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The Tax Guide To Cryptocurrency

There’s no doubt that the explosive growth of Bitcoin and other similar crypto-currencies has been the financial fad of the last few years. With explosive growth in recent years (and periodic crashes), it’s been possible to make (and lose) substantial sums of money over startlingly short time periods and many inexperienced investors have been drawn into the net of this latest monetary craze.

One thing to bear in mind is that there are tax implications to trading and investing in these new digital products.

The good news is, you can easily create a crypto currency tax report via Koinly for your tax return.

Here’s a guide of introduction to Cryptocurrency from a previous post.

Will the ATO find out about Cryptocurrency Dealings?

The ATO estimates between 500,000 to 1,000,000 Australians have dabbled in crypto-assets – and many of them have failed (or will fail) to properly report the profits.

As a result, the ATO requires Australian cryptocurrency designated service providers (DSPs) to hand over data on Australian customers to help them identify taxpayers who fail to disclose their income details correctly.

The ATO matches the data provided against its own records to identify individuals who may not be meeting their registration, reporting, lodgment and/or payment obligations.

If what is disclosed to the ATO on the tax return doesn’t match the data the ATO has received from the DSPs, taxpayers can expect a “please explain” letter, with the possibility of stronger consequences. This makes it difficult to hide behind the anonymity that was previously one of the hallmarks of cryptocurrency.

This page introduces the more popular terms and phrases relevant to cryptocurrencies, providing a foundation for those interested in exploring this innovative asset class.

Record Keeping

The following records need to be kept in relation to cryptocurrency transactions:

  • the date of the transactions
  • the value of the cryptocurrency in Australian dollars at the time of the transaction (taken from a reputable online exchange)
  • what the transaction was for and who the other party was (even if it’s just their cryptocurrency address)

Other records the taxpayer should keep include:

  • receipts of purchase or transfer of cryptocurrency
  • exchange records
  • records of agent, accountant and legal costs
  • digital wallet records and keys
  • software costs related to managing their tax affairs

Taxpayers need to keep records for five years from the date they lodged their tax return.

It is vital that good records are kept for all transactions with cryptocurrency, whether is is used as an investment for personal use or in business.

Cryptocurrency and Tax Implications

Where a taxpayer buys cryptocurrency as an investment, Capital Gains Tax (CGT) will apply.

This is calculated based on the difference between the amount  paid for the cryptocurrency and the amount it is disposed for. Any profit is subject to CGT, which can potentially be discounted by 50% if the crypto asset is held for more than 12 months.

Capital gain is worked out like this:

Disposal occurs when:

  1. Selling cryptocurrency for Australian dollars
  2. Exchanging one cryptocurrency for another
  3. Gifting cryptocurrency
  4. Trading cryptocurrency
  5. Using cryptocurrency to pay for goods or services

In some cases (such as when you gift it), market value is substituted for proceeds.

Where the taxpayer holds cryptocurrency for sale or exchange in the ordinary course of running a business the trading stock rules apply and not the CGT rules. Proceeds for the sale of cryptocurrency held as trading stock in a business are ordinary income, and the cost of acquiring cryptocurrency held as trading stock is deductible.

What if Taxpayer makes a Loss

If the sale proceeds are less than the cost base, the taxpayer will make a capital loss. These losses can be offset against capital gains arising in the same year and to the extent they are not used up, they can be carried forward indefinitely until capital gains arise to absorb them. Capital losses can only be offset against capital gains, they can’t be offset against any other form of income.

Tax Implications when Selling Cryptocurrency for currency, Swapping for another Crypto

Whether the taxpayer sells for Australian dollars or exchange one form of cryptocurrency for another, the tax treatment is the same, i.e. taxpayer will be liable for CGT and will need to record any gain on their tax return. The gain is basically the sale proceeds (substituted for market value for some transactions) less the cost.

Exchanging cryptocurrency for another cryptocurrency

  • Exchanging coins is actually the disposal of one CGT asset and acquisition of another CGT asset
  • The market value of the currency received needs to be accounted for in Australian dollars
  • If the currency received cannot be valued, the market value of the coins disposed of will be used

EXAMPLE of exchanging Cryptocurrency

The Personal Use Exemption

Some taxpayers mistakenly think that you can buy up to $10,000 of cryptocurrency and avoid CGT by taking advantage of the ‘personal use exemption’. This is incorrect.

Cryptocurrency is a personal use asset if it is kept or used mainly to purchase items for personal use or consumption.

It is not a personal use asset if it is kept or used mainly:

  • as an investment
  • in a profit-making scheme, or
  • in the course of carrying on a business.

Both the period of holding and the nature of the subsequent transaction will be relevant to whether the cryptocurrency is a personal use asset.

Where cryptocurrency is acquired and used within a short period of time to acquire items for personal use or consumption, the cryptocurrency is more likely to be a personal use asset. The longer a cryptocurrency is held, the less likely it is that it will be a personal use asset – even if it is ultimately used to purchase items for personal use or consumption.

Except in rare situations, the cryptocurrency will not be a personal use asset:

  • when you have to exchange your cryptocurrency to Australian dollars (or to a different cryptocurrency) to purchase items for personal use or consumption, or
  • if you have to use a payment gateway or other bill payment intermediary to purchase or acquire the items on your behalf (rather than purchasing or acquiring directly with your cryptocurrency).

As with other personal use assets:

  • Capital gains are exempt if the asset cost < $10,000
  • Capital losses are disregarded

The relevant time for working out if an asset is a personal use asset is at the time of its disposal.

Remind your clients to keep clear records – it is up to them to demonstrate the intention behind each purchase and transaction.

Where the cost of your cryptocurrency assets exceeds $10,000, the personal use exemption will not be available and CGT will apply, whether the asset was for personal use or not.

CASE STUDY – Tim

Tim is a long-term investor in shares and has a balanced portfolio of high and low risk investments in various public companies. Some of his holdings are income producing and some not, and he adjusts his portfolio frequently at the advice of his adviser.

Recently, Tim’s adviser told him that he should invest in digital currency. On 16 December 2020, he bought one unit of the digital currency for $4,435. By 21 June 2021, the value of his unit had increased to $14,100 and, fearing the price rise was unsustainable, he decided to sell, making a profit of $9,665 (excluding fees).

Prior to purchasing his unit of digital currency, Tim was told by a friend that profits on digital currencies are tax free provided the cost of the investment is $10,000 or less.

Loss or Theft of Cryptocurrency

Taxpayers may be able to claim the value of their capital loss if they lose their coins (cryptocurrency private key), they are stolen or are otherwise subject to fraud.

In this context, the issue is likely to be whether the cryptocurrency is lost, whether the taxpayer has lost evidence of  ownership, or whether they have lost access to the cryptocurrency.

  • Generally where an item can be replaced it is not lost.
  • A lost private key can’t be replaced.

What you can’t claim as working from home tax deductions

What you can't claim as working from home tax deductions

Since Covid hit, more and more employees started to work from home. As a result, working from home tax deductions have become hot topics.

It’s widely broadcasted that ATO’s introduced the 80cents per hour shortcut method to claim your working from home running costs. However there’s a catch to the 80 cents short cut method. Because that method is all inclusive, once you claim 80cents per hours, you can’t claim anything else as your working from home tax deductions. In most cases, you’d be better off to claim 52 cents per hour plus any other expenses you incurred for working from home.

There are countless articles online talking about what you can claim as working from home tax deductions in general. But today I really want to touch upon another maybe not so popular topic on what you can’t claim as working from home tax deductions. Because there are so many examples of inappropriate and sometimes funny claims, I think it’s important to know what we can and what we can’t claim.

Before we start, I’d like to quickly mention two common misunderstandings about the relationship between tax deductions and tax refund.

Common misunderstandings about the relationship between tax deductions and tax refund

First of all,  we need to be clear that to claim tax deductions doesn’t mean that we’ll get 100% of the money spent from your tax return.

I did have people come to me for tax advise on the returns they’ve lodged themselves. They’ve claimed $3000+ tax deductions but only got $1000 something as tax return. Therefore, they believe the tax assessment was wrong. They claimed $3000 tax deductions, so they should get $3000 back as a tax refund right?

Unfortunately, whatever you spend and claim as a tax deduction, you’ll only get a percentage back. That percentage is your marginal tax rate. For example, if your marginal tax rate is 37%, you’ll only get 37% of your spending back as a tax refund. So be mindful for what you want to buy and claim as a tax deduction. Ask yourself, is it really necessary to buy it? If it’s something that you really need and helpful, by all means go ahead and buy it. If you want to buy it just for the purpose to reduce your tax, think twice. Because whatever you spend, you’ll only get a percentage back, not the full amount.

Another misunderstanding I’ve often encountered is that sometimes people think the more tax deductions they claim, the more refund they’ll get.

It can be true in most cases. However, for low income tax payers, excessive spending on tax deductions can be somewhat wasteful. I’ve seen many people only need a few hundreds of dollars worth of deductions to go below the tax free threshold. Instead, they’ve spent way more than what they need in hope of getting more tax refund. Sadly, a lot of expenditure incurred were not necessary because once you touch down the tax free threshold and you get all your tax paid back, there isn’t going to be anything more money coming to your tax return.

Now that I’ve got that bit out of the way, let’s get back to today’s topic.

What you can't claim as working from home tax deductions

What you can’t claim as working from home tax deductions

Rent for your home

Many people got very excited about working from home tax deductions. Because they’ve spent so much time working from home, instead of in the office, surely the rent paid on housing should be deductible, right? At lease part of it?

Unfortunate for PAYG (pay as you go) and PSI (personal service income) income earners, you can’t claim rent for you home as tax deductions. Even when you have to work from home due to lock downs.

Mortgage interest, rates and strata levy

Same concept as rent mentioned above, home owners can’t claim mortgage interest, rates and strata levies for their home because they’ve been working from home.

Toilet paper, tea and coffee

Toilet paper became hot property a few times due to Covid. And I’ve had a couple of clients who wanted to claim toilet paper as one of their tax deductions. Although those supplies are generally available when in the office, employees can’t claim costs for toilet paper together with tea and coffee while working from home.

Most household electronic appliances

Just yesterday, someone wanted to claim cost of buying their washing machine as a tax deduction. I’ve also had clients who sent me the invoices of their fridge, air conditioning and sofa etc to be included in their tax deduction. It’s understandable people want to minimize their taxes and get as much as refund as possible. But everything has to be done according to tax regulations. According to ATO tax payers can claim anything deemed to be personal. There are some cases personal items can be used for work purpose as well and only the work related percentage can be claimed as tax deduction. The work related percentage has be justifiable and substantiated by documentation and reasonable calculations.

Unreasonable high percentage of utility costs without substantiation

Just because we work from home a lot, it doesn’t mean that we can just 70-100% of electricity bills without any detailed calculation. You’ll need have backup calculation to support the percentage you used to claim utility costs deductions. Bear it in mind, if you’ve claimed 52cents or 80cents per hour running cost, you can’t claim utility costs as tax deductions on top of it. Like wise, if you claim the actual utility costs in your tax return, you can’t also use the cents per hour method to claim working from home tax deductions.

Pure personal expenditures

Taxpayers can’t claim pure personal expenditures such as massages as tax deductions. The fact you have to get massage because sitting on uncomfortable dining chair working from home caused you backpain doesn’t provide enough ground to claim the cost of massage sessions as a tax deduction. By the way, this example is based on a true story.

Expenses have been reimbursed by employers

Consider this, you bought something for work purpose and subsequently your employer reimbursed you the full amount. Can you still claim this expenditure as your tax deduction in your tax return. Common sense told me no. Not surprisingly the answers is also NO by ATO. But in reality a number of people do claim expenses reimbursed by employers. Some are innocently not knowing, some knew but claim it nevertheless.

Full amount of work equipment costs over $300

For anything under $300 we bought out of our own pocket for work purpose, we can claim immediate deduction. Some examples are printers, keyboards and monitors under $300. For all work equipment costs over $300, we have to put them in the depreciation schedule. And claim the work related depreciation costs for the relevant period. For example, you bought a laptop on 20 June for $2000. You bought this one especially for work from home purpose. It happens that you hear from the radio ad, now is a good time to buy it because you can claim this as your tax deduction. Therefore, you can claim the whole $2000 in your tax return right? Wrong.

I’m so surprised to see so many people buying expensive computer gears for work right by the end of each financial year. The truth is, you can only claim the depreciation cost from the date of purchase. As a result, your tax deduction in that financial year is very minimal. Far less than the few thousand dollars you spent.

Working from home also prompt a lot people go out buying expensive custom made desks that costs thousands. Similarly, you can only claim the deprecation cost from the date it’s fully installed for working from home purpose. Even worse, if you claim the desk depreciation, you can’t claim the cents per hour running cost any more. In most cases, people end up getting less tax deductions claiming the desk depreciation.

In conclusion

Tax time can be exciting or daunting for us. One thing to remember is that working from home doesn’t guarantee that you can get a lot more tax deductions.

There are however, wise ways to save tax for everyone or as property investors specifically. Whatever you do, it’s better to try to understand tax regulations and avoid getting tax penalties because of some innocent mistakes.

Last Minute Steps To Claim More Investment Property Tax Deductions

“What else I can claim as investment property tax deductions?” I hear this question all the time.

The end of financial year is upon us. In a few weeks time, you can pull out all your records and prepare your tax return again. Hopefully you’ll get a tax refund, because I’m yet to meet someone who’s happy to pay more tax on top of what’s been paid during the year. Understandably, there are more people than usual in June, seeking tax advise on what to do to minimise tax.

We talked about how to contribute to your Super fund to claim tax deduction before. In this post, I’m going to focus on what can be done to claim more investment property tax deductions. You might think it’s too late in June but there are still a few last minutes steps you can take to boost your tax refund or minimise your tax payable.

First of all, get a check list of what you can claim as investment property tax deductions.

Expenses for immediate tax deduction

Advertising fees to look for tenants

If you are engaging a real estate agent to manage your property, this cost will be listed on your yearly income and expense report. If you are managing the property yourself and found your tenants through newspaper or online ads, make sure to keep a record of advertisement fees.

Rates

This includes Council rates and water rates. Though it sounded basic, but trust me, plenty property investors don’t know those are part of investment property tax deductions. So make sure to keep all the records of your rate payments during the financial year.

Strata levies

Also know as body corporate fees, are getting higher and higher each year. Remember, you can claim immediate deduction on payments to body corporate administration funds and general purpose sinking funds. They form a big part of investment property tax deductions, so don’t miss this category. However please be mindful, payments to a special purpose fund to pay for particular capital expenditure are not deductible.

Utility costs

Tenants usually pay their own electricity, gas and water usage costs. However in some cases, landlords agree to paid all of it or a percentage of these costs. As a property investor, make sure to claim the utility costs you paid as part of your investment property tax deductions.

Gardening and yard work

This includes dump fess, labor costs you paid for tree lopping and lawn mowing. You can also claim costs of replacement of garden tools, fertiliser, sprays and replacement of plants.

Cleaning

This category of expenses include internal, for example, carpet cleaning and external cleaning, for example, house cleaning. Therefore, you can claim payment to cleaners and cost of cleaning materials for your rental property as investment property tax deductions.

Insurance

There are many types of insurance you can get for your rental property. As a result, you can claim building insurance, contents insurance, public liability insurance and landlord’s insurance 9covers rental defaults) as investment property tax deductions.

However, please be mindful that you can’t claim mortgage insurance as your rean tax deduction as it forms part of your borrowing cost.

Interest

You can claim tax deduction for interest paid on loan to purchase, build, repair and improve your investment properties. For example, interest on your investment property mortgage is tax deductible. Like wise, you can claim interest on loan taken out to build your investment property, providing the property is rented or available for rental during the year you are claiming a tax deduction.

On top of the above, you may also claim interest charged on loans taken out:

  • to purchase depreciating assets,
  • for renovations, or
  • for repairs to the property.

Note, from 1 July 2019, you can’t claim tax deduction on interest or other holding cost of vacant land with no permanent structure on it in general.

Land tax

A big percentage of property investors miss claiming land tax deductions because very often, land tax incorporate their main residence as well. But you can certainly claim the land tax paid in proportion to your rental property as a tax deduction.

Agent management and admin fees

Most property investors engage real estate agents to manage their investment properties. Of course, this serve doesn’t come free of charge. Typical agent fees includes, property manage fees, admin fees, sundry fees such as postage etc, annual report fees.

Legal expenses

As a property investor, you can’t claim legal expenses are capital in nature, such as costs of:

  • purchasing or selling the property
  • resisting land resumption
  • defending the title to the property

However, you can claim legal costs in order to evict non-paying tenants.

Office supplies

Property investors can claim stationery, rent books, postage and business use percentage of a computer etc in relation to managing their rental property. As a result, those costs are tax deductible

Telephone

As a property investor, you can certainly calls made to a tenant, agent or tradesman to arrange repairs etc.  Bear it in mind, in case of a tax audit, you’ll need to provide a diary detailing this expense.

Repairs and maintenance

This is a more complicated area. In general, you can claim repairs and maintenance costs while your rental property is rented.

Repairs generally involve a replacement or renewal of a worn out or broken part. For example, replacing some guttering damaged in a storm. Similarly, replacing part of a fence is a repair job. If you replace the entire fence, the cost will become capital in nature. As a result, you can’t claim the total cost immediately as a repair cost. You can however, claim the cost of replacing the entire fence over a number of years as part of deprecation.

According to ATO, initial repairs include costs you incur to remedy defects, damage or deterioration that existed at the time you acquired the property. Therefore, those costs are considered to be
capital in nature, not immediate tax deductions.

Depreciating assets costing $300 or less

You can claim immediate tax deduction for your rental property depreciating assets costing $300 or less. For example, if you bought a microwave for your rental property for $299 last month, you can claim the entire amount in this financial year.

Even better, you can claim immediate tax deduction if you hold an asset jointly with others and the cost of your interest in the asset is $300 or less. This is the case even though the total cost was more than $300.

Expenses as tax deduction over a number of years

Borrowing costs

You might incur certain costs when borrow from a bank. Typical borrowing costs are as below:

  • procurement and establishment fees
  • legal expenses for mortgage
  • stamp duty on mortgage (Many states have abolished mortgage stamp duty)
  • valuation for loan approval
  • survey and search fees
  • mortgage broker’s commission
  • lenders’ mortgage protection insurance

You can claim those expenses as tax deductions over the period of your loan or 5 years, whichever is shorter. If the total cost is less than $100, you can claim the whole amount in the relevant financial year.

Depreciation on assets

You can claim tax deductions on depreciation of assets such as air conditioners, stoves etc costing over $300 (your share) over their effective lives.

Tax Ruling Taxation Ruling TR 2020/03 – Income tax: depreciation effective life is very helpful guide in this regards. If you decide to make an estimate of effective life, you need to use a similar methodology the Tax Commissioner used.

Capital works/building write off

You can claim investment property deductions on certain kinds of construction expenditure. In the case of residential rental properties, you can generally claim the cost over 25 -40 years.

These are referred to as capital works (special building write-off) deductions. The deduction is limited to 100 per cent of the construction expenditure.

Deductions based on construction expenditure apply to capital works such as:

  • a building or an extension (for example, adding a room or garage),
  • alterations such as removing or adding an internal wall, or
  • improvements to the property – for example, erecting a pergola, patio or carport.

Deductions can be claimed only for the period the property is rented or is available for rent.

What you can do now in June to claim more deductions as a landlord?

We’ve covered a long list of expenditures that you could claim as tax deductions for your incoming tax return. Now, you might ask what you can do now in June to get more tax benefit. Is it too late?

Of course not. Here are a few last minutes steps you can take to boost your tax return:

Seek tax advise if you need help

Always ask for professional advise if you need help to improve your tax position. The fees you paid to professionals for tax advise is tax deductible. So don’t forget to ask for a tax invoice to include it your tax return.

Carry on minor repairs

Does your investment property need some minor repairs and maintenance? It’s time to get it done now. Need a new lick of paint? A few new light bulbs?  Another set of keys and swipe card? Why not get them organised now. Any R&M expenditure paid in June for your existing rental property will be 100% tax deductible.

Conduct a pest control

There has been a lot of rain in the past year. Consequently there have been a lot of spiders and other pests around. June is the perfect time to conduct a pest control to protect your investment property. Your tenants will thank you for that and potentially stay longer.

Prepay some expenses

Have some bills in relation to your rental property floating around but not yet due? You can pay them now to claim an immediate tax deduction and boost your tax refund.

You can claim immediate deduction if you prepay expenses such as insurance or interest on mortgage if  either:

  • the amount if less than $1000,

    OR

    • the payment covers a period of 12 months or less and the period ends on or before 30 June of the next income year.

    Replace/Purchase assets for under $300 (your share)

    As mentioned before, you can claim immediate tax deductions on assets costing less than $300. So think hard, what do you need for your rental property that will cost $300 or less before the financial year ends.

    If you own a property jointly with others, as long as your share of the asses is $300 or less, you can still claim an immediate tax deduction.

    For instance, you own a rental property jointly as a couple. Your rental property in great need of a new air-conditioning costing $600. By all means, go and get it now. You can claim the whole amount this year instead of claiming the depreciation costs over a number of years.

    Get a depreciation schedule

    If your rental property is a lot less than 40 years old and you don’t have a depreciation schedule, get one done. Now.

    Depreciation schedule is especially important for brand new rental properties because the tax benefit will be thousands of dollars. The cost of getting depreciation schedule is usually a few hundreds of dollars and it’s totally worthwhile. Besides, the cost of depreciation schedule is tax deductible too.

    In conclusion, there’s still plenty time to be prepared and claim more tax deductions come July. It’s all about research and planning.

     

     

     

    Government Super Co Contribution – Are you eligible and how to get it?

    Government Super Co Contribution

    The Government Super co contribution applies to personal contributions made by low-income earners from 1 July 2003 onwards. Back then it was $1,000 co contribution for $1,000 eligible contributions. Just so you know, back then I wasn’t even slightly interested in it because my employment income was high. As mentioned in the previous post about personal Super contributions to save tax and build wealth, I quit my corporate job in 2009 and started being self employed.

    If you’ve ever been self employed, you know your income can vary from year to year. Some years, your income could fall within the “low income” threshold. I always knew about the government Super co contribution but thought the amount was too little to be bothered. But small amounts do accumulate and they could grew to a much bigger amount staying in your super fund.

    For Australian tax payers whose income was less than $53, 564 ($54,837 for the 2021 year), the government will make co- contribution into a tax payer’s superannuation account where eligible non-concessional contributions up to $1,000 have been made by qualifying low income earners. Fifty cents in every dollar of contributions, up to a maximum superannuation co – contribution of $500 a year will be paid into the taxpayer’s superannuation account for the income year.

    You may be eligible the Government Super co contribution if you:

    • made personal contributions to obtain superannuation benefits for themselves (or a dependent in the event of their death) to a complying superannuation fund or Retirement Savings Account (RSA) on or after 1 July 2005 (provided the contributions were not salary sacrifice contributions and they will not claim a tax deduction for the contributions)

    • have lodged an income tax return for the relevant financial year

    • total income was less than $53,564 (for the 2020 financial year, $54,837 for the 2021 year). 

    • have not been the holder of a temporary resident visa at any time during the year unless they are a New Zealand citizen or the holder of a prescribed visa

    • are less than 71 years old at the end of the financial year during which the contribution was made

    • have at least 10% of their total income for the income year attributable to carrying on a business (i.e.  self-employed) or to activities that result in the person being treated as an ‘employee’ for superannuation guarantee purposes. Those who earn less than $450 per month or are part-time workers under 18 (i.e. not covered by the superannuation guarantee regime) will still qualify for the government co-contribution as they are still regarded as ‘employees’ for SGAA purposes

    • have a Total Superannuation Balance of less than $1.6m on 30 June of the previous financial year

    • have not exceeded their non-concessional contribution cap in the relevant financial year

    Total income for the purposes of the Super co contribution includes:
    • assessable income
    • reportable fringe benefits amounts
    • reportable superannuation contributions

    less

    • any assessable First home super saver released amount, and
    • any allowable business deductions

    Also, there are two income tests applied in determining the government Super co contribution.

    10% Total income test

    In order to satisfy this test, 10% or more of the taxpayer’s total income must come from either:

    • employment related activities
    • carrying on a business, or
    • a combination of both

    Amounts from these sources are referred to as eligible income amounts.

    The total income amount is not reduced by allowable business deduction amounts for this test.

    Examples of eligible income:

    • salary and wages
    • business earned as a sole trader (the assessable income: turnover – allowable business deductions is used)
    • business earned in partnership (the partnership distribution is not reduced by deductions claimed on the individual tax return in earning the income)
    • directors fees

    Note if you are carrying on a business, you may have a high turnover but still be eligible for the super co-contribution due to your allowable business deductions.

    The following amounts are not eligible income

    • non-business partnership distributions

    • distributions from a trust

    • income from individually or jointly held assets, such as interest, rent and dividends

    • income related to another year of employment, such as employment termination payments and lump sum payments

    Be aware, where you have a partnership distribution, the ATO will treat it as ineligible income. If you have business partnership income, make sure that you complete Item A3.

    Total income threshold

    To determine your assessable income for calculating the amount of the co-contribution:

    • Total income is reduced by amounts which the taxpayer is entitled to a deduction for carrying on a business. That is, it is net income rather than assessable income for business income.

    • Net partnership income is included. Partnership income includes joint rental and investment income. If the net partnership or joint income is a loss, the amount is 0. This means that, where a person has a rental property in their own name, assessable income is included for the total income threshold test. However, where you have a rental property in joint names, you only need to inclue the net rental income (or 0 if it is a loss).

    The ATO will treat joint rental and investment income as solely earned income unless you complete Item A3 correctly.

    Government co contribution calculation

    The taxpayer’s co-contribution is reduced by 3.333 cents for each $1 of total income over the lower threshold.  The lower threshold for the 2020 year is $38,564. And the government Super co contribution phases out completed where the total assessable income, reportable employer superannuation contribution and reportable fringe benefit amount reaches the upper threshold of $53,564.  

    For the 2021 year, the lower threshold is $39,837 and the upper threshold is $54,837.

    Provided the taxpayer is entitled to receive the co-contribution, the minimum amount payable is $20. The co-contribution will be paid directly into the taxpayer’s superannuation account or RSA (Retirement Savings Account).

    The formula for calculating the maximum co-contribution amount is:

    =  $500 – {[(total assessable income – allowable deductions from running a business + RFB + RESC) – lower threshold amount] x 3.333%}

    The ATO has a SUPER CO-CONTRIBUTION CALCULATOR on their website

    The co-contribution payable is the lesser of:

    • the maximum co-contribution amount; or
    • 50 cents for every dollar of personal superannuation contributions.

    The ATO will automatically calculate the amount of co-contribution, based on the information on the tax return, including the adjustment amounts included at Labels F, G and H at Item A3.

    Also for your reference, the ATO has a worksheet available to calculate the amounts.

    GOVERNMENT SUPER CONTRIBUTIONS WORKBOOK

    How to make personal super contributions for government super co contribution purpose

    Firstly, you do not need to make your personal contributions as a single lump sum. You can make payments throughout the financial year. The ATO uses the total amount you have contributed for the year to calculate the co-contribution.

    Your super fund can tell you how to make personal contributions. Most funds offer you a number of options including:

    • BPAY®
    • direct debit
    • through your bank account.

    In some cases, you can make regular super contributions into your super account directly from your after-tax pay. If the contributions come from your before-tax pay, they are generally referred to as salary-sacrificed contributions and will not qualify for the super co-contribution.

    Your super fund needs your TFN before it can accept your personal contributions.

    Above all, your personal contributions must reach your super fund by 30 June each year for you to receive a government co-contribution for that financial year.

    Completing Item A3 On Individual Tax Return

    In some circumstances, the ATO may be able to calculate the correct co-contribution without Item A3 being completed. The ATO will match the information on the tax return with information from superannuation funds and pay you the co-contribution automatically. However, often the completion of this item is crucial or the taxpayer may not get the correct amount of co-contribution, or may miss out altogether on the benefit.

    LABEL F – Income from Investment, Partnership and Other Sources

    You should complete the box if you

    • showed income from a partnership at Item 13 of the tax return or
    • were in a joint income group and they have deductions for the following joint income:
      • interest and dividends (Items 10 and 11)
      • trust distributions (Item 13 labels L, U or C)
      • foreign entities income (Item 19 labels K and B)
      • foreign income (Item 20 labels E and F)
      • rental income (Item 21 label P)
      • bonuses from life insurance companies and friendly societies (Item 22 label W)

    The amount = the assessable income from each of the above income types in the taxpayer’s name only, plus the net amount (or 0 if that amount is a loss) of each of the above income types in joint names

    If this amount is NIL then enter code C in the box.

    LABEL G – Income from Employment and Business

    The ATO will automatically treat certain amounts as employment or business income. Label G includes the amount of any adjustments to this automatic calculation. For example, assessable income from foreign employment income and partnership distributions where the partnership is carrying on a business will need to be added. Deduct some amounts from employment or business income on the tax return. For example, if you received parental leave pay or Dad and Partner pay after employment ceased, deduct this amount. Other examples are employment or business income that relates to an earlier income year, such as back payments of wages or a lump sum paid on termination. To clarify, Label  G includes the below:

    • total employment income NOT SHOWN at Items 1, 2, 3, 4 (excluding death benefits), Item 12B, IT1 or IT2 plus
    • business income NOT SHOWN on the Business and professional items schedule of the tax return

    less

    • Items 1, 2, 3, 4 (excluding death benefits), Item 12B, IT1 or IT2 – total income that was not from employment
    • any parental leave pay that has been received AFTER the taxpayer CEASED employment (not the amount received during the time the taxpayer is on leave from their job)
    • non-business income on the Business and professional items schedule of the tax return

    If this amount is NEGATIVE then enter code L in the box.

    LABEL H – Other Deductions from Business Income

    Business deductions that are not at Item P8 on the Business and professional items schedule for individuals of the tax return. This may include, for example

    • the business portion of a distributed partnership loss included in calculating the amount at N or O at item 13 (as long as the partnership carries on a business)
    • deductions at X or Y at item 13 which relate to the business income portion of a partnership distribution
    • personal service income deductions at item P1 on the Business and professional item schedule for individuals which relate to carrying on the business
    • deductions shown at D10 for costs involved in managing the business tax affairs as a sole trader or partnership business

    Government Co-Contribution for Superannuation Contributions – Temporary Residents

    Finally, temporary residents are not eligible for the government co-contribution for any personal superannuation contributions that they may have made during the year. It is not available to anyone who has been the holder of a temporary visa at any time during the year. As a result, any temporary resident who becomes a permanent resident during the income year will not be eligible for this benefit either.

    From 1 July 2009, New Zealand residents who are living temporarily in Australia have been eligible to receive this payment, irrespective of whether or not they are classed as temporary residents.