The essential 30 June guide: Unlock opportunities & avoid risks

As the end of the financial year draws near, it's essential to prepare for potential scrutiny from the Australian Taxation Office (ATO) while also exploring opportunities to optimise your tax deductions. By understanding the areas that may attract increased attention from the ATO and leveraging strategies to maximise deductions, you can navigate the tax landscape more effectively. Let's delve into these critical aspects to ensure you're well-equipped to make the most of this upcoming financial year.

For you - Opportunities

Take advantage of the 1 July 2024 tax cuts by bringing forward your deductible expenses into 2023-24. Prepay your deductible expenses where possible, make any deductible superannuation contributions, and plan any philanthropic gifts to utilise the higher tax rate.

Boosting Your Superannuation: Secure Your Future

If you're looking to boost your superannuation and your balance allows it, consider making a one-off deductible contribution. As long as you haven't hit your $27,500 cap, which includes employer superannuation guarantee contributions, any salary-sacrificed amounts, and personal contributions you plan to claim as a tax deduction, you're good to go.

Here's an exciting opportunity: if your super balance was under $500,000 as of 30 June 2023, you might be eligible to use any unused concessional cap amounts from the past five years for a personal contribution in 2023-24. Imagine this: if you fell $8,000 short of the cap each year over the last five years, you could now contribute an extra $40,000 this financial year and enjoy a tax deduction at your higher personal tax rate.

To take advantage of this, you must be under 75. You'll need to submit a notice of intent to claim a deduction in the approved form (check with your super fund) and get an acknowledgment from them before you lodge your tax return.

For those aged 67 to 75, personal contributions are allowed only if you meet the work test, which means working at least 40 hours within a consecutive 30-day period during the income year. There could also be special exemptions that apply.

And here's a nifty tip: If your spouse's assessable income is below $37,000 and you both qualify, you can contribute to their super and claim a $540 tax offset.

If you're expecting a tax bill, maybe from capital gains on shares or property sales, consider making a larger personal super contribution. This smart move could help offset the tax you're due to pay.

Ready to give your super a boost and reap the benefits? Now's the time to act!

Support a Cause - Make a Charitable Donation!

When you donate money (or sometimes property) to a registered deductible gift recipient (DGR), you can claim amounts over $2 as a tax deduction. The more tax you pay, the more beneficial a tax-deductible donation will be for you. For instance, a $10,000 donation to a DGR could get you a $3,250 deduction if you’re earning up to $120,000, but it bumps up to $4,500 if you’re making $180,000 or more (excluding the Medicare levy).

To qualify for the deduction, the donation has to be a genuine gift, not something in exchange for a benefit. There are special rules for amounts related to charity auctions and fundraising events run by a DGR.

There are many ways to give philanthropically. Instead of donating directly to a specific 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 then investing and managing the money over time. Typically, the fund needs to distribute a certain portion of its net assets to DGRs each year.

Investment property owners

If you do not have one already, a depreciation schedule is a detailed report that helps you calculate the deductions you can claim for the natural wear and tear occurring over time on your investment property. This schedule takes into account various factors such as the age of the property, construction costs, and the value of assets within it. By accurately tracking these details, you can potentially maximize your tax deductions, leading to significant long-term savings. Depending on your property, this can be a crucial tool for optimizing your investment returns.

For You - Risks

Work from Home Expenses

Working from home has become a staple for many of us. While you can't claim your morning coffee, biscuits, or even toilet paper (yes, people have tried!), there are certain additional expenses you can legitimately claim. But beware, the ATO keeps a close eye on work from home expenses.

There are two ways to claim your work from home expenses: the short-cut method and the actual method.

The short-cut method is straightforward: claim a fixed rate of 67c for every hour you work from home. This rate covers your energy expenses (electricity and gas), internet, mobile and home phone bills, and even stationery and computer consumables like ink and paper. Just make sure you keep a detailed record of the actual days and times you work from home, as the ATO won't accept estimates.

If you prefer, you can claim the actual expenses incurred on top of your normal running costs. For this method, you'll need copies of your bills and a diary covering at least four continuous weeks that reflect your usual work pattern.

So, keep those records clean and clear, and make the most of the deductions available to you!

Landlords beware

If you own an investment property, here’s a crucial tip: you can only claim deductions for expenses incurred while earning income. In simpler terms, the property needs to be rented out or genuinely available for rent to claim those expenses.

It sounds straightforward, right? But you'd be surprised how often people try to claim expenses when their property was used by family or friends, taken off the market, or listed at an unreasonable rate. This is a major focus for the ATO, especially if your property is in a holiday hotspot. So, keep it legit to stay on the right side of the tax office!

This tax season, the ATO is honing in on several key issues:

• Refinancing and redrawing loans: While you can typically claim interest on amounts borrowed for rental properties, complications arise when part of the loan is used for personal expenses or refinanced for personal needs like school fees or holidays. In these cases, only the portion related to the rental property is deductible. The ATO uses financial institution data to catch taxpayers claiming excessive interest expenses.
• Repairs vs. capital improvements: Distinguishing between repairs and maintenance and capital improvements is crucial. Repairs and maintenance, which relate directly to rental wear and tear (like replacing damaged fence palings), can be claimed immediately. However, capital works, such as structural improvements, are typically deducted over 40 years at 2.5% of the construction cost. Replacing an entire asset, like a hot water system, is considered a depreciating asset with deductions spread over time.
• Co-owned property: Rental income and expenses must generally be claimed according to your legal interest in the property. Joint tenants split expenses and income 50/50, while tenants in common claim based on their ownership percentage. This allocation stands regardless of who actually paid for the expenses.

Stay informed and compliant to make the most of your deductions and avoid any ATO scrutiny!

Gig economy income

Just a heads-up that any income you make from platforms like Airbnb, Stayz, Uber, OnlyFans, YouTube, etc., needs to be declared on your tax return. This includes money, appearance fees, and even ‘gifts’.

According to tax rules, you’ve earned the income “as soon as it is applied or dealt with in any way on your behalf or as you direct.” So, if you’re a content creator, this means once your account is credited, not when you transfer the money to your personal or business account. Hiding it in your platform account won’t save you from paying taxes!

Starting from 1 July 2023, platforms that offer ride-sourcing, taxi travel, and short-term accommodation (under 90 days) must report transactions to the ATO under the sharing economy reporting regime. This is the first year the ATO will use this data to match income tax returns.

Other sharing economy platforms will have to start reporting from 1 July 2024. If you’ve got any undeclared income, do yourself a favor and declare it now before the ATO catches on and hits you with penalties and interest.

For your business - Opportunities

Bonus Deductions for Small Businesses in 2023-24

The 2023-24 period brings a series of enticing bonus deductions designed to boost your operations. These include the instant asset write-off, energy incentive, and the skills and training boost.

Announced in the 2023-24 Federal Budget, the instant asset write-off threshold has been significantly increased. Small businesses with an aggregated turnover of less than $10 million can immediately deduct the full cost of eligible depreciating assets costing under $20,000. And there’s more good news—the Government has extended this measure to 30 June 2025 in the 2024-25 Federal Budget! Without these measures, the threshold would remain a mere $1,000.

However, there's a slight hitch: the legislation for the 2023-24 measure hasn’t yet passed Parliament due to a disagreement between the House of Representatives and the Senate regarding the threshold amount and whether it should also apply to medium-sized businesses (up to $50 million).

In a similar boat is the $20,000 energy incentive. This provides an additional 20% deduction on the cost of eligible depreciating assets or improvements supporting electrification and energy efficiency in 2023-24. Again, this isn’t law just yet.

Assuming both measures pass Parliament by 30 June 2024, remember: any assets need to be first used or installed ready for use, or the improvement costs incurred, between 1 July 2023 and 30 June 2024 to be written off in 2023-24.

What’s already locked in and ready to go is the 20% bonus deduction for eligible expenditure on external training for your employees. The ‘skills and training boost’ is available to businesses with an aggregated annual turnover of less than $50 million. To claim this boost, the training must be provided by a registered training provider and registered and paid for between 29 March 2022 and 30 June 2024. This typically includes vocational training for trades or courses counting towards a qualification, rather than professional development.

Get ready to take full advantage of these fantastic opportunities to grow and enhance your business!

Write-off bad debts

Got a customer who's definitely not going to pay up? If all your efforts have hit a wall, you can write off the debt by 30 June. Just make sure to note it down on your debtor’s ledger or jot it in a minute.

Outdated Plant & Equipment

Got outdated plant and equipment gathering dust on your depreciation schedule? Stop depreciating tiny amounts every year! Scrap it and write it off before 30 June for a fresh start.

For companies

If it makes sense to do so, bring forward tax deductions by committing to directors’ fees and employee bonuses (by resolution), and paying June quarter super contributions in June.

For your business - Risks

Tax Debt and Reporting Obligations

Failing to lodge returns is a glaring 'red flag' for the ATO, signaling potential issues within your business. Not filing a tax return won't halt the debt from escalating; the ATO can issue an assessment of what they believe you owe. If your business struggles to meet its tax or reporting obligations, we can step in and collaborate with the ATO on your behalf.

Professional Firm Profits

For professional services firms – architects, lawyers, accountants, and more – the ATO is scrutinizing how profits are distributed among professionals. They're on the lookout for income-diversion structures that reduce expected tax payments. If professionals are not fairly compensated for their contributions, or if their rewards fall significantly short of the value they provide, expect the ATO to take action.

Wrapping it up

As we wrap up our essential guide for the upcoming end of the financial year, remember to seize the varied opportunities that are available to you. From maximising your deductions by leveraging the 1 July 2024 tax cuts, boosting your superannuation, supporting your favoured cause with charitable donations, to optimising your investment property depreciation, the possibilities are bountiful.

However, be cautious and stay compliant. Make sure to correctly claim work-from-home expenses and avoid hefty ATO penalties by declaring all your gig economy income. If you're an entrepreneur, keep in mind the several bonus deductions coming in 2023-24, and consider writing off any bad debts or outdated equipment for a clean slate.

Above all, remember that correctly lodging your tax returns is paramount to staying in good terms with the ATO. Rest assured, careful planning and strategic decisions can keep you ahead of the curve and set you on the path to a financially prosperous year ahead!

Looking ahead - Key dates at a glance

*Subject to legislation. Not yet law.

^Parliamentary disagreement on whether to increase the threshold to $30,000 and apply to businesses with a group turnover of less than $50m. Also subject to legislation and not yet law.