ATO Hit List – 2024 tax returns

ATO Hit List 2024 tax returns

The ATO have released their hit-list for the 2024 tax returns – essentially, this is a list of key areas that they will be focusing on for their tax return reviews (noting that, really, all areas are subject to review):

  • Incorrectly claiming work-related expenses
  • Inflating claims for rental properties
  • Failing to include all income in your tax return

Work-related expenses

Last year the ATO changed the records that were required to be kept to claim the fixed rate working from home deduction (see more in our article here).

To claim a working from home deduction using the fixed rate method, you need to have kept the following records:

  • Diary evidence showing the total hours worked from home; and
  • Records of the additional costs you have incurred for working from home (eg. Electricity bill, internet bill).

Simply “copying and pasting” your deduction from last year will likely result in a review of your tax return.

Rental properties

The ATO have specifically identified repairs and maintenance of rental properties as one of the areas of concern.  General repairs can be claimed as a tax deduction, but expenses that are capital in nature are not deductible as repairs (these may be eligible for a depreciation deduction instead).

While not specially identified by the ATO, interest deductions are also another area where significant mistakes are made by taxpayers. 

You need to ensure you keep full and complete records to ensure so your tax return can be prepared accurately.

See our previous article for rental properties here.

Missing income

If you rush to lodge your tax return on 1 July, not all of your income will be available on your ATO prefill report. 

Check that your income statement from your employer is marked as “tax ready” before lodging your tax return. 

Also check that all of your investment income has been included in your tax return (as it can take some time for this to be available on your ATO prefill report).

By following these steps, it means it will be less likely that your return will need to be amended.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore, it should be regarded as confidential and not be made available to any person without our consent,

Higher Education Debt – should I make voluntary repayments?

Higher Education Debt: 

Should I Make Voluntary Repayments?

Higher education debts (eg. HECS/HELP debts) that are unpaid on 1 June (and have been outstanding for 11 months) are automatically increased by an indexation rate. Previously, these debts have been increased by CPI. Last year, the application of CPI as the relevant indexation rate saw HECS debts increase by 7.1% last year – the highest indexation rate ever applied. 

On 6 May 2024, the Federal Government announced that the calculation of the indexation rate for HECS/HELP debts would be changed.  They would be increased by either the Consumer Price Index (CPI) or the Wage Price Index (WPI) whichever is lower. They also announced that this would be backdated to 1 June 2023. The relevant WPI for June 2023 is 3.2% (less than half of the 7.1% CPI rate applied last year). Noting that this is subject to the legislation being passed

For anyone who had a HECS/HELP debt that was indexed on 1 June 2023 at the 7.1% CPI rate, you will receive a credit on 1 June 2024 for the difference between the 7.1% CPI and the new 3.2% WPI rate*.  

Prior to this announcement, we knew that the CPI rate for the June 2024 indexation of the HECS/HELP debts was 4.7%. We are now awaiting the release of the WPI figures to determine the indexation rate under WPI. The Federal Government have suggested that this will be approximately 4%*.  

For anyone who has a HECS/HELP debt, it is forecasted that it will be indexed on 1 June 2024 by approximately 4%* (with a credit also applied for the reduction in the indexation rate at 1 June 2023 noted above).

Any reduction of the debt prior to this date will mean the amount of indexation will be lower (as the debt is lower).  If you have an outstanding tax return that will reduce the debt, we recommend you lodge the return as soon as possible to ensure the payment from your tax return is applied. 

If you want to make a voluntary repayment towards the debt, we recommend this be done no later than 22 May to ensure it is received by the ATO and applied to your debt prior to 1 June. 

You can check your outstanding higher education debt via your myGov app if it is linked to the ATO.  You can also find payment details for the debt in your ATO account via myGov.  If you have any problems finding these details, please do not hesitate to contact us. 

For your reference, the following debts are affected by indexation: 

  • Higher Education Loan Program (HELP, formerly HECS)
  • VET Student Loan (VSL)
  • Student Financial Supplement Scheme (SFSS)
  • Student Start-up Loan (SSL
  • ABSTUDY Student Start-up Loan (ABSTUDY SSL)
  • Trade Support Loan (TSL)

 
* The recent announcements by the Federal Government are subject to the passing of legislation.  If the legislation is not passed, the backdated credit will not be applied for the 2023 year and the indexation rate applied on 1 June 2024 will be 4.7% (CPI).

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Use it or Lose it – Carried Forward Super Contributions

Super Contributions: Use it or Lose it

If your superannuation account balance was less than $500,000 as at 30 June 2023, you have until 30 June 2024 to catch up any unused concessional superannuation contributions from 2019.

From the 2020 financial year onwards, new rules came into effect that enabled individuals with a total superannuation balance of less than $500,000 to catch up on superannuation contributions that may not have been maximised made in prior years. 

For example, in the 2019 year, the total concessional contribution cap was $25,000.  If you only made contributions of $15,000, then you have $10,000 unused from that same year.  You can carry this unused cap balance forward for up to 5 years.  After 5 years, the unused balance expires.  This means that you have until 30 June 2024 to use up any unused concessional cap from the 2019 financial year.  If you don’t use up the 2019 carried forward balance before 30 June 2024, it will be lost.

But there’s a catch: your current year contributions first go towards this year’s cap.  Once that is maxed out, any extra goes towards past years, starting from the oldest.

So, to claim your 2019 unused cap, you’ve first got to max out your 2024 contributions ($27,500).  Anything above that goes towards your unused caps from previous years, starting with 2019.

Not sure what your prior year unused caps are?  Check your myGov account or as your tax agent.

Now, before you go all in, chat with your financial planner to make sure it aligns with your retirement goals.

Remember, if you are looking to claim a personal tax deduction for superannuation contributions, you need to:

  1. Ensure the contribution is received by your superfund prior to 30 June;
  2. Give your superannuation fund a “Notice of Intention to Claim a Tax Deduction” for the contributions;
  3. Receive an acknowledgement letter from your fund prior to lodging your 2024 tax return.

If you’re considering extra contributions this year, talk to your tax agent and your financial planner to figure out how much and if it fits your retirement plan.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,

Upcoming Changes to ATO Interest: What Businesses Need to Know

Upcoming Changes to ATO Interest: What Businesses Need to Know

As part of the Mid-Year Economic and Fiscal Outlook, the Government announced that it will pass legislation to deny deductions for ATO interest charges (this includes General Interest Charge (GIC) and shortfall interest charges (SIC)) from 1 July 2025.

This applies to all GIC and SIC charged by the ATO – including interest charged on payment arrangements.

Despite the ATO’s interest rates rendering it an expensive debt financing option (current rate is 11.34% in June 2024), numerous businesses have favoured it for its ease and accessibility, bypassing the formalities associated with traditional lenders like banks.

Although the ATO imposed GIC/SIC will no longer be deductible, if businesses were to seek finance elsewhere to pay their ATO debt, interest on this finance is deductible. 

What does this mean for businesses?

If you currently use payment plans with the ATO as a means of financing your tax liabilities (including GST, PAYG withholding and income tax), we recommend that you review your cashflow forecasting to ensure you have sufficient cashflow to pay your tax liabilities as and when they fall due.

Cashflow forecasting should always be a cornerstone of your business planning.  However, if you don’t currently forecast your cashflow, we recommend that you start from at least 1 July 2024 to ensure that you have sufficient cashflow to fund your 2024-25 and future ATO liabilities.

As needed, consider exploring alternative financing avenues to pay ATO liabilities, such as bank overdrafts or loans secured by property. Interest incurred on such borrowings is tax-deductible when used for business purposes, including paying ATO obligations.

How can we help?

We’re here to help you evaluate your business’s cash flow and forecasts. Additionally, we can connect you with finance brokers who specialise in assisting clients in accessing additional financing options for their businesses.

Note: Legislation to enact this has not yet been passed.  We will keep you up-to-date of the passage of the relevant legislation.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Selling a property? Do you need a tax clearance certificate?

Property Sales

Do you need a tax clearance certificate?

 

From 1 July 2016, purchasers of residential property were required to withhold 10% of the purchase price where the property cost was more than $2 million (this changed to 12.5% and $750,000 from 1 July 2017).  The ultimate goal of the withholding regime was to have tax withheld for the anticipated capital gain for foreign vendors.  However, under the legislation all sellers are deemed to be foreign vendors.  Australian residents could only avoid the withholding obligation by obtaining a clearance certificate from the ATO and providing it to the purchaser.

Recently, the Government announced that from 1 July 2025, it would increase the withholding rate to 15% and reduce the threshold for withholding to $0.  As such (provided the relevant legislation is passed for these changes), from 1 July 2025, all Australian resident vendors of property will be required to obtain a clearance certificate to provide to the purchaser.  Failure to do so will result in 15% of the sales proceeds being withheld by the purchaser and remitted to the ATO.

What do you need to do?
 
If you are an Australian resident selling property, currently you will need to obtain a clearance certificate from the ATO if the sales price is more than $750,000.  From 1 July 2025, all Australian resident vendors will need to obtain a clearance certificate.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Rental Properties – Getting the Best Tax Outcome in 2024

Rental Properties

Getting the Best Tax Outcome in 2024

 

To get the best tax outcome from your rental property, we recommend paying any upcoming expenses before 30 June. 

Any deductible expense that is paid prior to 30 June can be claimed in this financial year.  If you pay the same expense after 30 June, it can’t be claimed as a deduction until next financial year.

With the individual tax rates decreasing after 30 June 2024, you will get an even bigger advantage in paying your rental property expenses prior to 30 June (as a deduction is worth more in the 2024 year than the 2025 year).  For example, a $5,000 expense will get you a $125 greater tax deduction in 2024 than in 2025:

2024 year deduction

$5,000 repairs

Paid before 30 June
Individual earning $120,000

Repair total (deduction) = $5,000
Tax refund (2024 return) = $1,625
Net out of pocket = $3,375

2025 year deduction

$5,000 repairs

Paid before 30 June
Individual earning $120,000

Repair total (deduction) = $5,000
Tax refund (2025 return) = $1,500
Net out of pocket = $3,500

Rental expenses

For rental properties, examples of some of the deductible expenses you might be able to pay before 30 June include:

  • Repairs and maintenance
  • Cleaning
  • Gardening
  • Pest control
  • Smoke alarm review and maintenance
  • Servicing costs – eg. air conditioner, pool

Have a chat with your property manager to see if there are any expenses that can be paid prior to 30 June.

Depreciation

We also recommend getting a depreciation schedule for your property.  Contact a qualified quantity surveyor to prepare a depreciation schedule for your property (for example – BMT Tax Quantity Surveyors or Deppro).  The cost of the report can be claimed as a deduction and the report will also provide you with the details of the depreciation you can claim in your tax return.

What should you do now?

  1. Talk to your property manager about any expenses that you can pay for your property prior to 30 June;
  2. Book in any relevant services now to ensure that they are completed and paid prior to 30 June (keep a valid tax invoice for all services that you want to claim as a tax deduction);
  3. Contact a quantity surveyor to get a depreciation report for your property;
  4. Start compiling records for the expenses already paid for your property during this financial year.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Ensuring Asset Valuations: A Vital Responsibility for SMSF Trustees

Ensuring Asset Valuations:

A Vital Responsibility for SMSF Trustees

 

If you are a trustee of a self-managed superannuation fund (SMSF), you need to ensure that your fund’s assets are reflected at market value in the annual financial statements.

Our SMSF auditor will check that the assets have been valued correctly and that the basis of the valuation is appropriate.  These valuations are also reported to the ATO on an annual basis via the tax return. 

The ATO is using the data reported in the tax returns to identify funds who have recorded the same values for assets in their annual returns for the past several years (which suggests that these assets are not reported at an appropriate market value).

There are approximately 16,500 funds who have reported the same value for certain assets for at least three income years.  This includes residential and commercial property, unlisted companies and unlisted trust investments.  Furthermore, there were no auditor contravention reports listed for these funds for potential breaches of the market valuation rules for the assets.

The ATO will be sending messages to trustees of these particular SMSFs to remind them of the obligation to report assets at market values (and the next tax return will be monitored by the ATO).

If your fund fails to meet the valuation requirements, the fund and members may be required to pay additional tax and could be liable to administrative penalties. 

What do you need to do?

If you are the trustee of an SMSF, you need to review the value of the assets that you hold.  Each year, we will request evidence from you of the market value of these assets.  Often, these values will be readily available (for example, the current price of listed shares).  Other times, the services of an independent valuer may be required to confirm the valuation.  For example, if your fund holds direct real property, you need to factor in the cost of an annual valuation into the ongoing running costs of your fund.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Superannuation – Concessional Cap Increases

Superannuation Caps

 

From 1 July 2024, the concessional contribution cap for superannuation is increasing to $30,000.  This will have a flow on effect to other areas of super as well:

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Tax Planning with Decreasing Tax Rates

Tax Planning with Decreasing Tax Rates


The basic principles of tax planning essentially remain the same every year – maximise and bring forward your deductions, and try and defer your income.  Often this just results in you deferring your tax liability (not necessarily reducing it).  However, in times of decreasing tax rates, you can take advantage of the decreasing rates to reduce your tax bill.

Tax Rates

Below is a comparison of the tax rates for the 2023-24 financial year and the rates currently being legislated for the 2024-25.

With decreasing tax rates, there are steps you can take prior to 30 June 2024 to reduce your overall tax liability.

Bring Forward Deductions

Any deductions that you claim in the 2024 financial year get you a higher refund than the same deduction claimed next year.

For example, let’s say you’re earning $100,000 per year.  If you paid $100 for stationery for your employment on 30 June 2024, and claimed a full tax deduction for this expense, you would receive a tax refund of $32.50 for the stationery deduction.  If you purchased the same $100 stationery on 1 July 2024 (the very next day), you would only receive a tax refund of $30.  So if you are earning $100,000, there is a $2.50 reduction in your tax refund for your deductions between 2024 and 2025.  It is better to claim as much as you can prior to 30 June 2024 to get a tax benefit at the higher tax rates.

Examples of deductions to bring forward

  • Prepaying interest on rental properties or margin loans
  • Repairs to your rental property
  • Additional deductible superannuation contributions (to be reviewed with your financial planner
  • Annual payment of income protection insurance
  • Expenses due in July that you may be able to pay early
Defer income
 

With the personal tax rates decreasing after 30 June, this means that any income that you make in this financial year, will be taxed at a higher rate than if you earned the same income next year.

As we are talking about individual tax rates, we need to consider if there is any income in our individual name that we can defer until after 30 June.

A good example of deferring income is the delaying sale of capital assets (for example, an investment property).  When selling capital assets, the relevant date for the capital gains tax, is the date that the contract is entered into.  For example, if you are selling an investment property, you are deemed to have disposed of it on the date you enter into the contract for the sale (not the date of settlement).

Examples of income to defer

  • Sale of capital assets like property or shares (ensure the contract date is after 30 June, irrespective of the settlement date
  • Customer / client invoicing

Client example

We had a client recently ask us to calculate how much additional tax they would need to pay if they sold their investment property. 

If they entered into a contract to sell their investment property now, their total extra tax payable would be $38,000. 

If they delayed entering into a contract until after 30 June, their total extra tax payable would reduce to $30,000 (assuming the sale price remains the same). 

This is a tax savings of $8,000 simply by selling the property after 30 June and taking advantage of the lower tax rates.

Just remember – you need to enter into the contract for sale after 30 June for the income to be included as part of next year’s tax return.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

New super tax for balances over $3 million

Proposed New Tax for Superannuation Balances over $3 million

 

On 3 October 2023, the Federal Government released draft legislation proposing a 15% additional tax on earnings for individual superannuation balances that exceed $3 million.  The new measure is set to commence on 1 July 2025.

This proposed new tax will impact on individuals that have a total balance in super or more than $3 million (this is across all superannuation accounts held).

The 15% tax will be levied on the member’s account “earnings” which will be calculated as the movement between the member’s opening and closing balance for the year (after adjusting for withdrawals, contributions and other specific exclusions).  It will only apply to the proportion of an individual’s account balance that is above $3 million (so if your balance is only just over the $3 million threshold, only a small proportion of the earnings will be subject to the new tax).

This means that for individuals who have a total superannuation balance in excess of $3 million, a proportion of unrealised gains of the fund will be taxed at 15%.  This may cause a cash flow concern for the member as they will have to pay tax on gains that have not been realised (and may be held within illiquid assets).

Where there have been negative earnings, the loss can be carried forward to offset future “earnings”.  However, there is no provision in the draft legislation for the losses to be carried back to reduce prior year unrealised gains. 

As yet, there is also no provision for the $3 million threshold to be indexed.

The tax will be levied directly to the individual member (and not the superfund).  The ATO will issue an assessment to the member personally and they can elect to pay the liability personally or withdraw funds from their superfund balance to pay the liability.

We will keep you up to date on the progress of the draft legislation.  Please do not hesitate to contact us if you would like to discuss the impact of the proposals on your superannuation fund.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.