It’s that time of the year again.
The time of year when tax time is just around the corner and everyone is turning their attention to deductions.
While no one wants to pay more tax than necessary, it’s equally important to ensure you are meeting your tax obligations set out by the ATO. Some areas are at risk of increased scrutiny this tax season.
So, we are dishing all the info on deduction opportunities and the risks you need to be aware of.
Deduction Opportunities
Let’s discuss the good stuff first. Here are some of the areas where you can maximise the opportunities for deductions:
Superannuation
Looking to grow your superannuation? Well, if you haven’t used your $30,000 contributions cap yet (that includes employer contributions, salary sacrifice, and personal deductible contributions), you may be able to make a one-off tax deductible contribution.
If your total super balance was under $500,000 on 30 June 2024, you could also utilise any unused cap amounts from the last five years. For example, if you had $8000 unused each year, you could contribute an additional $40,000 in 2024-25 and claim the tax deduction.
In order to claim that deduction, you must be under the age of 75, lodge a notice of intent with your super fund, and receive confirmation of this before lodging your tax return. If you are aged 67-74, you can only claim the deduction if you meet the work eligibility test, which is working at least 40 hours in a consecutive 30-day period within the income year.
You may also be eligible for a $540 tax offset by contributing to your spouse’s super if their income is less than $37,000. Boosting your super contribution can be a good way to reduce your tax bill, especially if you have made a capital gain on shares or property sold.
Charitable Donations
Any donation of $2 or more made to a registered deductible gift recipient (DGR) can be claimed as a tax deduction. To be deemed deductible, the donation must be a genuine gift of funds and not an exchange for goods or services. Special rules apply to charity auctions or fundraising events, so be mindful of this.
The higher your income, the more valuable a tax deduction donation can be for you. For example, a $10,000 donation to a DGR can create a $3,250 deduction if your salary is $120,000, but that increases to $4,500 if your income is $180,000 or more.
Investment Property Owners
If you own an investment property, a depreciation schedule could be your best friend when it comes to tax time. It is a report that helps you calculate deductions for the natural wear and tear on your property over time. Depending on your property, this schedule can help you maximise your deductions.
If you aren’t sure how this could work, or how to maximise the opportunities for tax deductions in the other areas just mentioned, the best thing to do is to chat with your friendly neighbourhood tax specialists – Cadenze.
Deduction Risks
Working From Home
Some expenses incurred when working from home can be claimed for, while some cannot (despite how much you spent on toilet paper!) You need to be aware that work-from-home costs are a huge area for scrutiny by the ATO, so you can’t simply sneak things into your tax return!
Luckily, there are two legitimate ways to calculate your expenses. The shortcut method of claiming 70c per hour worked at home, or the alternate method of claiming the actual expenses incurred. For either method, you will need documentation to confirm your actual work days and times, or complete records of the expenses incurred.
Rental Properties
Landlords! Don’t get caught out. In order to claim any deductions on a rental property, the property needs to actually be rented to tenants or be available to be rented. There are also a couple of other areas the ATO are honing in on this year:
- Refinancing: It is usual practice to claim a deduction for interest incurred on any money borrowed for your rental property. Be aware that the ATO will match data from financial institutions to ensure taxpayers are not claiming more interest expenses than they should. The ATO is also hot on apportioning loan expenses correctly, any personal borrowing needs to be excluded from your calculations.
- Maintenance v Improvements: Remember there is a difference between claiming maintenance and capital improvement costs. Repairs and maintenance must be directly related to bringing the property back to its previous state, and expenses can be claimed immediately. Whereas the expenses for capital works must be spread over a period of time, either at 2.5% of the construction cost for 40 years or using a depreciation model – the method used will depend on the asset purchased.
- Co-owned Properties: If you co-own a rental property, all rental income and expenses must be claimed according to your legal interest in the property – either at 50% or in line with your legal ownership percentage. Don’t get caught out, as it doesn’t matter who actually paid for the expenses.
Ancillary Income
Any income you earn must be declared on your tax return. That includes gig economy income and that earned from platforms like Airbnb, Stayz, Uber or YouTube. You must declare the income from these sources when the money is earned, so don’t try to keep it on the relevant platform “in hiding”.
Since 1 July 2023, many gig-related platforms have been reporting transactions to the ATO, and the ATO utilises data-matching activities to identify unreported income. If you have undeclared income from platforms like this, it is best to declare it now to avoid the potential for penalties and interest.
Business Owners
Further to personal tax opportunities, there are also some things business owners will want to be aware of this tax season:
Opportunities
- Bad Debts: If you know that a customer is definitely not going to pay you, prepare some documentation as proof and write off the bad debt by 30 June to claim a deduction.
- Obsolete Equipment: Stop depreciating obsolete equipment now. Instead, scrap it and write it off so you don’t have to keep accounting for it.
- Companies: If it makes sense for your accounts, you can bring forward tax deductions by paying directors’ fees and employee bonuses now, along with paying June super contributions in June.
- Professional Services: The ATO is keeping a sharp watch on how profits flow through to professionals involved in service businesses. In particular, they are watching if tax structures are in place to reduce the amount of tax that should be paid and whether professionals are being remunerated correctly for their services.
- Instant Asset Write Offs: A long time coming, legislation has finally passed to allow businesses earning under $10m to claim an immediate deduction for the cost of depreciating assets of less than $20,000 acquired in the 2025 financial year.
Risks
- Tax Obligations: All businesses should be lodging a tax return and meeting their tax obligations. Not lodging a tax return won’t hide your tax debt or obligations from the ATO. In fact, they can simply issue an assessment of what they think your business owes. So, it’s better to be proactive and lodge the return correctly and on time!
- Updated Benchmarking: The ATO has updated its benchmarking tools to help small businesses compare their performance to others in their industry. A handy tool in itself, the ATO also use this to increase scrutiny on businesses that fall outside their benchmarks. It can be helpful to know your industry benchmarks to avoid any unwanted attention from the ATO.
Tax Time Support
Tax time can be stressful for anyone, which is why it is best to have a knowledgeable and experienced financial expert on your side. The team here at Cadenze aim to make tax time easy for everyone, so don’t hesitate to get in touch with us now to get your taxes sorted.