I must start this section with the word Substantiation. 14 letters which mean a big deal in Taxation law. If you ever forget this word and are completing your own Tax return, then just remember ‘prove’ or ‘proof’.
In the early days of my practice (mid 90’s) many of my clients were under the misconception that the receipt of an allowance from an employer would automatically entitle them to a deduction. So in layman’s terms I had to advise them that most allowances received (with exception of Living away from home allowance or LAHA) were fully assessable and therefore had to be included in the tax return as income in the allowances question no. 2.
Then, in order for an expense deduction to be claimed against that income two conditions had to be met:
-the expense/deduction must be incurred in the production of that income, and
-substantiation or proof was required (such as receipts, diary or log book entries).
And believe me I still get the odd client who asks:
“can I use an estimate for my tax deduction where I forgot to keep the receipt. I have the item, etc. etc…”
Me: “For this odd occasion do you maybe have a diary entry which you have signed”?
Me: AAHHHHH No!
Rental Properties and Negative Gearing:
This topic is about to get the biggest shake-up. The Federal Government is bleeding dollars, so what I say is based on the current law as at February 2016.
Repair Vs Improvement is the most abused area based on my experience as a practitioner. And unfortunately I have lost clients to other less scrupulous tax agents. Time may catch up with these other people.
Repair is when you have fixed something in your rental property and hence this becomes an outright deduction in your tax return. Such as painting the inside or outside of the house.
Improvements or changing the make-up of the structure is considered capital and hence always depreciable generally between 5 to 8 years. But in the instance of a permanent structures such as residential buildings then over 40 years (only 2.5% per year). Such as a plasterer plastering to a thick consistency the outside of your rental due to fretting mortar joints, instead of a bricklayer making the same mortar and filling each fretted joint (re-pointing).
If in doubt the Australian Taxation Office requires the Taxpayer/Landlord to submit/seek a private ruling on their particular issue.
This then may avoid further scrutiny from the ATO.
So from the above you can start to see the attraction towards a tax payer wanting to call most items as repairs Vs the Commissioner preferring to interpret as improvement/capital.
Capital Gains Taxation:
A few simple rules here as appetisers before we get into the nitty/gritty.
Remember to keep your asset for at least 12 months to automatically qualify for a 50% discount. That there makes the biggest difference. If you are buying and selling within the year such as some share traders then you pay capital gains tax (usually your average rate in the dollar-being 30 cents) on the full amount of the gain made with no 50% discount.
SUBDIVISION OF LAND-PRIMARY RESIDENCE: Maximising your capital gain and keep most of it. TBA!
The Commissioner of Taxation is not happy with some Tax Agents. We explain why?
And Bill Shorten (leader of the Labour opposition) is a hypocrite if he removes the dividend imputation system which his own Government (being Hawke and Keating) introduced in the mid Eighties, to avoid double taxation. Trying to camouflage this as a Howard Govt. failure in the year 2000 will lead to your failing, if you continue listening to your misguided bureaucrats.
You see, some of us have been in the industry, longer than your scribes!
I am passionate about this as many mum and dad pensioner investors of Rockingham, supplement their current incomes with this small end of year refund. More to Follow.
Superannuation Guarantee: Remember if you are 18 years of age and earn a minimum of $450.00 per month you must be provided with regular superannuation contributions of 9.5% of your gross earnings by your employer.