The end of the financial year is fast approaching. We outline the areas at risk of increased ATO scrutiny and the opportunities to maximise your deductions.
OPPORTUNITIES
Take Advantage of 1 July 2024 Tax Cuts:
Maximize the benefit of the upcoming tax cuts by prepaying deductible expenses for the 2023-24 financial year. Consider prepaying deductible expenses, making superannuation contributions, and planning philanthropic gifts to utilize the higher current tax rate.
Bolstering Superannuation:
If you’re looking to grow your superannuation, consider making a one-off deductible contribution if you haven’t used your $27,500 cap, which includes employer contributions, salary-sacrificed amounts, and personal deductible contributions. If your superannuation 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 example, if you were $8,000 under the cap each year for five years, you could contribute an additional $40,000 and take a tax deduction at the higher rate.
To make a deductible contribution, you must:
- Be under 75 years old.
- Lodge a notice of intent to claim a deduction with your super fund.
- Receive an acknowledgment from your fund before lodging your tax return.
For those aged 67-75, a personal contribution is allowed if you meet the work test (working at least 40 hours in a consecutive 30-day period during the income year).
If your spouse’s assessable income is less than $37,000, and you both meet eligibility criteria, contributing to their superannuation can earn you a $540 tax offset.
If you face a tax bill this year, such as from a capital gain on shares or property, a larger personal superannuation contribution might help offset the tax owed.
Charitable Donations:
Donations of money or property to a registered deductible gift recipient (DGR) over $2 can be claimed as a tax deduction. The higher your tax rate, the more valuable the deduction. For example, a $10,000 donation can result in a $3,250 deduction for someone earning up to $120,000 and $4,500 for someone earning $180,000 or more.
Donations must be gifts, not in exchange for something. Special rules apply for charity auctions and DGR fundraising events. Philanthropic giving can also be directed to public or private ancillary funds, offering immediate deductions while allowing the fund to invest and manage the money over time. These funds must distribute a portion of their net assets to DGRs annually.
Investment Property Owners:
A depreciation schedule can help calculate deductions for the natural wear and tear of your investment property, potentially maximizing your deductions.
RISKS
Work from Home Expenses:
Claiming work-from-home expenses is scrutinized by the ATO. There are two methods:
- Short-Cut Method: Claim a fixed 67c rate per hour for energy, internet, phone, and consumables. Keep records of actual work-from-home hours, as estimates are not accepted.
- Actual Method: Claim actual additional expenses incurred. Keep copies of expenses and a diary for at least four continuous weeks representing your typical work pattern.
Landlords Beware:
You can only claim expenses for a property that is rented or genuinely available for rent. The ATO focuses on properties used by family or friends, taken off the market, or listed at unreasonable rental rates, particularly in holiday hotspots.
Key issues include:
- Refinancing and Redrawing Loans: Only claim interest on amounts borrowed for the rental property. Loans partially used for personal expenses must be apportioned.
- Repairs vs. Capital Improvements: Immediate deductions for repairs and maintenance, but capital works are deducted over time.
- Co-owned Property: Claim income and expenses according to your legal ownership percentage.
Gig Economy Income:
Declare all income from platforms like Airbnb, Uber, OnlyFans, and YouTube. The tax rules apply to income when it’s credited to your account, not when transferred to your personal or business account. Platforms must report transactions to the ATO under the sharing economy reporting regime.
Conclusion:
Leveraging these opportunities and understanding the risks ensures compliance and maximizes benefits. If you have undeclared income, report it promptly to avoid penalties and interest from the ATO.
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