As the end of the financial year approaches, here are some areas at risk of increased ATO scrutiny and opportunities to maximise tax deductions.


For Individuals
Opportunities

Bring forward your deductible expenses into 2023-24. Prepay your deductible expense where possible, make any deductible superannuation contributions and plan any philanthropic gifts to utilise the higher tax rate.

1. Growing Superannuation

If you are growing your superannuation, you could make a one-off deduction contribution to your superannuation if you have not used your $27,500 cap. This includes superannuation guarantee paid by your employer, salary sacrifices into super, and any amounts you personally contributed that will be claimed as a tax deduction.

If your super balance on 30 June 2023 was below $500,000, you may be able to access any unused concessional cap amounts from the last five years in 2023-24 as a personal contribution.

To make a deductible contribution to your superannuation, you need to:

  • Be under 75 years old
  • Lodge a notice of intent to claim a deduction in the approved form
  • Get an acknowledgement from your fund before you lodge your tax return

For those aged between 67 and 75, you can only make a personal contribution to super if you meet the work text (work at least 40 hours during a consecutive 30-day period in the income year).

If your spouse’s assessable income is below $37,000 and you both meet the eligibility criteria, you could contribute to their superannuation and claim a $540 tax offset.

In the case that you may face a tax bill this year for capital gains on shares or property you sold, then making a larger personal superannuation contribution might help to offset some of the tax you owe.

2. Charitable Donations

When you donate money or 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 valuable the tax deduction is to you.

For example, a $10,000 donation to a DGR can create a $3,250 deduction for someone earning up to $120,000 but $4,500 to someone earning $180,000 or more. To be deductible, the donation needs to be a gift and not in exchange for something. Charity auctions and fundraising events run by a DGR have special rules.

Philanthropic giving can be undertaken in a number of ways. Rather than providing gifts to a specific charity, it might be worth exploring the option of giving to a public ancillary fund or setting up a private ancillary fund.

3. Investment Property Owners

A depreciation schedule is a report that helps you calculate deductions for the natural wear and tear over time on your investment property. Depending on your property, it may help you maximise your deductions.


Risks

1. Work From Home Expenses

You can claim certain additional expenses you incur. There are two methods of claiming your work from home expenses:

  • Shortcut method: Claim a fixed 67c for every hour you work from home. To use this method, it is essential that you keep record of days and times you work from home because the ATO has stated that they will not accept estimates.
  • Actual method: Claim the actual expenses you have incurred on top of your normal running costs for working from home. You need copies of your expenses and your diary for at least 4 continuous weeks that represent your work pattern.

2. Landlords

If you own an investment property, you can only claim a deduction for expenses you incurred in the course of earning income. The property needs to be rented or genuinely available for rent to claim the expenses.

Some taxpayers are claiming investment property expenses when the property was being used by family or friends, taken off the market or listed for an unreasonable rental rate.

The ATO are pursuing a series of issues including:

1. Refinancing & Redrawing Loans

You can usually claim interest on the amount borrowed for the rental property as a deduction. However, where parts of the loan relate to personal expenses or refinanced to free up cash for your personal needs, then the loan expenses need to be apportioned and only the portion that relates to the rental property can be claimed.

2. Difference Between Repairs/Maintenance And Capital Improvement

Repairs and maintenance can often be claimed immediately, whilst a deduction for capital works is generally spread over a number of years. Repairs and maintenance expenses must relate directly to the wear and tear resulting from the property being rented out and generally involve restoring the property back to its previous state.

Capital works such as structural improvements to the property are normally deducted at 2.5% of the construction cost for 40 years from the date construction was completed. If you replace an entire asset, it is a depreciating asset and the deduction is claimed over time.

3. Co-owned Property

Rental income and expenses must normally be claimed according to your legal interest in the property. Joint tenant owners must claim 50% of the expenses and income, and tenants in common according to their split.

4. Tax Rules for Individuals Earning Income on Online Platforms

The tax rules consider that you have earned the income “as soon as it is applied or dealt with in a way on your behalf or as you direct”. If you are a content creator, this is when your account is credited, not when you direct the money to be paid to your personal or business account. Shifting income away from the ATO in your platform account will not protect you from paying tax on it.

Since 1 July 2023, platforms delivering ride-sourcing, taxi travel, short term accommodation (under 90 days), have been required to report transactions made through their platform to the ATO under the share economy reporting regime. This is the first year that the ATO will have the income tax returns of taxpayers to match to this data.

From 1 July 2024, all other sharing platforms will be required to start reporting to the ATO. If you have not declared income, penalties and interest will apply.


For Business
Opportunities

1. Write-off Bad Debt

If your customer is definitely not going to pay you, the debt can be written off by 30 June. Ensure you document the bad debt on your debtor’s ledger.

2. Obsolete Plant and Equipment

If your business has obsolete plant and equipment on your depreciation schedule, instead of depreciating a small amount each year, you can write it off before 30 June.

3. Bonuses and Super Contributions

By paying June quarter super contributions, directors’ fees and employee bonuses in June, you can bring forward tax deductions.

Risks

1. Tax Debt and Not Meeting Reporting Obligations

Failing to lodge tax returns provide the ATO an indication that something is wrong in the business. It cannot stop the debt escalating because the ATO has the power to simply issue an assessment of what they think your business owes.

2. Professional Firm Profits

For professional services firms (e.g. architects, lawyers, accountants etc), the ATO is reviewing how profits flow through to the professionals involved. They are looking to see whether structures are in place to divert income to reduce the tax they would be expected to pay. Where professionals are not appropriately rewarded for the services they provide to the business, or when they receive a reward which is substantially less than the value of those services, the ATO is likely to take action.


Federal Budget

1. Instant Asset Write-Off

Federal Budget 2023-24 increased the instant asset write-off threshold enabling small businesses with an aggregated turnover of less than $10m to immediately deduct the full cost of eligible depreciating assets costing less than $20,000. Without this, the instant asset write-off threshold would be $1,000.

However, legislation to enact the 2023-24 measure has not passed Parliament. There is a disagreement between House of Representatives and Senate about the amount of the threshold and whether medium businesses (up to $50m) should be within this scheme.

2. Energy Deduction

There is also a $20,000 energy incentive that provides an additional 20% deduction on the cost of eligible depreciating assets that support electrification and more efficient use of energy in 2023-24 is not yet law.

3. External Employee Training

There is a bonus 20% deduction for eligible expenditure for external training provided to your employees. To claim the boost, training needs to have been provided by a registered training provider and registered and paid between 29 March 2022 and 30 June 2024. Typically, it’s vocational training to learn a trade or courses that count towards a qualification rather than professional development.

If you require assistance with your superannuation, contact our Solomons Accounting team so we can assist by working with the ATO on your behalf.

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