2024 Tax traps as we approach 30 June

As seen in Woopi News May 2024

As we approach the end of financial year, people tend to start thinking about ways to save tax but as I say every year, if you don’t need it, don’t buy it just to save tax. If you spend $100 and claim that item, you are not getting the $100 back you will only get a percentage of it back, and that percentage depends on your marginal tax rate.

When purchasing assets, as a work-related expense (as an employee on salary/wages). Some things are not claimed in full in the year that you purchased them. If you buy a work laptop or a tool worth over $300 the deduction will be claimed over a few years. This is called depreciation, and it can be disappointing when you buy the item on 20th June, and you only get to claim it for 10 days out of 365 as you end up with a very small deduction. Eg, $800 drill, multiplied by 40% depreciation, multiplied by 10/365 days = $8 deduction.

Depreciation works the same when it comes to your rental property assets like blinds or a dishwasher. However, when it comes to capital improvements like renovating a bathroom or kitchen or adding a deck to the property, this is deprecated over a longer period, at 2.5%pa for residential property. So, keep this in mind that when doing improvements, you won’t receive the full deduction in the year you paid for the renovation and the depreciation doesn’t begin until the project is completed.

For business owners, there’s a trap this year for those that have previously written off business assets under the small business accelerated depreciation. Take care when selling these assets as the sale proceeds will be included as income. Assets purchased by a small business for more than $20,000 this financial year need to be depreciated. Where you buy an asset, and trade in or sell an old asset, this could result in the trade in income exceeding the depreciation deduction. Say you buy a $40,000 Ute and claim depreciation of 15% which is $6000, but the trade in the old Ute for $25,000. Income $25,000 less deduction $6,000 = $19,000 more income. Therefore, upgrading your vehicle or any large asset this financial year could backfire when it comes to tax if you are not careful. If you are unsure, always check with your accountant.

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Stasha Dunn - StaySharp Accounting
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