Tax deductions will deliver more bang for their buck before June

There’s a big reason to plan tax deductions now, because you can snare a larger refund from the ATO this year.

Anthony KeanePersonal finance writer

@keanemoney

6 min read

April 15, 2024 - 4:30AM

The Australian Business Network

Business

Don't miss out on the headlines from Business. Followed categories will be added to My News.

Changing tax rules are adding an extra layer of importance for workers, investors and super fund members to maximise their deductions this financial year.

June 30 is just two-and-a-half months away, and tax specialists say now is the time to make smart financial moves – particularly with the introduction of stage three tax cuts from July 1.

These tax cuts will lower Australians’ tax rates and thresholds, so deductions claimed for 2023-24 pack a bigger financial punch than those next financial year.

H & R Block director of tax communications Mark Chapman said acting now helped avoid last-minute panic.

“You have still got the luxury of time and can consider what needs to be done,” he said.

“It’s much more sensible to be doing tax planning now rather than 11.59pm on June 30.”

Chartered accountant and Mr Taxman founder Adrian Raftery said tax planning should be considered all year round, and was even more important this year ahead of changing marginal tax rates.

“With the stage three tax cuts coming into play from 1 July, you will get more bang for your buck if you can bring forward some deductions into this tax year rather than next tax year,” he said.

“Sometimes it is really hard to implement strategies in the last week of the tax year – or it’s just not worthwhile. For example, buying a depreciable asset will only give you a few days and dollars of depreciation, or only taking out private health cover on 30 June as the Medicare levy surcharge is pro-rated.”

Here are some tax moves that can make the second half of 2024 more rewarding for your finances.

WORK

Dr Raftery said people could consider bringing forward tax deductions by bulking up on home office stationery, paying for work-related subscriptions, membership fees, conference registrations, travel and motor vehicle expenses, and prepaying income protection insurance 12 months in advance.

“With 12 weeks to go before the end of the financial year, now is the time that you should be keeping a car logbook, if you haven’t already done so, and as a result you could increase your refund by thousands,” he said.

“Make sure that you keep all costs associated with the running of your car such as petrol, insurance, registration, servicing and lease payments for the whole year, not just the period that you kept the logbook.

Work-related tax moves can make tax time this year more enjoyable. Picture: iStock

“Remember that the ATO motto is no receipt equals no deduction so you could be costing yourself dollars by not keeping those dockets.”

In March 2023 the Australian Taxation Office changed the rules around working from home deductions, impacting and confusing many workers.

It lifted its popular fixed rate method for home office deductions from 52c to 67c per hour, but tightened the rules and removed the ability to claim both the fixed rate method and separate deductions for costs such as phone and internet expenses.

“I would estimate WFH claims would have dropped substantially as the 67c fixed rate method has meant that taxpayers need to show actual evidence of the actual hours WFH from 1 March 2023 – that is keep a daily diary,” Dr Raftery said.

“This method also means no claiming of any additional expenses for home internet, mobile phone, home phone, heating, cooling, lighting, computer consumables or stationery,” he said, adding that deductions under the revised method would probably be significantly less than many workers’ actual costs.

Tribeca Financial CEO Ryan Watson said hundreds of millions of dollars of eligible tax deductions went unclaimed each year “because people simply don’t know what they can claim”.

Now was the time to collate receipts and fill out log books, he said.

Mr Watson said last year’s WFH changed did cause confusion.

“Knowledge is your friend here,” he said.

“Investing 15 to 30 minutes in understanding how these changes work can be of significant benefit to people.”

Mr Chapman said WFH deductions were on the ATO’s hit list this tax time and “they will be checking the levels of substantiation”.

“It pays to make sure you have got the appropriate records,” he said.

“You could look at prepaying professional subscriptions and memberships and can claim a tax deduction this year, and buy a briefcase or work bag.”

INVESTMENT

Investment comes with a stack of potential tax deductions, mostly for Australia’s 2.2 million property investors for things such as loan interest, land tax, council rates, property management fees, repairs, maintenance and deprecation of fixtures, fittings and building costs.

Mr Chapman said real estate investors should get a depreciation schedule from a professional quantity surveyor.

“That will allow you to maximise your depreciation costs … a lot of people don’t have depreciation schedules and can’t actually estimate what they can claim, so then they can’t claim it,” he said.

Investors in properties, shares and other wealth-building assets also can prepay a year’s interest in advance for their investment loans, although Mr Chapman noted this could be a “gamble” if the Reserve Bank and lenders started cutting interest rates later this year.

Tribeca Financial chief executive officer Ryan Watson. Picture: Supplied.

Mr Watson said another pre-July tax strategy could be to sell underperforming investments that were carrying a capital loss.

“This will go further to reducing a potential tax bill,” he said.

The ATO says capital losses can only be used to offset capital gains, not other tax income, and can be carried forward indefinitely, so it is wise to plan ahead.

SUPERANNUATION

Mr Watson said superannuation was probably the number one way that Australians could reduce their tax.

“It’s of benefit for three keys reasons,” he said.

“One, it allows you to reduce your tax payable in any financial year. Two, it then allows you to invest those contributions in a tax-effective way for the financial benefit of your retirement. And three, you can then draw on those investment in the form of a pension in retirement and no pay any tax on that income stream.”

Mr Chapman said people should look to maximise their tax-deductible super contributions, known as concessional contributions, each year up to their annual cap

“Everybody has $27,500 of concessional contributions, and if you are not using all of that you are effectively wasting it,” he said.

“If your employer is paying $10,000 into your super, you can look to put in another $17,500 and claim a tax deduction for that. Those contributions are only taxed in the super fund at 15 per cent.” Outside super, people pay up to 47 per cent tax, including the Medicare levy, on their income.

Salary sacrifice is the most common way that employees make extra concessional contributions.

HLB Mann Judd Sydney director Andrew Yee said people could make other personal concessional contributions at any time, and the annual $27,500 cap would rise to $30,000 next financial year through indexation.

These personal contributions are available to all super fund members, not just employees.

“Those self-employed, or only receiving investment income should consider making a personal concessional super contribution to reduce their taxable income,” Mr Yee said.

People can also carry forward previous years’ unused concessional contributions, potentially delivering an ever bigger tax deduction this year, through the government’s catch-up rules that started in 2018-19.

“If you don’t use the full amount of your concessional contributions cap in any year, you can always carry-forward the unused amount and take advantage of it up to five years later,” Mr Yee said.

“This is provided your total super balance is less than $500,000 on 30 June of the previous financial year.

“So, if you have less than $500,000 in superannuation as at 1 July 2023 and have never made any concessional contributions since 1 July 2018, you may be eligible to make a concessional contribution of up $157,500 in the 2023-24 year.” That’s one big tax deduction.

Mr Yee said spouses could split up to 85 per cent of each year’s concessional contributions with their spouse, potentially keeping their own balance below $500,000 for longer to qualify for catch-up contributions later.

Mark Chapman, director of tax communications at H&R Block. Picture: Supplied

There were also $540 tax offsets available for people who put $3000 into their spouse’s super fund if the spouse’s income was below $40,000, he said.

Dr Raftery said super was the greatest legal tax vehicle, as well as the second-largest asset for many Australians after their home.

He said people also benefit from the government’s “free money service”, known as the co-contribution.

“It is surprising how few people actually take advantage of this,” he said.

“If your income is under $43,445 and you contribute $1000 post tax into super, the government will match it 50c in the dollar. While this incentive gradually phases out above this figure at $58,445, it’s free money.”