The tax traps that could catch you out this financial year

June 30 is just days away and tax is front of mind for many of us right now. Be particularly careful when doing your tax returns, as the Tax Office has developed some of the most sophisticated data-matching systems in the world.

Their capabilities first came to my attention when I asked my accountant if I needed to let them know the interest I had received on my bank accounts. Their reply was, “We don’t need that – the ATO have already told us.”

The accountant then alerted me to a problem that will strike many people in the construction industry. You may remember that when COVID struck, part of the government stimulus was to give an instant write-off for items such as work vehicles. Think about Jack, a tradie who took advantage of that, and spent $110,000 on a new vehicle, trailer and equipment.

Of course, he didn’t have $110,000 sitting idly in the bank: the whole package was financed over a five-year term. The first problem is that Jack then had a liability of $110,000 on his balance sheet, but no corresponding asset to match. In some states that may preclude his ability to keep his building licence.

But it gets worse. When Jack goes to trade the vehicle, the entire value of his trade-in will be taxable income because the vehicle he trades will have a zero balance in his books. Furthermore, the debt may be more than the trade-in value. For many people, it’s a disaster waiting to happen.

And that’s just one example. Let’s think about tax-deductible superannuation contributions. Because you can claim a tax deduction for a concessional tax contribution up to $27,500 (which includes the employer’s contribution), it’s a strict requirement that you have to file a notice of intent with your superannuation fund before you lodge the tax return in which you claim that contribution as a tax deduction. I hear the Tax Office is very strict on this, and failure to lodge the notice on time can mean loss of the tax deduction.

Employers need to be aware that they must pay their compulsory employee superannuation contributions by June 30 if they wish to claim a tax deduction this year. If they pay the contribution after June 30 they have to wait till next year to claim the contribution. And note: to claim a tax deduction the contribution must be received by the employee’s fund by June 30.

There is one strategy that may be useful for employers. If you intend to pay a staff bonus, you can record it in your books before June 30 as a liability to be paid in the next financial year. The bonus needs to be properly authorised by passing a resolution before year-end. This will give the employer the tax deduction in the current year but the bonus won’t be taxable in the employee’s hands until next financial year.

If determined and authorised after June 30, it is not deductible for the employer until next year. Obviously, employers need to do some planning to make sure they reach an optimum situation.