As the close of the financial year is rapidly approaching, we set out several areas to optimise your deductions and provide you with detailed information on areas that are likely to draw more scrutiny from the ATO.

Opportunities

Bolstering superannuation 

If building up your superannuation is part of your plan, and your overall superannuation balance permits it, you’re able to make a single, tax-deductible contribution to your superannuation, provided you haven’t already reached the $30,000 limit. This limit encompasses the superannuation guarantee paid by your employer, the sums you’ve sacrificed from your salary into super, and any personal contributions you intend to claim as a tax deduction. 

 

Should your overall superannuation balance as of 30 June 2024 have been less than $500,000, you may be eligible to utilise any unutilised concessional cap amounts from the past five years during the 2024 – 2025 period as a personal contribution. For instance, if in each of the previous five years you were $8,000 below the cap, you would be able to make an extra contribution of $40,000 and claim tax deduction in this financial year based on your personal tax rate.

 

In order to make a tax-deductible contribution to your superannuation, you must be under 75 years of age. You are required to submit a notice of intent to claim a deduction in the approved format (you should verify this with your superannuation fund), and obtain an acknowledgment from your fund prior to filing your tax return. For individuals aged between 67 and 74, you can only claim a deduction for a personal superannuation contribution if you satisfy the work test. 

 

That is, you must work for at least 40 hours within a consecutive 30-day period during the income year, though there may be certain special exemptions applicable.

 

If your spouse’s taxable income is below $37,000 and both of you meet the relevant eligibility requirements, you have the option to contribute to their superannuation and claim a tax offset amounting to $540. 

 

In the event that you anticipate having a tax liability this year and have realised a capital gain from the sale of shares or property, increasing your personal superannuation contribution could potentially serve to reduce the amount of tax you are required to pay.

Charitable donations 

When you make a donation of money (or in some cases, property) to a registered deductible gift recipient (DGR), any donation amount of $2 or more is eligible for a tax deduction. The higher your tax liability, the greater the benefit of the tax-deductible donation. For instance, if you donate $10,000 to a DGR, an individual with an income of up to $120,000 can claim a deduction of $3,250, while someone with an income of $180,000 or higher (excluding the Medicare levy) can claim a deduction of $4,500. 

For a donation to be eligible for a tax deduction, it must be a genuine gift and not given in return for something. There are specific regulations in place for amounts associated with charity auctions and fundraising events organised by a deductible gift recipient (DGR).

There are multiple ways to engage in philanthropic activities. Instead of making donations directly to a particular charity, it may be worthwhile to consider the possibility of contributing to a public ancillary fund or establishing a private ancillary fund. 

Contributions made to these funds typically have the potential to be immediately deductible. The fund will then invest and manage the donated money over a period of time. Usually, the fund is required to allocate a specific proportion of its net assets to deductible gift recipients (DGRs) on an annual basis.

Investment property owners 

If you haven’t obtained one yet, a depreciation schedule is a document that aids in calculating deductions for the gradual wear and tear of your investment property over a period. Based on the nature of your property, having such a schedule can potentially assist in maximizing the deductions you’re eligible for.

Risks 

Work from home expenses 

For numerous workers, working from home has become a regular part of their lives. Although you’re unable to claim the cost of your morning coffee, biscuits, or toilet paper (and it’s true that some people have attempted to do so), there are certain extra expenses that you can claim. However, work from home expenses are one area that the Australian Taxation Office (ATO) closely examines.

There are two approaches to claiming your work from home expenses: the shortcut method and the actual method.

The shortcut method enables you to claim a fixed rate of 70 cents for each hour you work from home during the year that ends on 30 June 2025. This rate accounts for your energy costs (both electricity and gas), internet expenses, mobile and home phone bills, as well as stationery and computer consumables like ink and paper. When using this method, it’s crucial to maintain a record of the specific days and times you work from home, as the ATO has made it clear that they won’t accept estimated figures.  

The other option is to claim the actual costs that you have spent in addition to your regular operating expenses for working from home. You should keep copies of your expense receipts and your diary for at least 4 consecutive weeks that reflect your usual work routine.

Landlords beware

If you are the owner of an investment property, a crucial concept to grasp is that you are only eligible to claim deductions for expenses that you have incurred while generating income. In other words, for you to claim the expenses, the property must either be currently rented out or genuinely made available for rent.

It may seem straightforward, but taxpayers who claim investment property expenses when the property is being occupied by family or friends, has been removed from the rental market for a certain reason, or is listed at an unreasonable rental rate are under the spotlight of the Australian Taxation Office (ATO), especially when your property is in a popular holiday area.

During this tax season, the ATO is actively looking into a number of issues. These issues include:

• Refinancing and redrawing loans – Typically, you’re able to claim the interest on the money borrowed for your rental property as a deductible expense. Nevertheless, when any segment of the loan is associated with personal expenditures, or when a portion of the loan is refinanced to obtain cash for personal purposes (such as school tuition, vacations, etc.), the loan – related expenses must be allocated. 

 

Only the portion that pertains to the rental property can then be claimed. The ATO cross – references data from financial institutions to detect taxpayers who are claiming excessive interest expenses. 

• The difference between repairs and maintenance and capital improvements –  Although repair and maintenance costs can usually be claimed right away, the deduction for capital works is typically distributed across several years. 

 

Repair and maintenance expenses must be directly connected to the deterioration caused by renting out the property and generally entail returning the property to its prior condition; for instance, substituting broken fence palings. 

 

You are not permitted to claim repairs needed when you initially bought the property. On the other hand, capital works, such as structural enhancements to the property, are commonly deducted at a rate of 2.5% of the construction cost over 40 years starting from the completion date of construction. When you replace an entire asset, like a hot water system, it is considered a depreciating asset, and the deduction is claimed over time (varying rates and timeframes apply to different assets). 

• Co-owned property – Ordinarily, rental income and expenses should be claimed based on your legal stake in the property. For those who own the property as joint tenants, they are required to claim 50% of both the expenses and income. In the case of tenants in common, claims should be made in accordance with their respective legal ownership percentages. 

 

Gig economy income

It is of utmost importance that any income, which includes money, and so-called “gifts,” derived from platforms like Airbnb, Stayz, Uber, YouTube, and others, is reported in your tax return.

 

Tax regulations stipulate that income is considered earned “the instant it is utilized, managed, or otherwise dealt with either on your behalf or in accordance with your directions”. Take content creators, for example; the point at which income is deemed earned is when it is credited to their account, not when they request a transfer to their personal or business account. Concealing this income within your platform account to avoid the Australian Taxation Office (ATO) will not shield you from the obligation to pay tax on it. 

 

Since 1 July 2023, the platforms delivering ride-sharing and short-term accommodation (under 90 days), have been required to report transactions made through their platform to the ATO under the sharing economy reporting regime so expect the ATO to utilise data matching activities to identify unreported income. 

 

Other sharing economy platforms have been required to start reporting from 1 July 2024. If you have income you have not declared, do it now before the ATO discovers it and apply penalties and interest.