The end of the financial year is just around the corner. Here’s a rundown of areas likely to catch the ATO’s eye and ways to maximise your deductions.
For You
Opportunities
With the 1 July 2024 tax cuts on the horizon, consider bringing forward your deductible expenses into 2023-24. This includes prepaying deductible expenses, making superannuation contributions, and planning charitable donations to benefit from the higher tax rate.
Boosting Superannuation
If you’re keen on growing your superannuation and your total balance allows, you might make a one-off deductible contribution if you haven’t used your $27,500 cap. This cap covers your employer’s super guarantee, salary-sacrificed amounts, and personal contributions claimed as a tax deduction.
If your super balance was below $500,000 on 30 June 2023, you might access unused concessional cap amounts from the past five years in 2023-24. For instance, if you were $8,000 under the cap each year, you could contribute an additional $40,000 and claim the deduction at the higher tax rate this financial year.
To make a deductible contribution, you must be under 75, lodge a notice of intent to claim a deduction in the approved form (check with your super fund), and receive an acknowledgment before lodging your tax return. If you’re between 67 and 75, you can only contribute to super if you meet the work test (i.e., work at least 40 hours within 30 consecutive days in the income year, with some exemptions).
If your spouse’s assessable income is under $37,000 and you both meet the eligibility criteria, you could contribute to their super and claim a $540 tax offset.
Are you facing a tax bill this year, perhaps from a capital gain on shares or property? Making a larger personal super contribution could help offset the tax owed.
Charitable Donations
Donating to a registered deductible gift recipient (DGR) allows you to claim amounts over $2 as a tax deduction. The higher your tax rate, the more valuable the deduction. For example, a $10,000 donation could result in a $3,250 deduction for someone earning up to $120,000 but $4,500 for those earning $180,000 or more (excluding the Medicare levy).
To be deductible, the donation must be a genuine gift and not in exchange for something. Specific rules apply to charity auctions and fundraising events run by a DGR.
Philanthropic giving can be done in various ways. Instead of donating directly to a charity, consider giving to a public ancillary fund or setting up a private ancillary fund. Donations to these funds can often qualify for an immediate deduction, with the fund managing the money over time and distributing a portion to DGRs annually.
Investment Property Owners
A depreciation schedule helps calculate deductions for your investment property’s natural wear and tear, potentially maximising your deductions.
Risks
Work From Home Expenses
Working from home is common, and while you can’t claim your morning coffee or toilet paper, certain additional expenses are deductible. However, the ATO scrutinises work-from-home claims.
You can use two methods: the shortcut method or the actual method. The shortcut method lets you claim a fixed 67c per hour, covering energy, internet, phone, and stationery. Keep accurate records of your work-from-home days and times, as the ATO won’t accept estimates.
Alternatively, claim actual expenses above your regular running costs. You’ll need copies of your expenses and a diary representing at least four continuous weeks of your typical work pattern.
Landlords Beware
You can only claim deductions for expenses incurred while earning income from the property. The property must be rented or genuinely available for rent to claim expenses. The ATO focuses on taxpayers claiming expenses when family or friends use the property, it is taken off the market, or it is listed at an unreasonable rate, especially in holiday hotspots.
The ATO is targeting several issues this tax season:
- Refinancing and redrawing loans: You can claim interest on loans for the rental property, but personal expenses or refinancing for personal needs must be apportioned. The ATO cross-references financial institution data to catch over-claims.
- Repairs and maintenance vs. capital improvements: Immediate deductions for repairs and maintenance are possible, but capital works are spread over years. Repairs must relate to rental wear and tear, while capital works (like structural improvements) are deducted at 2.5% over 40 years. Replacing an entire asset (e.g., a hot water system) is a depreciating asset, with deductions over time.
- Co-owned property: Rental income and expenses must be claimed according to legal interest. Joint tenants claim 50%, and tenants in common claim based on ownership percentage, regardless of who paid the expenses.
Gig Economy Income
Income from platforms like Airbnb, Uber, and OnlyFans must be declared in your tax return. The tax rules state that you are considered to have earned income as “soon as it is applied or dealt with in any way on your behalf or as you direct.” For example, if you are a content creator, this occurs when your account is credited, not when you transfer the money to your personal or business account. Keeping the money in your platform account won’t exempt you from paying tax on it to the ATO.
Since 1 July 2023, ride-sourcing, taxi travel, and short-term accommodation platforms must report transactions to the ATO. This is the first year the ATO matches tax returns to this data. Other sharing economy platforms will start reporting from 1 July 2024. If you still need to declare income, do so before the ATO discovers it and applies penalties and interest.
For Your Business
Bonus Deductions
Small businesses can benefit from several bonus deductions in 2023-24, including the instant asset write-off, energy incentive, and skills and training boost.
The 2023-24 Federal Budget increased the instant asset write-off threshold, allowing small businesses with a turnover under $10 million to immediately deduct the full cost of eligible assets under $20,000. The 2024-25 Budget extended this to 30 June 2025. Without these measures, the threshold would be $1,000.
However, the legislation for the 2023-24 measure has yet to pass Parliament due to disagreements over the threshold amount and its application to medium businesses (up to $50m).
Similarly, the $20,000 energy incentive for an additional 20% deduction on eligible assets supporting electrification and energy efficiency in 2023-24 still needs to be law.
Assuming both measures pass by 30 June 2024, assets must be used or ready for use, or improvement costs must have been incurred between 1 July 2023 and 30 June 2024 to qualify for the write-off.
The skills and training boost offers a 20% deduction for eligible employee training, available to businesses with a turnover under $50 million. Training must be provided by a registered provider and paid for between 29 March 2022 and 30 June 2024, typically for vocational training or qualification courses.
Write-Off Bad Debts
If a customer won’t pay, write off the debt by 30 June. Document the bad debt on your debtor’s ledger or with a minute.
Obsolete Plant & Equipment
Scrap and write off obsolete plant and equipment on your depreciation schedule before 30 June instead of depreciating a small amount each year.
For Companies
Bring forward tax deductions by committing to directors’ fees and employee bonuses (by resolution) and paying June quarter super contributions in June if it makes sense.
Risks
Tax Debt and Reporting Obligations
Not lodging returns signals trouble to the ATO, which can issue an assessment of what it thinks your business owes if you don’t lodge a return. If your business struggles with tax or reporting obligations, we can assist by working with the ATO on your behalf.
Professional Firm Profits
The ATO reviews how profits flow to professionals in firms like architects, lawyers, and accountants. It checks if structures are in place to divert income and reduce tax. If professionals aren’t appropriately rewarded for their services or receive substantially less than their service value, the ATO may take action.
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