December 2024

Importance of a Depreciation Schedule for Rental Properties

• Depreciation schedules help property investors increase rental income and reduce taxable income.
• Brand-new properties benefit from deductions on capital works and plant and equipment assets.
• Second-hand properties have restricted deductions, particularly for plant and equipment.

What is a Tax Depreciation Schedule?

• A detailed report showing tax-deductible expenses, including construction costs, fittings, and fixtures.
• Covers capital works (e.g., building structure depreciation) and plant and equipment (e.g. Fixtures like carpets or air conditioners).
• Helps property investors identify and claim tax deductions systematically.

Benefits of a Depreciation Schedule

• Easier property investment decisions: Makes investment properties financially attractive.

• Improved cash flow: Improves cash flow by offsetting negative gearing with tax deductions.

• One-time expense with ongoing benefits: No recurring costs for the schedule.
• Maximised deductions: Ensures full compliance with Australian tax laws and optimal financial benefits.

Case Studies

• Newly Constructed Rental Property:
  • Scenario: John purchases a newly constructed property.
  • ATO Ruling:
  • Capital works deductions allowed at 2.5% annually for properties built after September 16, 1987.
  • Plant and equipment assets (e.g., carpets, air conditioning) can be depreciated based on their effective life.
  • Key Takeaway: New constructions yield maximum depreciation benefits for both capital works and plant and equipment.
• Second-Hand Rental Property:
  • Scenario: Mary buys an older property with existing assets.
  • ATO Ruling:
  • Capital works deductions allowed if construction started after September 16, 1987, with proper records.
  • Depreciation for second-hand plant and equipment is restricted under 2017 rules.
  • Depreciation can be claimed if assets are newly purchased or first used for rental purposes.
• Key Takeaway: Depreciation for plant and equipment in second-hand properties is limited, making new purchases or upgrades crucial.

Implications for Investors

• Quantity Surveyors: Recommended for estimating construction costs when documentation is unavailable.
• Substantiation: Essential for older properties to provide evidence of construction dates and costs.
• Strategic Renovations: New or upgraded assets allow for depreciation claims under current laws.

November 2024

Principal Place of Residence (PPR) Exemption:

No CGT applies when selling your PPR.

• A property can still be treated as your PPR for tax purposes if:
  • You use it to produce income for up to 6 years, or
  • You don’t use it to produce income, allowing for an indefinite exemption period.
• Only one property can be treated as PPR at a time, with a 6-month overlap allowed when moving.

Criteria for Principal Residence Exemptions:

• The 6-year exemption applies only if the property was initially your principal residence.
• If rented before living there, the period rented out doesn’t qualify for exemption.
• Foreign residents cannot claim the principal residence exemption when selling.

Former Home Not Used for Income:

• If the home is left vacant or used as a holiday house, it can remain exempt indefinitely if no other property is treated as PPR.

Multiple Absences from Primary Residence:

• The 6-year rule resets with each period of absence.

Dwelling Used for Income During Multiple Absences:

• Each period of absence can qualify separately under the 6-year rule if rental periods follow residence.

Exceeding the 6-Year Limit:

• If rental use exceeds 6 years in one absence, CGT applies beyond the 6-year period.
• Calculate CGT based on the cost base (market value when first used to produce income) and the time it exceeded the limit.

Former Home Used for Income Before Moving Out:

• If a part of the property was used to produce income before moving, only a partial exemption applies.

Determining End of PPR Status:

• A property generally stops being your PPR when you and your family no longer live there, mail is redirected, and utilities are disconnected.

September 2024

Investment Property Tax Overview:

• Understanding tax consequences is crucial for property investors in Australia.
• Potential tax benefits and costs are associated with owning an investment property, including deductions and Capital Gains Tax (CGT).

Property Investment Tax Benefits:

• Interest Payments and Holding Costs: Mortgage interest and other holding costs can be claimed as tax deductions if the property is rented out.
• Depreciation on Rental Assets: Depreciation on items like appliances can be claimed as tax deductions.
• Construction/Renovation Deductions: Costs for construction or renovations can be claimed over 25-40 years as capital works deductions.
• Negative Gearing: Losses from rental property expenses exceeding income can offset other income, reducing taxable income.

Tax Implications of Property Investment:

• Capital Gains Tax (CGT): Profits from selling an investment property are subject to CGT.
• Tax on Rental Income: Rental income is taxable and must be reported alongside other income.
• Asset Depreciation: Depreciation on assets like appliances and furniture is deductible.
• Deductibility of Property Expenses: Certain property-related expenses are tax-deductible, while others are not.
• GST Considerations: GST may apply if renting out a commercial property.

Types of Tax on Investment Property:

• Income Tax: Rental income is taxed as regular income; losses from negative gearing can reduce taxable income.
• Immediate Deductions: Some expenses, like advertising for tenants and council rates, are deductible in the same year.
• Long-Term Deductions: Depreciation of property value can be spread over several years.
• Capital Gains Tax (CGT): Profit from selling a rental property is subject to CGT; various exemptions and discounts may apply.
• Stamp Duty Tax: Stamp duty is payable when purchasing a property but is not deductible; it can be added to the asset’s cost base for CGT.
• Land Tax: Ongoing tax based on the land’s unimproved value; rates vary by state or territory.

This newsletter provides an overview of key considerations, tax benefits, and obligations related to investment properties in Australia.

Budget Overview 2024-2025

The Federal Budget for 2024-2025, presented by the Hon. Dr. Jim Chalmers on May 14, 2024, focuses on several key areas: easing cost-of-living pressures, building more homes, investing in a Future Made in Australia, strengthening Medicare and the care economy, and promoting equality.

Individual Tax Cuts:

The Stage 3 tax cuts will take effect on July 1, 2024, benefiting 13.6 million taxpayers:

• The 19% tax rate drops to 16%.
• The 32.5% rate reduces to 30%.
• The threshold for the 37% rate increases from $120,000 to $135,000.
• The threshold for the 45% rate rises from $180,000 to $190,000.

These changes aim to ease cost-of-living pressures, return bracket creep, support women, and boost labour supply.

Medicare Levy and Surcharge Adjustments

The Medicare levy surcharge low-income thresholds will increase from July 1, 2023, to reflect inflation, impacting taxpayers filing in 2024.

Small Business Measures:

Asset Write-Off:

The $20,000 instant asset write-off is extended for another year, allowing businesses with less than $10 million in turnover to claim immediate tax deductions for assets up to $20,000.

Energy Bill Relief:

Eligible small businesses will receive $325 to help with energy bills, benefiting about one million businesses.

Tax Debt Treatment:

Amendments will allow the Commissioner of Taxation discretion regarding old tax debts placed on hold before January 1, 2017.

Apprentices and Tradies Support:

Funding for 20,000 new fee-free TAFE, VET, and pre-apprenticeship courses and $1.8 million to expedite the assessment of potential migrants with relevant qualifications.

E-Invoicing Funding:

A $67.5 million package to combat digital scams, including $23.3 million for the ATO to continue operating the e-invoicing network.

Social Security and Superannuation

Deeming Rates:

Social Security deeming rates for financial investments will remain unchanged until June 30, 2025, benefiting 876,000 income support recipients.

Superannuation:

Several changes, including:

• Increase in the superannuation guarantee rate from 11% to 11.5% starting July 1, 2024.
• Payday super to be implemented from July 1, 2026.
• Paid parental leave recipients will receive superannuation from July 1, 2025.
• Enhanced Fair Entitlements Guarantee Recovery Program starting July 1, 2024.

GST and Fraud Measures:

The ATO receives $187 million to combat tax and superannuation fraud, including tools for real-time suspicious activity blocking and a task force for fraud recovery.

Cost of Living Measures

Tax Cuts and Bracket Creep:

The tax cuts are designed to combat bracket creep and lower average tax rates, especially benefiting low-to-middle-income taxpayers and boosting labour supply by encouraging workforce participation among women.

Energy Bill Rebates:

$300 energy rebates for households and $325 for eligible small businesses, aiming to reduce inflation by about 0.5 percentage points in 2024-2025.

Rent Assistance:

An additional $1.9 billion over five years to increase Commonwealth Rent Assistance by 10%, benefiting renters significantly.

Student Debt Relief:

$3 billion in student debt relief for over 3 million Australians, capping HELP indexation rates to the lower of CPI or Wage Price Index, effective from June 1, 2023.

Housing and Infrastructure:

• $1 billion for infrastructure to support housing development.
• A new five-year National Agreement on Social Housing and Homelessness.
• Additional $1 billion for women and children experiencing domestic violence, and youth housing.
• Training for more tradies and construction workers via fee-free TAFE places.
• Expansion of the Affordable Housing Bond Aggregator program.

Multinational and Foreign Resident Tax Reforms

• Strengthened foreign resident capital gains tax rules, improving budget revenue by $592 million.
• New penalties for multinationals avoiding Australian royalty withholding tax and claiming excessive debt deductions.

This comprehensive budget aims to address immediate economic challenges while investing in long-term national resilience and growth.

February 2024

This Newsletter discusses financial strategies related to Australian taxation and superannuation:

CGT Discount:

• Delaying the sale of a Capital Gains Tax (CGT) asset for at least 12 months can qualify you for a 50% CGT discount.
• CGT assets include various items such as land, buildings, shares, leases, cryptocurrency, and more.
• The discount is applicable if you are an Australian resident for tax purposes and have owned the asset for at least 12 months.
• The CGT event (e.g., sale) date is crucial, and the discount is not available for capital gains made by foreign or temporary residents after May 8, 2012.

Super Tax Offset for Spouse Contributions:

• Making non-concessional contributions to your spouse’s superannuation can lead to a tax offset.
• Eligibility criteria include being married or in a de facto relationship, both being Australian residents, and the receiving spouse’s income being $37,000 or less for the full tax offset.
• Contributions of up to $3,000 can qualify for an 18% tax offset, with a maximum offset of $540.
• Contribution limits exist, and certain restrictions apply based on the partner’s super balance and income.

Joint Tenants vs. Tenants in Common:

• Explains the differences between joint tenants and tenants in common when buying property with another person.
• Joint tenants own the property equally, and on the death of one, the survivor(s) automatically inherit the deceased’s share.
• Tenants in common have defined ownership shares, and the deceased’s share passes to their beneficiary as per their will or state law.
• Both ownership structures can coexist if there are three or more owners on the title.

Superannuation Downsizer Contribution:

• The downsizer contribution rules allow individuals aged 55 and over to sell their home and contribute up to $300,000 ($600,000 for a couple) to their superannuation.
• No work test requirement, and there is no upper age limit for making downsizer contributions.
• Eligibility criteria include owning the property for at least 10 years, it being the main residence, and being in Australia.
• Not required to buy a new home with the sale proceeds.

If you would like to read the full newsletter, please click on the link.

November 2023

This newsletter provides a comprehensive overview of the tax treatment of Christmas parties and gifts, as well as the considerations and implications of refinancing loans and consolidating superannuation accounts.

Christmas Gifts and FBT

The key concepts highlighted include the criteria for fringe benefits tax (FBT) on Christmas parties, distinguishing between on-site and off-site events and the tax implications for employees, associates, and clients. The treatment of gifts as “entertainment” or “non-entertainment” items is also discussed in detail, with a focus on FBT and tax deductibility.

Refinancing

The newsletter goes on to explore the pros and cons of loan refinancing, emphasizing the potential benefits of lower interest rates and access to additional loan features, while also addressing the associated fees and potential impacts on credit scores.

Furthermore, it explains the tax implications of loan refinancing, emphasizing that interest deductibility remains unchanged when switching loans, and how interest on a new loan can be deductible when used to repay an existing loan in an income-producing activity.

Consolidating Your Superannuation

The topic of consolidating superannuation accounts is covered, explaining the advantages of having a single super account to reduce fees and simplify management. The preservation rules and potential tax implications are also discussed.

The newsletter concludes by offering guidance on how to initiate the transfer of superannuation accounts and highlights the importance of considering various factors such as fees, insurance, and restrictions when making this decision.

October 2023

Cryptocurrency

Crypto assets are a digital representation of value that you can transfer, store, or trade electronically. Crypto operates independently of central authorities but is subject to standard tax rules; no special rules exist. Tax treatment depends on acquisition, holding, and disposal methods. For tax purposes, crypto assets are not a form of money.

Taxation

Using or transacting with crypto assets will determine how you treat them for tax purposes. The most common use of crypto assets is as an investment (investors acquire and hold crypto assets to make a financial profit from holding or disposing of them). Generally, for investors:

• crypto assets are taxed as CGT assets, including for self-managed super funds (SMSFs) investing in crypto assets.
• Rewards for staking crypto are ordinary income for tax purposes.

Other considerations for businesses that trade in crypto assets are noted in the newsletter.

Cashflow Forecasting

Cash flow forecasting is a method of predicting cash inflows and outflows to see how much money you’ll have in the future. It provides a window into your business’s financial health and can help plan spending.

The following has been discussed in the newsletter:

• Difference between a cashflow forecast and a cash flow statement.
• Benefits of cashflow forecasting.
• Key components of cashflow forecasting.
• How often should businesses do a cashflow forecast.

CGT Discount

• One of the most generous features of the capital gains tax (CGT) regime – which may apply to the disposal of assets is the CGT general discount. It can reduce your CGT liability by up to 50% if applicable.
• Eligible taxpayers include individuals, superannuation funds, and trusts (depending on the beneficiary’s eligibility). The most notable omission is companies – they do not qualify for the 50% discount.
• This newsletter points out how crucial timing can be for an entity to be eligible for the 50% discount along with other important details which help identify the assets that are Taxable Australian property.

Deduction for Superannuation Contributions

You’re eligible to claim a deduction for personal super contributions if:

1. You made the contributions to your fund that was not a:

• Commonwealth public sector super scheme in which you have a defined benefit interest.
• constitutionally protected fund (CPF) or other untaxed fund that would not include your contribution in its assessable income.
• super fund that notified us before the start of the income year that they elected to treat all member contributions to the super fund as non-deductible.

2. You meet the age restrictions. If you are under 67, you meet the limits. If you are 67 to 74, you must meet the work test, meaning you must work 40 hours or more in a consecutive 30-day period in the financial year to make contributions.
3. You have given your fund a notice of intent to claim in the approved form.
4. Your fund has validated your notice of intent form and sent you an acknowledgement.

Gifts and Donations

You can only claim a tax deduction for a gift or donation if you satisfy the following conditions.

• You donated to an organisation with the status of a deductible gift recipient (DGR). Not all charities are DGRs.
• You voluntarily transfer money or property without obtaining or expecting any material benefit or advantage in return
• The donation was in the form of money or property. This can include financial assets such as shares.
• You maintained appropriate records for your gift or donation.

eInvoicing

eInvoicing is the digital exchange of standardised invoice information between suppliers’ and buyers’ software through the secure Peppol network. eInvoicing is more efficient, accurate and safe and is different from sending and receiving invoices as PDFs and emails.

Functionality of eInvoicing:

• Eliminates the need for printing, posting, or emailing paper-based or PDF invoices for suppliers.
• Eliminates manual entry or scanning of invoices into software for buyers.
• Businesses can connect once and immediately transact with everyone on the same network, no matter what eInvoicing-enabled software they use.

Benefits of eInvoicing:

• Cost saving since eInvoicing reduces manual data entry and enables process automation.
• Enhances overall business security by countering common scams like payment redirection and false billing.
• Improves cash flow through faster processing and quicker payments.

September 2023

GST refresher for your business

Most businesses are familiar with how GST works. But here are a few reminders to make sure you’re being compliant and maximising your GST claims.

GST is paid at each step in the supply chain, and businesses charge GST in the price of goods, services or anything else they supply. If an entity is registered for GST, it can claim input tax credits from the ATO for any GST included in the price paid for goods, services or anything else bought for the business. However, GST-registered enterprises’ liability to pay GST rests on the supplier of goods and services, not on the consumer. In other words, even if the business does not include the GST in the price of goods and services supplied, it is still liable to pay it to the ATO.

A few of the key issues related to GST have been detailed in this newsletter which include second-hand goods, deposits, purchasing a car for more than the car limit and cancelling your GST registration.

Allowances

Do your employees travel for work?

The ATO has issued new guidance to help employers determine whether to pay employees a travel or living-away-from-home allowance (LAFHA). There are some key differences between the treatment of the two types of payments:

• A travel allowance will generally need to be included in your employee’s assessable income and may require tax withheld. It covers accommodation, food, drink or incidental expenses an employee incurs when they stay away from their home overnight or for a short period to carry out their duties. It’s generally deductible to the employer.
• A LAFHA payment you provide to your employees may be considered a LAFHA fringe benefit. Where this is the case, it must be reported in your annual fringe benefits tax (FBT) return. LAFHAs are paid to compensate employees for additional living expenses they incur if they’re required to live away from home for an extended period for work purposes. In certain circumstances, such payments may be exempt from FBT for the employer and not taxable to the employee!

This newsletter specifies some key differences between the two types of payments.

Accommodation Sharing and Tax

The ATO has reminded taxpayers of the sharing economy tax implications when providing accommodation.

The sharing economy provides an excellent opportunity for individuals with spare rooms or spare entire properties to rent out space and earn rental income using facilitators such as Airbnb. The ATO has announced a new data-matching program specifically targeting around 190,000 taxpayers receiving income from short-term rentals. The ATO said it would examine the information provided by online platforms like Airbnb to identify taxpayers who had left out rental income and over-claimed deductions.

If you are renting out rooms of your home, or indeed entire properties – whether via Airbnb or another facilitator or certainly just privately – there are many tax issues which has been stated in this newsletter.

If you would like to read more, please click on the newsletter link.

2023-2024 Federal Budget

The 2023-24 Federal Budget was handed down on 9 May. It contains changes to business and personal taxation, superannuation, social security entitlements, as well as the cost of living relief. Following are some of the headline measures, many of which are subject to enabling legislation.

Business

Less generous depreciation

Temporary full expensing (TFE) will cease and be replaced by a $20,000 instant asset write-off (IAWO) from 1 July 2023.

Under this change, small businesses (aggregated annual turnover of less than $10 million) will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that is first used or installed ready for use between 1 July 2023 and 30 June 2024. Assets valued at $20,000 or more (which cannot be immediately deducted) will be placed into a small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

For larger businesses, the write-off threshold is cut to $1,000.

TFE, which allows eligible businesses with a turnover of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, is however still available up to 30 June 2023.

Small business lodgement penalty amnesty

A lodgment penalty amnesty program will be provided for small businesses with aggregate turnover of less than $10 million to encourage them to re-engage with the tax system. The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.

Individuals

No change to the Stage 3 tax cuts

The government did not propose any changes to the legislated Stage 3 tax cuts whereby from 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. The 37% tax bracket will be entirely abolished at this time.

On the face of it, lowering the 32.5% to 30% and removing the 37% tax bracket altogether seems like a big win for middle and upper- middle-income earners. But it will actually be a much bigger win for higher-income earners in dollar terms. For example, an individual who earns:

• $75,000 will be better off by $750 per year compared to now
• $125,000 will be better off by $2,225
• $200,000 will be better off by $9,075.

Low-and middle-income tax offset (LMITO) not extended

This tax offset ceased from 1 July 2022. The LMITO was introduced by the former Coalition government in 2018. It was only meant to be paid out once but was twice extended due to the pandemic. This offset was not extended on Budget night, and no replacement tax relief was offered to low- and middle-income earners.

Consequently, low-income earners may face an increased tax liability of up to $1,500 when upcoming 2022/23 tax returns are lodged.

Social security and cost of living

Boost to Centrelink payments

A base-rate increase of $40 per fortnight for about 1.1 million Australians on support payments, including JobSeeker, Austudy and Youth Allowance.

Jobseeker increased

A JobSeeker payment increase of $92.10 per fortnight will kick in for about 52,000 people aged over 55 who have been on the allowance for nine or more straight months. This currently applies only to those aged over 60.

Power bill rebates

$500 energy rebates for 5.5 million households and 1 million businesses. Relief will be targeted to pensioners, Commonwealth Seniors Health Card holders, and households receiving income support, including Family Tax Benefit A and B. Income limits apply.

Sole parents

Sole parents will be able to receive the single parenting payment until their youngest child turns 14 – up from the current age of eight.

Rent assistance

15% increase to the rate of Commonwealth. Rent Assistance, providing up to an additional $31 a fortnight for about 1.1 million eligible households.

July 2022

PRIORITIES FOR THE ATO THIS TAX TIME

Record Keeping 

There are still some weeks left until tax time, but if you start organising the income and deductions records you’ve kept throughout the year, this will guarantee you a smoother tax time and ensure you claim the deductions you are entitled to.

Work-related expenses

Focusing on deductions that are different where one is high the other should be lower;

• Large work from home deductions should result in a lower motor vehicle claim.
• Only claiming a deduction for the actual use of your mobile and internet.

Capital gains from crypto assets, property and shares

The ATO has extensive data collection processes, if any trading has been done for crypto, property and shares it will need to be declared to the ATO. The ATO expects more capital gains or losses reported this year.

Double Dipping

The ATO looks closely at the motor vehicle and work from home deductions to ensure people are not accidently double dipping deductions.

• Claiming deductions in relation to the work from home 80c an hour shortcut method and claiming additional costs for mobile, internet and other home office expenses.
• Claiming motor vehicle deductions using the cents per km method and also trying to claim a deduction for fuel, insurance and registration.

Changes to single-touch payroll reporting

As an employer, it’s important that you’re across the changes required, and you’re getting ready to start Phase 2 reporting. This includes:

• checking if you need to make changes to payroll pay codes/categories so they align with Phase 2 requirements
• reviewing allowances, you pay and how they need to be reported in Phase 2
• understanding changes to salary sacrifice reporting
• understanding how to assign an income type to each payment.