As the end of the financial year approaches, it is essential to be aware of areas subject to increased ATO scrutiny and opportunities to maximise your deductions.
Key Opportunities for Individuals
Maximise Your Deductions
Utilise 1 July 2024 Tax Cuts: Accelerate deductible expenses into the 2023-24 income year. Consider prepaying deductible expenses, making superannuation contributions, and planning philanthropic gifts to benefit from the higher tax rate.
Superannuation
- One-off Deductible Contributions: If your superannuation balance allows and you haven’t reached your $27,500 cap, consider making a deductible contribution. This cap includes superannuation guarantee payments, salary-sacrificed amounts, and personal contributions claimed as tax deductions.
- Utilise Unused Concessional Caps: If your superannuation balance was below $500,000 on 30 June 2023, you might access unused concessional cap amounts from the last five years in 2023-24. For example, contributing an additional $40,000 could yield significant tax deductions at a higher personal tax rate.
- Contribution Criteria: To make deductible contributions, you must be under 75, submit a notice of intent to claim a deduction and receive fund acknowledgement before lodging your tax return. Those aged 67-75 must meet the work test.
- Spouse Contributions: If your spouse’s assessable income is below $37,000, contributing to their superannuation can earn you a $540 tax offset.
- Offsetting Capital Gains: If facing a tax bill due to capital gains, larger personal superannuation contributions can help offset the owed tax.
Charitable Donations
- Tax-Deductible Donations: Donations over $2 to registered deductible gift recipients (DGRs) are tax-deductible. The higher your tax rate, the more valuable the deduction.
- Types of Donations: Donations must be gifts, not in exchange for goods or services. Special rules apply to charity auctions and fundraising events.
- Philanthropic Giving: Consider giving to a public or private ancillary fund for immediate deductions, with the fund managing and distributing assets over time.
Investment Property Owners
Depreciation Schedule: Obtain a depreciation schedule to maximise deductions for wear and tear on investment properties.
Salary Sacrificing Benefits
- Maximize Concessional Contributions: Salary sacrifice arrangements can help increase your concessional contributions to superannuation, potentially reducing taxable income while boosting retirement savings.
- Use Fringe Benefits: Leverage fringe benefits such as car leases and other non-cash benefits to optimise tax efficiency.
Managing the Compliance Risks
Work from Home Expenses
ATO Scrutiny: The ATO is scrutinising work-from-home expenses more closely. You can claim a fixed rate of 67c per hour or actual incurred expenses, provided you keep accurate records.
Landlords
- Expense Claims: Only claim expenses incurred in earning income from properties genuinely available for rent. Misuse in claiming expenses, such as for personal use or unreasonably listed properties, is a focus area for the ATO.
- Loan Apportionment: Only claim interest on loans used for rental properties. Personal use or refinancing for personal needs must be apportioned.
- Repairs vs. Capital Improvements: Immediate deductions are for repairs and maintenance, while capital improvements are depreciated over time.
- Co-owned Property: Income and expenses must be claimed according to legal ownership percentage (e.g., a joint tenant).
Shared Economy Income
Declaration of Income: All income from platforms like Airbnb, Uber, and OnlyFans must be declared. Platforms report transactions to the ATO, making undisclosed income easily traceable.
Cryptocurrency Transactions
Tax Reporting: Ensure all cryptocurrency transactions are accurately reported. The ATO requires detailed records of each transaction, including dates, values, and the purpose of the transaction.
For Your Business
Bonus Deductions
- Instant Asset Write-off: Small businesses can immediately deduct the cost of eligible depreciating assets costing less than $20,000. Pending legislative approval, this applies to assets first used or installed between 1 July 2023 and 30 June 2024.
- Energy Incentive: A 20% additional deduction on eligible energy-efficient assets, subject to legislative approval.
- Skills and Training Boost: A 20% deduction for external training provided to employees, valid for registered training and paid for between 29 March 2022 and 30 June 2024.
Write-off Bad Debts
Bad Debts: Write off irrecoverable debts by 30 June, documenting them in your debtor’s ledger.
Obsolete Plant & Equipment
Depreciation: Scrap and write off obsolete plant and equipment before 30 June.
Advance Deductions
Commitments: Bring forward tax deductions by committing to directors’ fees and employee bonuses and paying June quarter super contributions in June.
R&D Tax Incentives
Claim R&D Expenses: Ensure all eligible research and development (R&D) expenses are documented and claimed under the R&D Tax Incentive scheme to maximise benefits.
Managing Compliance Risks
Tax Debt and Reporting Obligations
Compliance: Failure to lodge returns flags potential issues. The ATO can issue assessments based on estimations, escalating debt. We can assist in managing your tax and reporting obligations.
Professional Firm Profits
Profit Allocation: The ATO scrutinises how profits are allocated in professional services firms. Inappropriate reward structures may trigger ATO action.
Employee Entitlements
Superannuation and PAYG Withholding: Ensure timely payment of employee superannuation and PAYG withholding to avoid penalties and interest.
For support or further questions, contact us to optimise your financial outcomes and mitigate risks.