Deducting Gifts & Donations: Getting It Right At Tax Time

Have you made charitable gifts or donations in the past financial year? The good news is these items are often deductible, giving many Australians a welcome boost to their tax refund. Make sure you know the rules this tax time.

When gathering your donation receipts, it’s important to understand what can and can’t be claimed as a deduction. The first general rule is that a donation of money of $2 or more may be deducted if the donation was made to a “deductible gift recipient” (DGR). A DGR is an entity that has registered with the ATO as being eligible to receive deductible gifts and donations.

Some charities may not have DGR status, so check if you’re unsure. Many online crowdfunding platforms are also not DGRs, which means you typically won’t be able to claim your donation towards fundraising for individual causes, such as someone’s funeral or medical costs.

The second general rule is that a donation is only deductible if you didn’t receive a benefit in return. This means you can’t make a claim if you received things like raffle tickets or items that have an advertised price, such as toys and food items. However, you may receive a “token” promotional item such as a sticker or lapel pin and still qualify for a deduction. Note that donations to a school’s building fund won’t be deductible if you received benefits such as reduced school fees or a certain placement on a waiting list in return for the donation.

Small cash donations totalling up to $10 don’t require a receipt. However, beyond that you must be able to provide evidence of your claim. You aren’t required to keep an original paper receipt, provided you keep an electronic copy that is a true and clear reproduction. If you don’t have a receipt, you may be able to substantiate the claim with other documentation such as a bank statement evidencing the donation.

If you make donations through a “workplace giving program” operated by your employer, you can simply claim the amount of donations shown in your income statement or payment summary. You can claim this deduction in your tax return regardless of whether your employer has reduced the tax withheld each pay period. In both cases, your gross salary or wages and deductible donations for the year will be the same, but any difference in the tax withheld during the year will factor into your eventual tax refund. Workplace giving programs aren’t the same as salary-sacrifice, as they don’t lower your gross salary or wages.

Property & ‘Lifestyle’ Assets In The Spotlight

Own an investment property or an expensive lifestyle asset like a boat or aircraft? The ATO are looking closely at these assets to see if what has been declared in tax returns matches up.

The Australian Taxation Office (ATO) has initiated two data matching programs impacting investment property owners and those lucky enough to hold expensive lifestyle assets.

Investment property

What investment property owners declare and claim in their personal income tax returns is a constant focus for the ATO. Coming off the back of data matching programs reviewing residential investment property loan data, and landlord insurance, the ATO have initiated a new program capturing data from property management software from the 2018-19 financial year through to 2025-26. Data collected will include:

Property owner identification details such as names, addresses, phone numbers, dates of birth, email addresses, business name and ABNs, if applicable;

Details of the property itself – property address, date property first available for rent, property manager name and contact details, property manager ABN, property manager licence number, property owner or landlord bank details; and

Property transaction details – period start and end dates, transaction type, description and amounts, ingoings and outgoings, and rental property account balances.

While the ATO commit to specific data matching campaigns, since 1 July 2016, they have also collected data from state and territory governments who are required to report transfers of real property to the ATO each quarter.

This latest data matching program ramps up the ATO’s focus on landlords, specifically targeting those who fail to lodge rental property schedules when required, omit or incorrectly report rental property income and deductions, and who omit or incorrectly report capital gains tax (CGT) details.

Lifestyle assets

Data from insurance providers is being used to identify and cross reference the ownership of expensive lifestyle assets. Included in the mix are:

Caravans and motorhomes valued at $65,000 or over;

Motor vehicles including cars & trucks and motorcycles valued at $65,000 or over;

Thoroughbred horses valued at $65,000 or over;

Fine art valued at $100,000 per item or over;

Marine vessels valued at $100,000 or over; and

Aircraft valued at $150,000 or over.

The data collected is substantial including the personal details of the policy holder, the policy details including purchase price and identification details, and primary use, among other factors.

The ATO is looking for those accumulating or improving assets and not reporting these in their income tax return, disposing of assets and not declaring the income and/or capital gains, incorrectly claiming GST credits, and importantly, omitted or incorrect fringe benefits tax (FBT) reporting where the assets are held by a business but used personally.

VACANT RESIDENTIAL LAND TAX

Vacant residential land tax (VRLT), introduced in Victoria in 2017 for vacant properties in the middle and inner suburbs of Melbourne, has now been expanded to cover the whole State.  This means that any residential property that is not used and occupied for more than 6 months during calendar year 2024 could be subject to this tax.

What follows is a general overview of the key points and exemptions.  There are other exemptions and residential land factors that can be relevant beyond what is covered here.  This includes deceased estates, uninhabitable land, re-zoned land and land that changes hands during the year.

What is the tax?

The tax is in addition to Land Tax and is levied as:

  • 1% of Capital Improved Value (CIV) for the first year vacant; then

  • 2% of CIV for a second consecutive year; and

  • 3% of CIV for a third consecutive year

Example

Residential property with land worth $1,000,000 and CIV of $1,250,000 is vacant for the year.  The land taxes (excluding absentee surcharges) for the first year are:

 Land Tax (2024 rates) VRLT (first year) Total

Individual or company land owner   $4,650 $12,500 $17,150

Trust land owner   $8,163 $12,500 $20,663

When is a property “vacant”?

A property is considered vacant if it has not been used and occupied for at least 6 months during the year.  The property needs to be occupied by the owner or the owner’s permitted occupier as their principal residence, or a person under a lease or short-term letting arrangement.

The use and occupation does not need to be continuous.  But it is based on actual use and this should not be confused with the concept of a property being ‘available for rent’ as being sufficient to claim income tax deductions.

For example, a property that is rented out using a platform like Airbnb on and off for over six months during the calendar year would not be vacant and would be exempt from VRLT.  In contrast, a property that is advertised on Airbnb and with an agent for the whole year, but is only used by tenants for 15 weeks of the year would be considered vacant as actual use is under 6 months.  In the latter scenario, a landowner would have to rely on a holiday house exemption if available to avoid imposition of VRLT.

What are the main exemptions?

There are several exemptions from VRLT:

  • If the property is exempt from Land Tax it is exempt from VRLT

  • Use as a place of work or business – occupied at least 140 days a year where the owner also has another principal residence

  • Holiday home – A landowner can have one holiday home whilst also owning and occupying a principal residence and must use it as a holiday home for at least 28 days during the year

A closer look at the holiday home exemption is here.

Do trusts and companies qualify for exemptions?

It depends on when the property was acquired and who is using it.

A trust or company can apply the holiday home or business use exemptions, but only if the property is used by certain specified people and the entity owned the land in question on and before 28 November 2023.  Therefore, for a discretionary trust, the people named in the trust deed and in what role/capacity will be relevant.

Given the requirement to have held the asset on 28 November 2023, VRLT is now an important consideration when looking at ownership structures for residential properties that will not be consistently rented or leased to tenants.

What is the landowner required to do?

If residential property is vacant during the year, or vacant but an exemption applies, then it is the landowner’s obligation to notify the State Revenue Office by 15th January of this status.  Notification will be made through an online portal, which for January 2025 is expected to be open in December 2024.

If the property is not vacant (for instance if it has been leased all year), then there is no need to make a notification.  Failure to notify could result in penalties.

Please get in touch with our team if you would like to know more about how these tax developments affect you.

DIVORCE, YOU, AND YOUR BUSINESS

Breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, there are a number of issues that need to be resolved.

What happens when there is a family company?

For couples that have assets tied up in a company, the tax consequences of any settlements paid from the company will need to be assessed. Settlements paid out by a corporate entity can sometimes be treated as taxable dividends and taxed at the relevant spouse’s marginal tax rate.

If you are receiving assets from a corporate entity as part of a property settlement, it’s essential that you understand the tax implications prior to settlement or a sizeable portion of the settlement could go to the ATO.

For business owners, outside of the tax and financial issues, it’s important to not lose focus on what’s important to keep the business running efficiently.

What happens to your superannuation in a divorce?

A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. It’s important to be aware however that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.

A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession.

If you have an SMSF and both spouses are members, it’s important to get advice to make sure that all of the appropriate administrative issues are taken care of. Where a divorce is not amicable, it’s important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage.

Can you protect both parties from divorce?

In a divorce, assets are split based on a multitude of factors such as earning capacity, maintenance of children, and the assets held pre-marriage. Many couples don’t go through their marriage with an equal view of how assets and income should be attributed until something goes wrong. If there is a disparity between the income levels of each spouse, there are a lot of benefits to the household in general of evening out how income flows through to the family.  If your partner earns less than you, there is a very real financial benefit to topping up their super as superannuation has preferential tax rates.  The same goes for taxable income. If you can even out income coming into the household, it spreads the tax burden. Good planning can make a difference.

THE CHANGES TO HOW TAX PRACTITIONERS WORK WITH CLIENTS

The Government has amended the legislation guiding registered tax practitioners to include compulsory reporting of material uncorrected errors to the Tax Commissioner.

The Government has legislated a series of changes to the Tax Agents Services Act 2009 that place additional requirements on registered tax practitioners and how they interact with clients.

The reforms are in response to the recommendations of a Senate enquiry into the actions of accounting group PwC and the consulting industry in Australia generally. The enquiry was sparked when a now former PwC Partner shared confidential information from Treasury consultations and through his engagement with the Board of Taxation. Despite having signed multiple confidentiality agreements, the Partner intentionally shared this confidential information with PwC partners and others in Australia and overseas, seeking to assist existing and potential new clients avoid some proposed anti-avoidance tax laws. The Senate enquiry estimates that the scandal put at risk $180 million in tax revenue per annum and generated new income of at least $2.5 million for the first tranche of PwC’s services assisting clients to “sidestep the new laws”.

Among other issues, the scandal revealed a series of flaws and deficiencies within the regulation of tax practitioner services, the investigative powers of the Tax Practitioners Board (TPB), and the ability of Government departments to share information.

While many of the resulting legislative reforms impact consulting services to Government, we are now obligated to advise clients of: how to check the currency of our registration as tax practitioners; how to access the complaints process for registered practitioners; and, our obligation to report material uncorrected errors and omissions to the Tax Commissioner.

Tax practitioner registration

The TPB registers and regulates tax practitioners in Australia. Only licensed practitioners can provide tax or BAS services to you. You can check the public register here: https://www.tpb.gov.au/public-register

Firm name’s registration number is 25992551.

Managing complaints

We are committed to providing quality services to you. If we fall short of your expectations and you would like to make a complaint, in the first instance, please contact Manuel Imbardelli.

If your matter is not resolved to your satisfaction, you have the right to make a complaint to the TPB: https://www.tpb.gov.au/complaints.

Correcting errors and omissions

We are prohibited from making a statement to the Tax Commissioner or other government agency that we know, or ought to know, is false, incorrect or misleading, or incorrect or misleading by omission.

If we become aware that a statement made to the Tax Commissioner is materially incorrect, we are obligated to either:

Correct it, if we made the misstatement; or

If the misstatement was made by you, advise you that it needs to be corrected.

If the misstatement is not corrected, we are obligated to report this to the Tax Commissioner.

Concerned?

If you have any concerns about the changes, please contact Manuel Imbardelli on 03 8400 6500.

KEY DATES – SEPTEMBER 2024

21 September

Lodge and pay August 2024 monthly business activity statement.

30 September

Lodge PAYG withholding payment summary annual report if prepared by a BAS agent or tax agent excluding large withholders whose annual withholding is greater than $1 million.

Lodge Annual TFN withholding report 2024 if a trustee of a closely held trust has been required to withhold amounts from payments to beneficiaries.

$20K INSTANT ASSET WRITE-OFF PASSES PARLIMENT

Legislation increasing the instant asset write-off threshold from $1,000 to $20,000 for the 2024 income year passed Parliament just 5 days prior to the end of the financial year.

Purchases of depreciable assets with a cost of less than $20,000 that a small business makes between 1 July 2023 and 30 June 2024 can potentially be written-off in the year of purchase. It’s a major cashflow advantage because the tax deduction can be taken in the year of purchase instead of over a number of years.

To be eligible, the asset must be first used, or installed ready for use, for a taxable purpose between 1 July 2023 and 30 June 2024. For example, you cannot simply have a receipt for an industrial fridge, it must have been delivered and installed to be able to claim the write-off in 2024.

The write-off threshold applies per asset, so a small business entity can potentially deduct the full cost of multiple assets across the 2024 year as long as the cost of each asset is less than $20,000. A Bill to extend the instant asset write-off threshold increase to 30 June 2025 is currently before Parliament.

IS YOUR FAMILY HOME REALLY TAX FREE?

The main residence exemption exempts your family home from capital gains tax (CGT) when you dispose of it. But, like all things involving tax, it’s never that simple.

As the character of Darryl Kerrigan in The Castle said, “it’s not a house. It’s a home,” and the Australian Taxation Office’s (ATO) interpretation of a main residence is not fundamentally different. A home is generally considered to be your main residence if:

It’s where you and your family live

Your personal belongings have been moved into the dwelling

It is where your mail is delivered

It’s your address on the electoral roll

You have connected services such as telephone, gas and electricity (in your name); and

It is your intention for the home to be your main residence.

The length of time you have lived in the home is important, but there are no hard and fast rules. Your intention takes precedence over time spent as every situation is different.

When does the main residence exemption apply?

In general, CGT applies to the sale of your home unless you have an exemption, partial exemption, or you can offset the tax against a capital loss.

If you are an Australian resident for tax purposes, you can access the full main residence exemption when you sell your home if:

Your home was your main residence for the whole time you owned it (see Can the main residence apply if you move out?).; and

You did not use your home to produce any income (see Partial exemption below), and

The land your home is on is 2 hectares or less. If your home is on more than 2 hectares, for example on farmland, the exemption can apply to the home and up to 2 hectares of adjacent land.

Partial exemption

If you have used your home to produce income, you won’t normally be able to claim the full main residence exemption, but you might be able to claim a partial exemption.

Common scenarios impacting your main residence exemption include:

Running a business from home (working from home is ok), and

Renting the home or part of the home.

In these scenarios, from the time you started to use the home to generate income, that part of the home is likely to be subject to CGT. And, a word of caution here, as of 1 July 2023, platforms such as Airbnb must report all transactions to the ATO every 6 months. This data will be used to match against the income reported on income tax returns.

Foreign residents and changing residency

Foreign residents cannot access the main residence exemption even if they were a resident for part of the time they owned the property.

If you are a non-resident at the time you enter into the contract to sell the property, you are unlikely to be able to access the main residence exemption. Conversely, if you are a resident at the time of the sale, and you meet the other eligibility criteria, the rules should apply as normal even if you were a non-resident for some of the ownership period. For example, an expat who maintains their main residence in Australia could return to Australia, become a resident for tax purposes again, then sell the property and if eligible, access the main residence exemption.

It’s important to recognise that the residency test is your tax residency, not your visa status. Australia’s tax residency rules can be complex. If you are uncertain, please contact us and we will work through the rules with you.

Can the main residence apply if you move out?

You might have heard about the ‘absence rule’. This rule allows you to continue to treat your home as your main residence for tax purposes:

For up to 6 years if the home is used to produce income, for example you rent it out while you are away; or

Indefinitely if it is not used to produce income.

When you apply the absence rule to your home, this normally prevents you from applying the main residence exemption to any other property you own over the same period. Apart from limited exceptions, the other property is exposed to CGT.

Let’s say you moved overseas in 2020 and rented out your home while you were away. Then, you came back to Australia in 2023 and moved back into your house. Then in early 2024, you decided it is not your forever home and sold it. You elected to apply the absence rule to your home and didn’t treat any other property as your main residence during that same period. In this case, you should be able to access the full main residence exemption assuming you are a resident for tax purposes at the time of sale.

The 6 year period also resets if you re-establish the property as your main residence again, but later stop living there. So, if the time the home was income producing is limited to six years for each absence, it is likely the full main residence exemption will be available if the other eligibility criteria are met.

Timing

Your home normally qualifies as your main residence from the point you move in and start living there. However, if you move in as soon as practicable after the settlement date of the contract, that home is considered your main residence from the time you acquired it.

If you buy a new home but haven’t yet sold your old home, you can treat both properties as your main residence for up to six months without impacting your eligibility to the main residence exemption. This applies if the old home was your main residence for a continuous period of 3 months in the 12 months before you disposed of it and you did not use your old home to produce income in any part of that 12 months when it was not your main residence.

If the sale takes more than six months and if eligible, the main residence exemption could apply to both homes only for the last six months prior to selling the old home. For any period before this it might be possible to choose which home is treated as your main residence (the other becomes subject to CGT).

If your new home is being rented to someone else when you purchase it and you cannot move in, the home is not your main residence until you move in.

If you cannot move in for some unforeseen reason, for example you end up in hospital or are posted overseas for a few months for work, then you still might be able to access the main residence exemption from the time you acquired the home if you move in as soon as practicable once the issue has been resolved. Inconvenience is not a valid reason and you will need to ensure that you have documentation to support your position.

Can a couple have a main residence each?

Let’s say you and your spouse each own homes that you have separately established as your main residences.

The rules don’t allow you to claim the full CGT exemption on both homes. Instead, you can:

Choose one of the dwellings as the main residence for both of you during the period; or

Nominate different dwellings as your main residence for the period.

If you and your spouse nominate different dwellings, the exemption is split between you:

If you own 50% or less of the residence chosen as your main residence, the dwelling is taken to be your main residence for that period and you will qualify for the main residence exemption for your ownership interest;

If you own greater than 50% of the residence chosen as your main residence, the dwelling is taken to be your main residence for half of the period that you and your spouse had different homes.

The same rule applies to your spouse.

The rule applies to each home that the spouses own regardless of how the homes are held legally, i.e., sole ownership, tenants in common or joint tenants.

What happens in a divorce?

Assuming the home is transferred to one of the spouses (and not to or from a trust or company), both individuals used the home solely as their main residence over their ownership period, and the other eligibility conditions are met, then a full main residence exemption should be available when the property is eventually sold.

If the home qualified for the main residence exemption for only part of the ownership period for either individual, then a partial exemption might be available. That is, the spouse receiving the property may need to pay CGT on the gain on their share of the property received as part of the property settlement when they eventually sell the property.

The main residence exemption looks simple enough but it can become complex quickly. You will need more than a ‘vibe’ to work with the exemption. In the words of the character of Dennis Denuto in The Castle, “it’s the vibe of it. It’s the constitution. It’s Mabo. It’s justice. It’s law. It’s the vibe and ah, no that’s it. It’s the vibe. I rest my case.”

KEY DATES – AUGUST 2024

14 August

Lodge PAYG withholding payment summary annual report for:

  • large withholders whose annual withholding is greater than $1 million

  • payers who have no tax agent or BAS agent involved in preparing the report.

21 August

Lodge and pay July 2024 monthly business activity statement.

25 August

Lodge and pay quarter 4, 2023–24 activity statement if you lodge electronically.

28 August

Lodge and pay quarter 4, 2023–24 Superannuation guarantee charge statement if the employer did not pay enough contributions on time.

Note: Employers who lodge a Superannuation guarantee charge statement can choose to offset contributions they paid late to a fund against their super guarantee charge for the quarter. They still have to pay the remaining super guarantee charge.

Lodge Taxable payments annual report (TPAR).

Note: The TPAR tells us about payments that are made to contractors for providing services. Some government entities also need to report the grants they have paid in a TPAR.

 

CGT PROPERTY TAX THAT COULD COST YOU THOUSANDS IN CGT

With the dramatic increase in the value of the family home, the capital gains tax (CGT) main residence exemption is more important than ever. Imagine selling your home and not having enough to buy another one after paying CGT.

The main residence exemption is not a given as one family found out when the tax office successfully argued that their electricity bill was too low for them to be actually living there.

In that 2007 case, the Administrative Appeals Tribunal ruled that the family spent most of their time at their daughter’s place, so they could not cover their home with their main residence exemption.

Here are just a few traps that could cost you thousands in CGT:

Name not on the title: It might be held in a trust or company name or maybe your parent’s name, but they don’t live there. Unless it can be established that the property is held in a bare trust for you, it cannot be covered by your main residence exemption.

Renting out a room or Airbnb while you are on holidays: If part of your home is used to produce income, that area cannot be covered by your main residence exemption for the time it is used that way.

 The same problem arises if you rent out the home while away on holiday. Some people mistakenly think they can use the “six-year rule” to cover the home while it is producing income. This rule requires you to be absent from the property. That is living somewhere else, not just holidaying.

Selling your Australian home while living overseas: That is all it takes for you to lose your main residence exemption right back to the day you purchased the property. Once you become a non-resident for tax purposes, returning for a holiday to sell it will not resolve the problem.

Not actually living there: Let’s say, for example, your are transferred before the house settles, so you never get to move in. The six-year rule can’t protect you then either.

Young people buying a home while still living with their parents should live in the house first for at least three months. Another trap is having a home provided by your employer that would be considered your real home base.

Having the name of someone not living there on the title: If they technically own half the house then half of the house is not protected from CGT. This happens when parents help their children buy a home or make their unmarried child a joint tenant to make sure they have somewhere to live if the parent dies. Later the child may move out.

If this has happened, and you try to fix it, after the fact that transfer is deemed to be at market value so CGT is already accruing.

Demolish the house: Except for accidental destruction, the sale of vacant land cannot be covered by your main residence exemption. This is the case even if the dwelling has been there for 30 years. There must be a dwelling included in the sale. Though this can be a caravan you have been living in.

If you are caught out, you need to ensure you are keeping good records to keep the capital gain to a minimum. If you purchased the property after August 20, 1991, you are entitled to increase its cost base by holding costs such as interest, rates, insurance, repairs and maintenance. This could even include cleaning materials and lawn mower fuel.

Just as long as the expenses have not otherwise been claimed as a tax deduction they can increase your cost base even though they are private in nature.