This month’s features include the crucial 30 June guide, the ATO’s trust distribution notice, and changes that will take place on 1 July 2024. The fiscal year’s end is drawing near quickly. We list the areas where you could face more ATO scrutiny as well as the ways to maximise your deductions
For you: Opportunities
Benefit from the tax reduction that goes into effect on July 1, 2024, by deducting your deductible costs in 2023–2024. Plan any charitable gifts to take advantage of the higher tax rate, pay any deductible superannuation contributions, and pay your deductible costs as soon as possible.
Bolstering superannuation
Provided you have not yet reached your $27,500 threshold and you plan to build your superannuation, you may be able to make a one-time deductible contribution to your superannuation provided your total superannuation balance permits it.
This cap covers your employer-paid superannuation guarantee, any salary sacrificed into super, and any personal contributions you make that can be deducted from your taxes.
Additionally, you may be eligible to access any unused concessional cap amounts from the previous five years in 2023–24 as a personal contribution if, as of June 30, 2023, your superannuation balance was less than $500,000.
For instance, you may donate an extra $40,000 and claim the tax deduction in the current fiscal year at the higher personal tax rate if you were, for each of the previous five years, under the cap by 8,000 dollars.
You must be under 75 years old, file a notice of intent to claim a deduction in the appropriate form (check with your superannuation fund), and receive an acknowledgment from your fund before filing your tax return to make a deductible contribution to your superannuation.
Suppose you meet the work criteria, which is working at least 40 hours in a consecutive 30-day period in the income year (though there may be some specific exclusions). In that case, you are the only one between the ages of 67 and 75 who can make a personal contribution to super.
Additionally, you may contribute to your spouse’s superannuation and receive a $540 tax offset if both of you meet the qualifying requirements and their assessable income is less than $37,000.
A higher personal superannuation contribution could help to reduce your tax liability if you are expecting to get a bill this year due to, say, a capital gain on shares or other property you sold.
Benevolent contributions
Donations of cash (or occasionally property) to a registered deductible gift recipient (DGR) are eligible for a tax deduction in amounts greater than $2.
The value of the tax-deductible donation increases with your tax liability. A $10,000 donation to a DGR, for instance, can result in a $3,250 deduction for those making up to $120,000, but a $4,500 deduction for those making $180,000 or more (not including the Medicare levy).
The donation must be made as a gift and not in return for anything in order to be deductible. A DGR’s fundraising events and charity auction proceeds are subject to specific regulations.
Giving to the philanthropic sector can be done in many different ways. It would be worthwhile to look into the possibilities of creating a private ancillary fund or making contributions to a public ancillary fund rather than contributing gifts to a particular charity.
Contributions made to these funds frequently qualify for an instant deduction; the fund manages and invests the assets over time. Generally speaking, the fund must give DGRs a specific percentage of its net assets each year.
Investment property owners
A depreciation schedule, if you don’t already have one, is a report that assists you in deducting costs related to your investment property’s normal wear and tear over time. Maximising your deductions may be helpful, depending on your property.
Work-from-home expenses
Many employees work from home regularly. While you cannot deduct the cost of your morning coffee, cookies, or toilet paper (believe it or not, people have tried), you may deduct certain other costs. However, the ATO monitors expenses related to working from home.
Claiming your work-from-home expenditures can be done in two ways: the real approach and the shortcut method.
You can claim a fixed 67c rate for each hour of work from home when you use the short-cut approach. This includes your energy costs (gas and electricity), internet costs, phone costs (cell and home), and stationary and computer consumables (paper and ink).
Because the ATO has said that they would not accept estimations, you must maintain a record of the exact days and times you work from home to employ this technique.
Alternatively, you can deduct the real costs you have paid over and above your regular operating expenses as a result of working from home.
Copies of your invoices and your journal for a minimum of four weeks straight, which corresponds to your regular work schedule, are required.
Landlords, property investors beware
One important thing to know if you own an investment property is that you can only deduct expenses that you paid while making money. In other words, to deduct the costs, the property must be rented or offered for rent.
It may seem apparent, but the ATO is particularly interested in taxpayers who claim costs for investment properties when the home is in a popular vacation area, is being utilized by family or friends, or was removed off the market for any other reason.
This tax season, the ATO is vigorously pursuing a number of concerns.
Among them are:
- Loan redraws and refinancing – generally, interest on the loan amount for the rental property is deductible. However, the loan expenses must be allocated, and only the portion that pertains to the rental property may be claimed, if any portion of the loan is related to personal expenses or if a portion of the loan has been refinanced to free up cash for your personal needs (school fees, vacations, etc.). The ATO finds taxpayers who are overclaiming interest expenses by matching data from banking institutions.
- The distinction between capital improvements and maintenance and repair – Although maintenance and repairs can frequently be deducted immediately, capital works deductions are typically spaced out over several years. The cost of repairs and upkeep must be directly related to the wear and tear caused by renting out the property. Typically, this entails putting the property back in the condition it was in before, such as changing out broken fence palings. You are unable to claim that repairs were necessary when you originally bought the house. However, capital improvements to the property, such structural upgrades, are typically written off at a rate of 2.5% of the total construction cost for a period of 40 years following the date of completion. When a whole asset, such as a hot water system, is replaced, it is considered a depreciating asset and the deduction is claimed gradually (other assets have varying rates and time periods).
- Co-owned property – generally, you must claim rental income and expenses by your ownership stake in the property. Joint tenant owners are entitled to 50% of the rent collected and tenants in common based on their respective percentage of legal ownership. It makes little difference who covered the costs in reality.
Gig economy income
Any earnings (cash, appearance fees, and “gifts”) from websites like OnlyFans, Airbnb, Stayz, Uber, YouTube, and others must be reported on your tax return.
As soon as the money is “applied or dealt with in any way on your behalf or as you direct,” according to the tax regulations, you are considered to have earned it.
This is not when you instruct the money to be transferred to your personal or business account, if you are a content provider, for example, but rather when your account gets credited.
You will still be required to pay tax on it even if you squirrel it away from the ATO in your platform account.
Under the sharing economy reporting scheme, platforms providing ride-sourcing, taxi travel, and short-term lodging (less than 90 days) must record transactions made through their platform to the ATO as of July 1, 2023.
The ATO will be able to compare this data for the first time with taxpayer income tax returns this year.
Bonus deductions
In 2023–2024, small businesses can take advantage of several bonus deductions, such as the energy incentive, the quick asset write-off, and the boost to skills and training.
The rise in the instant asset write-off level, which was announced in the 2023–24 Federal Budget, allows small businesses with a combined annual revenue of less than $10 million to instantly deduct the entire cost of qualified depreciating assets that cost less than $20,000. The government extended this policy to June 30, 2025, in the Federal Budget for 2024–2025.
The $1,000 instant asset write-off level would apply in the absence of these safeguards.
Similarly, the $20,000 energy incentive that supports electrification and more energy-efficient use in 2023–24 by offering an extra 20% deduction on the cost of qualified depreciating assets or upgrades to already-existing depreciating assets is not yet a law.
Any assets must be erected or used before they can be written off in 2023–2024, assuming both measures are approved by Parliament by June 30, 2024. Improvement costs must also be incurred between July 1, 2023, and June 30, 2024.
The bonus 20% deduction for qualified expenses for outside training given to your staff is a given. Businesses with a combined yearly turnover of less than $50 million are eligible for the “skills and training boost.”
The training must have been delivered by an approved training provider and registered and paid for between March 29, 2022, and June 30, 2024, to be eligible for the raise. Usually, rather than being for professional growth, this is vocational training to acquire a trade or courses that count toward a qualification.
Obsolete plant & equipment
Instead of depreciating a tiny amount each year for outdated plant and equipment that your company has lying on your depreciation schedule, scrap it and write it off before June 30.
For companies
Bring forward tax deductions by agreeing (by resolution) to pay employee incentives and directors’ fees, and by making June quarter super payments in June, if that makes sense.
Tax debt and not meeting reporting obligations
For the ATO, not filing returns is a major “red flag” that indicates a problem with the company. The ATO can just make an assessment of what they believe your business owes, so failing to file a tax return won’t stop the debt from growing. We can help your business by interacting with the ATO on your behalf if it is experiencing difficulties fulfilling its tax or reporting duties.
Professional firm profits
Architects, attorneys, accountants, and other professionals who work for professional services businesses have their revenues closely examined by the ATO.
They want to know if there are any arrangements in place that allow income to be redirected to professionals in order to lower the amount of taxes they would otherwise have to pay.
The ATO is likely to take action in cases where professionals are underpaid for the services they perform for the company or get compensation that is significantly less than the value of those services.
Have questions or need assistance from a seasoned tax accountant? Speak with us about your tax situation.
