As the financial year ends, we highlight ways to boost your deductions and areas that may attract ATO scrutiny.
If you want to grow your superannuation and your balance allows it, consider making a one-off deductible contribution. This is possible if you haven’t reached your $30,000 cap, which includes employer contributions, salary sacrifices, and personal contributions claimed as deductions.
If your total superannuation balance on 30 June 2024 is below $500,000, you may access unused concessional cap amounts from the last five years. For instance, if you were $8,000 under the cap each year, you can contribute an extra $40,000 and claim the tax deduction this year at your personal tax rate.
To make a deductible contribution, you must be under 75, lodge a notice of intent to claim (check with your super fund), and get an acknowledgement from them before filing your tax return. If you’re aged 67 to 74, you can only claim a deduction if you meet the work test—meaning you must work at least 40 hours in a consecutive 30-day period in the income year—though some exemptions may apply.
If your spouse earns less than $37,000 and both meet eligibility criteria, you can contribute to their super and claim a $540 tax offset.
If you expect a tax bill this year and made a capital gain on sold shares or property, consider making a larger personal super contribution to offset your tax.
Donating money or property to a registered deductible gift recipient (DGR) allows you to claim deductions of $2 and above. The more tax you pay, the more valuable the deduction. For example, a $10,000 donation can yield a $3,250 deduction for someone earning up to $120,000, but $4,500 for someone earning $180,000 or more (excluding Medicare levy).
To claim a deduction, the donation must be a true gift—not in exchange for something. Special rules apply to charity auctions and fundraising events.
You can also consider giving to a public ancillary fund or setting up a private ancillary fund. Donations to these funds often qualify for an immediate deduction. The fund then manages and invests the money over time, needing to distribute a portion of its net assets to DGRs each year.
If you don’t have a depreciation schedule, consider getting one. This report helps you calculate deductions for wear and tear on your investment property. It can help maximise your deductions.
Many workers now work from home. You can’t claim costs like coffee or toilet paper, but you can claim some additional expenses. However, work-from-home expenses face ATO scrutiny.
There are two ways to claim these expenses: the short-cut method and the actual method.
The short-cut method lets you claim 70c for every hour you work from home until 30 June 2025. This covers energy, internet, phone expenses, and stationery. To use this method, you must keep a record of the days and times you work from home. The ATO doesn’t accept estimates.
Alternatively, you can claim your actual expenses over your normal running costs. Keep copies of your expenses and a diary for at least four weeks that shows your typical work pattern.
If you own an investment property, remember you can only claim deductions for expenses incurred while earning income. The property usually needs to be rented or genuinely available for rent.
It’s important to note that many taxpayers incorrectly claim expenses when the property is used by family or friends, off the market, or listed at an unreasonable rental rate. This is a major focus for the ATO, especially in holiday hotspots.
Common issues the ATO is pursuing this tax season include:
Refinancing and redrawing loans: You can usually claim interest on the loan for the rental property. However, if any part of the loan relates to personal expenses, you must apportion it. The ATO uses financial data to identify taxpayers claiming excessive interest expenses.
Repairs vs capital improvements: You can usually claim repairs and maintenance costs immediately, while capital works deductions are spread over years. Repairs must relate directly to wear and tear from renting out the property, like fixing a damaged fence. You cannot claim repairs for issues present when you bought the property. Capital improvements, like structural changes, are deducted at 2.5% of the construction cost over 40 years. Replacing an entire asset, like a hot water system, is also a depreciating asset.
Co-owned property: Rental income and expenses must be claimed based on your legal interest. Joint tenants must claim 50% of the expenses and income, while tenants in common claim based on their ownership percentage, regardless of who paid the expenses.
Declare any income from platforms like Airbnb, Stayz, Uber, and YouTube on your tax return. The tax rules state you earn income as soon as it’s credited to your account, not when you transfer it to your personal or business account. Hiding it in your platform account won’t shield you from tax obligations.
Since 1 July 2023, platforms for ride-sourcing, taxi travel, and short-term accommodation must report transactions to the ATO. Expect the ATO to use data matching to find unreported income. Other platforms must start reporting from 1 July 2024. If you have unreported income, declare it now to avoid penalties.
Write-off bad debts:
If a customer won’t pay, write off the debt by 30 June to claim a deduction this year. Document the write-off on your debtor’s ledger or with a minute.
Obsolete plant & equipment:
If your business has obsolete equipment on your depreciation schedule, consider scrapping it. Write it off before 30 June if you no longer use it.
If it makes sense, bring forward tax deductions by committing to pay directors’ fees and employee bonuses (by resolution) and by paying June quarter super contributions in June.
Not lodging returns raises a red flag for the ATO. Failing to file won’t stop your debt from escalating, as the ATO can issue an estimated assessment. If your business struggles with tax obligations, we can help by liaising with the ATO on your behalf.
The ATO is reviewing how profits flow through professional services firms like architects, lawyers, and accountants. They are looking for income diversion strategies to reduce expected tax. If professionals aren’t appropriately rewarded for their services or receive less than the value of those services, the ATO may take action.
Need support or have questions?
Talk to us today about maximising your outcomes and reducing your risk.