End of Financial Year – ATO Update

The ATO, via their website, recently released their end of year warning regarding claiming of  deductions and gave several examples of what they said were “wild” deductions. The ATO will focus on work related deductions, working from home deductions and multiple income sources.

Work-related expenses must have a close connection with income earning activities and you must be able back it up with records such as a receipt or an invoice. The ATO point out that items such as travel to and from work (except certain circumstances) and child care expenses are all personal expenses and cannot be claimed. They also gave the example of a manager in the fashion industry claiming over $10,000 in luxury branded clothing to be well presented at work, and to attend functions and events. The clothing was all conventional in nature and not allowable.

Work from home can be claimed using either the fixed rate method (70 cents per hour) or the actual expense method. To claim these expenses the taxpayer must:

• be working from home while carrying out employment duties or carrying on a business
• incurring additional running expenses as a result of working from home
• be keeping records (such as a diary) for time spent working from home. It is important to note that you cannot just estimate the time spent working from home.
• The fixed rate covers internet, telephone, electricity and stationery etc. You are still able to claim the decline in value (depreciation) of depreciating assets that you use.

Other EOFY Advice

SMSF trustees should ensure that they have met their minimum pension payments for the year. The consequences of failing the minimum payment can be quite severe. The pension is deemed to be in accumulation for the ENTIRE year and does not restart until the member requests the restart. This means that the income from the assets supporting the pension could be subject to 15% tax for a minimum of12 months, but possible for up to 18-20 months. It may be 6-9 months into the next financial year before the under payment is discovered.

If a member requires more than their minimum pension payment for a year, the excess should be taken either as a lump sum from their accumulation account or as a partial commutation of their pension.

Clients should look to manage Capital Gains Tax on assets sales.

This includes holding the asset for more than 12 months to ensure the 50% discount is received. It is important to note that the ATO treats the date of signing of a contract as the date of sale, not the date of settlement.

Triggering a capital loss to offset a capital gain. Ensuring that the “wash sale” provisions are not breached.  A wash sale – selling an asset at a loss and then repurchasing the same asset shortly afterwards.

Making a personal deductible contribution to offset a capital gain and using any catch-up contributions (if available). Ensure the contributions are received by the super fund by 30 June 2024 (this may mean making the contributions a few days before year-end to allow for processing time).

Clients with SMSFs may be able to make a double super contribution to offset capital gains. This involves what is called a “reserving strategy”. Under no circumstances should a client make a double deduction without talking to their financial advisor or accountant. Done incorrectly, this can lead to excess concessional contribution issues.

Taxpayers may be able to prepay certain expenses to offset capital gains or reduce taxable incomes. Expenses such as premiums on income protection policies (outside of super), interest on a fixed rate investment loan, expenses on an investment property or even work related subscriptions.

The prepayment of expenses is also relevant for business clients whereby they can prepay up to 12 month’s worth of business expenses. This can include items such as fuel, tyres and interest.