be an area of focus for companies as reskilling and upskilling to meet the skills shortage has emerged as a critical HR need.
If an employee queries whether they can claim a tax deduction for a course they have paid for and undertaken, the answer HR provides will depend on the type of course.
“Employees need to be very careful that they tick all the boxes for deductibility if they’re claiming self-education costs,” says Chapman.
“It’s worth encouraging your employees to talk to a tax agent on this one to make sure there is a necessary connection to their employment. If, for example, an employee is taking a course that enables them to get a promotion into a different type of job, that’s typically not tax deductible.”
The same line of thinking applies to HR’s own professional development.
“If an HR advisor was claiming for a development in the HR field, that would typically be tax deductible. But if the HR professional was doing, for example, a director’s course, that probably wouldn’t be tax deductible because that relates to furthering their career in a different field.”
Protective gear or occupational clothing required for work, such as hard hats or steel cap boots, may also be tax deductible.
“If it’s customary for the business to provide that then the business can claim a deduction. If it isn’t the standard and employees have to buy the equipment themselves, then the employees can claim it,” says Chapman.
“Regardless of whether the deduction is being claimed by the employee or the employer, it’s important that proper records are kept to support the claim,” says Chapman.
Importantly, a deduction can only be claimed if that substantiation exists and it should include:
- The name of the supplier
- The amount of the expense
- The nature of the goods or services provided
- The date the expense was paid
- The date of the documen
Typically, a receipt or invoice is sufficient.
5. Common deductions for HR
As well as helping to make sure their business is prepared for EOFY, HR professionals need to take care of their own taxes and deductions. Personal Tax Specialists has provided a wrap-up of the main tax deductions that HR professionals may be able to claim. Some of these include:
- Car expenses for transport between worksites or offices. This doesn’t apply to travel between work and home
- Training courses such as first aid, OH&S workshop or recruitment training
- Professional annual membership fees, such as for AHRI membership
- Equipment used for work purposes, such as laptop or mobile phone
- Work-related books, magazines and journals
Tax time can be overwhelming if you aren’t prepared, but being across the basics and keeping clear records throughout the year can help to keep it a stress-free process.
Not sure of your legal obligations to staff in the lead up to EOFY? AHRI’s short course, Introduction to HR Law, can help to ensure you’re compliant.
Book in for the next course on 13 July.