Deductibility of Rental Property Repairs

Just did some repairs on your rental property and are unsure about the deductibility of the expenses incurred? Read on!

Expenses Which are Deductible Immediately

A landlord is entitled to claim a deduction for rental property repairs that relate to defects, damage or deterioration arising from the use of the property for income-producing purposes. A repair for tax purposes if the replacement or renewal of a worn out or damaged part of something, but not the whole thing.

For example, replacing some roofing sheets is a repair. In contrast, replacing the entire roof with roof tiles is not a repair for tax purposes and deemed to be capital.

Strategies to maximise deductions for repairs include:

  • Separate repairs from improvements
  • Fix a minor portion only
  • Fix damaged areas only
  • Replace less than 50% of a wall, ceiling or floor
  • Repair during occupancy or tenants

Expenses Which are Deductible Over a Period of Time

A deduction is not available for any part of a repair expense that relates to defects, damage or deterioration in existence at the time that the property was acquired. These are known as ‘initial repairs’ and are considered part of the cost of acquiring the property, and are treated as capital in nature.

Where repair expenditure is incurred after a rental property ceases to be used for income producing purposes (ie. the property becomes the owner’s main residence), then the expenditure may still be deductible if:

  • The necessity for the repairs relates to a period during which the property was used for income-producing purposes, and
  • The expenditure is incurred in a year that the property was used for income-producing purposes.

 

Prefer to speak to someone about possible deductions? Contact Fortiz Accountants to make an appointment to discuss taxes relating to your property investments or suitable structures for future purchases.

School Building Fund Levy

Tax season is almost upon us! At this time of the year, we often field questions about deductibility of various expenses and donations. Here’s a common asked one – School Building Fund Levy.

Gifts to a school building fund will qualify for a tax deduction where the school building fund has been endorsed as a Deductible Gift Recipient (DGR) by the Australian Taxation Office (ATO) and no material benefit is received by the donor. To be tax deductible, gifts must have the following characteristics:

  • They are made voluntarily.
  • They do not provide a material benefit to the donor.
  • They essentially arise from benefaction.

Gifts to a school building fund will not be tax deductible where the following material benefits are received by the donor:

  • A reduction in school fees.
  • The grant of scholarships to nominated students.
  • Raffle tickets.
  • Tickets to functions.

What You Need To Do

  • Prior to making a donation, confirm with the school that the school building fund is a DGR.
  • Keep all receipts for contributions to the school building fund.
  • Ensure that no material benefits were received by yourself or your family when making the donation.

 

Unsure whether a donation which you made is tax deductible? Send us all your receipts when requesting for your tax return to be prepared. Our tax accountants will check and advise on tax deductibility. Contact us for assistance with your tax returns today!

Changing from Sole Trader to Company Structure

It’s a common choice for a newbie business owner to operate using a sole trader structure, simply because it’s fast, easy and cheap to set up with minimal ongoing costs.

However, as the business grows, you may find yourself outgrowing the sole trader structure. If you hire employees, intend to seek investment to expand your business or simply wish to manage your personal liability, you may consider changing to a company structure.

What is a Company Structure

The law treats a company as a separate legal entity. This means that you will not be held personally responsible for the actions of your business. A company structure is also beneficial as it continues to survive even after the owners and directors can no longer run its operations.

Benefits of a Company Structure

  • Limit your personal liability as the personal assets of the owners cannot be applied for the payment of debts of the company, in normal cases.
  • Minimise tax liability as the company’s income is assessed as a separate entity. The profit of the company can be split into the retained earnings of the company after paying wages to the business owner, and income of the owners by way of share dividends. The company’s net profit is taxed based on the corporate tax rate which is lower than the marginal tax for individuals.
  • Ability to retain profits in the company to fund future growth.
  • Create a better and more legitimised brand image to customers and suppliers.
  • Raise significant capital for the business via securing funding from investors.

Capital Gains Event

The sale of a sole trader business to a company is a capital gains event, which would normally create a taxable capital gain for the sole trader. Under the replacement asset rollover, the capital gain on the sale of the business to the company is deferred if the transaction is structured as follows:

  • The sole trader transfers the business assets to the company (including any business liabilities) to the company in exchange for ordinary shares in the company.
  • After the transaction is complete, the sole trader must own 100% of the ordinary shares in the company.

Implementation & Process

  • Establish the company structure.
  • Prepare the business sale agreement.
  • Transfer (sell) the sole trader’s business assets and liabilities to the company in exchange for ordinary shares in the company.

Note: After the transaction is complete, the sole trader must own 100% of the ordinary shares in the company, but this does not prevent the company from subsequently issuing additional shares to another party, so as to bring a new investor or partner into the business.

 

At Fortiz Accountants, we routinely set up structures for business owners. Contact us if you are a sole trader with a growing business wanting to find out whether it’s worthwhile operating under a company structure (or even a trust structure) before taking the next step.

2 Main Types of Superannuation Contributions

Confused by various terms such as non-concessional superannuation contributions and concessional superannuation contributions?

Here’s what it means in a nutshell.

Non-Concessional Superannuation Contributions

Non-concessional superannuation contributions is a special term associated with after-tax super contributions, ie. contributions for which an individual or employer hasn’t claimed a tax deduction.

Examples include after-tax spouse contributions and contributions made under the Super Co-contribution Scheme.

Concessional Superannuation Contributions

Concessional superannuation contributions are contributions made into your super fund before tax, which are then taxed at 15% within the superannuation fund.

These include employer contributions (both super guarantee contributions and employee salary sacrifice contributions) and personal contributions claimed as a tax deduction by the taxpayer.

From 1st July 2017, the concessional superannuation cap has been $25,000 per financial year. It is not tax effective to make contributions in excess of the contribution cap as the excess contributions will be taxed at the taxpayer’s marginal tax rates.

Tax Tip:

Making $25,000 concessional superannuation contributions annually is very tax effective as the super fund is only taxed at 15%, whereas the employer or taxpayer will be in a higher tax bracket (up to 47%), so there can be up to a 32% tax saving on the contributions made.

Where the taxpayer’s taxable income is greater than $250,000 the tax payable on the super contributions increases from 15% to 30%, so the maximum tax savings on the contributions is reduced to 17%.

In addition, from 1st July 2018 catch-up concessional superannuation contributions are allowed for those with account balances of $500,000 or less. This allows unused concessional contribution caps to be carried forward on a rolling basis for up to five years. So, up to $125,000 concessional contributions could be made in one year.

 

Fortiz Accountants is one of the few accounting firms which is licensed to provide advice on superannuation and SMSF (AFSL No. 483940). Contact us today for assistance with your SMSF tax returns and tax advice!

Business Migration & Knowledgeable Accountants Go Hand in Hand

Picture this: It’s a busy day in the office. Your migration agent rings with news that your Visa 188 application has been granted. You thank him profusely, then proceed to tell your other half the good news. Both of you chat about the exciting new life you’ll have in Australia for the next half hour. Then you put down the phone and reality hits. There will be a 1001 things to do before you get there. Where do you start? Oh, and there’s still the board meeting to attend in the afternoon, the business trips to Tokyo in 2 days’ time and to Beijing next week!

First things first, contact accountants who have been there, done that (ie. successfully migrated), and who have assisted other business migrants in getting their businesses off the ground in Australia. That’s us – Fortiz Accountants!

Sabrina migrated to Melbourne over 20 years ago when she commenced her life here as an undergraduate, worked in a number of management roles in the accommodation and F&B industries before finally setting up her own businesses. Geraldine migrated over 10 years ago with her family as a skilled migrant, worked for a few years as a corporate accountant before also finally venturing into business.

Together, Sabrina and Geraldine have assisted numerous business owners with the set-up of their business structures, accounting systems and procedures, provided advice on tax laws which apply to existing assets & income received overseas (eg. home country), made referrals to the right people for set-up of business bank accounts, drafting and review of business contracts, purchase of existing businesses, leasing of commercial spaces, design of logo and artwork, etc. Even if you need assistance with something as simple as booking airport transfers, they are more than happy to point you in the right direction.

 

Whether it’s visa subclass 132, 188 or 888, you name it, we’re familiar with it. We have worked closely with migration agents and business clients over the years and would be happy to have a friendly coffee chat to discuss your plans. Contact us if you are interested in working with us to ensure your business success.

Useful Tips for Your Small Business in 2019

It’s the start of a new year for you and your business and a good time to review your business finances at just over the mid-year point of the financial year.

Maximise the $20,000 Depreciation Deduction

If you run a small business which has turnover of less than $10 million a year, you may be eligible for an instant asset write off. This means that you can claim a deduction for assets used for business purposes if it costs less than $20,000 and purchased between 1 July 2018 to 30 June 2019.

If the asset costs more than $20,000, the total of the cost must be put into a small business pool. Small business owners can claim 15% of that pool in the first year and then 30% after that. If by the end of financial year, your asset pool is below the $20,000 threshold, then the balance can be written off.

This deduction can be used to claim deductions for items used for your business, eg. furniture, equipment, machines, etc. Note that you can only claim deductions for the part of the cost that is used for your business. For example, if you were to purchase a laptop that you plan to use for your business 60% of the time and for private use 40% of the time, you must only claim the 60% of the cost in your depreciation deduction.

Note that if you are registered for GST, you must exclude the GST amount from the cost of the asset when you claim. Otherwise, if you are not registered for GST, you claim the whole cost, including GST.

Utilise the Small Business Income Tax Offset

If you run a small business as a sole trader with a turnover of less than $5 million in the financial years 2019-20, you may be eligible for an 8% “discount” from the tax of your business income, which can cut up to $1,000 from taxes payable. This rate is fortunately set to keep increasing in future years.

Seek Professional Advice

If you have just started a business, it may be beneficial to seek help from professionals, whether it is financial advice, legal advice, tax advice or a range of accounting services. They can assist you with your business and help you to avoid surprises and navigate any obstacles along the way.

Your accountant’s fees are fully tax deductible as business expenses in the year you incur them. Ask your tax agent about claiming professional advice fees in your next tax return.

Understand the Legal Structure of your Business

Small businesses should review their PAYG income tax instalments and notify the ATO if expected profit will be higher or lower than previous financial years.

Take Advantage of Small Business Concessions

Make sure that you have set-up the most appropriate legal structure for your business. There are 4 commonly used business structures in Australia: sole trader, partnership, company and trust.

It’s important to understand the responsibilities of each structure because the structure you choose may affect:

  • the tax you are liable to pay
  • asset protection
  • costs

You are not locked into any structure and you can change the structure as your business changes or grows.

If you’re unsure which structure to choose, contact us at Fortiz Accountants for advice and assistance with set-up.

Stay on Top of Superannuation Payments

Ensure that your business’s superannuation obligations are met on time, as you can only claim deductions when you make payment before the deadlines. Late payments are not deductible!

Maximise Deductions While Ensuring that they are Business-Related

 Be sure that you maximise deductions for expenses that you are eligible for. However, be careful not to claim unjustifiable expenses just because you think you can. If selected for an audit, the ATO will require you to provide invoices/receipts and in some instances, provide justification as to why these are business-related expenses. Understand your expenses in detail and how they relate to the production of business income.

Speak to an experienced tax agent if you have specific questions about what you can and can’t claim as a deduction.

Set Up a System Early On

 Even if you are just starting out with your business, setting up a system will help to reduce stress later on. Start how you want to finish! Documenting the ins and outs of your business will help prepare you not only for tax time but also help you to understand how your business is performing throughout the year. Cloud accounting software, such as, Xero, MYOB or QBO are very popular these days. Fortiz Accountants can certainly assist you with setting up your accounting software and can provide training on how to use your selected software.

Engage a Trustworthy Accountant

Dealing with ATO, ASIC and other government departments can be stressful for you and can often take time off what you’d rather be focusing on: your business.

Laws change constantly for many reasons, so having a good accountant behind you might be the best thing after sliced bread!

 

At Fortiz Accountants, we sincerely care about your business and will learn its inner workings so that we can offer the best advice on a timely basis, helping to you maximise your business profits while minimising your tax bill. Contact us if you have any questions on any of the tips above or if you are interested in working with us to ensure your business will thrive in 2019 and beyond.

When Bags Could Be Tax Deductible

Handbags, briefcases and satchels purchased to carry items for work purposes (such as laptops, tablets, work papers or diaries) may be deductible. The deductibility of the bag will depend on:

  • Cost – It’s easier to justify to the ATO that a $300 bag is for work purposes than a $10,000 Prada bag.
  • Type of bag – Large bags that can actually carry work items will more likely be deductible (than small handbags that only fit keys and lipstick).
  • What sort of use – Having a bag exclusively for work purposes will maximise deductions.

3 different scenarios of usage

  • If a bag is used for predominantly personal purposes, such as carrying a lunch box as well as beauty and hygiene products, then the purpose is private and a tax deduction cannot be claimed.
  • If a bag is used predominantly for work purposes eg. to carry a laptop and work diary, and there is another bag used for personal items, then the bag that is being used for work purposes is considered to be used for the production of assessable income, which allows for a full tax deduction.
  • If a bag is regularly used to carry a small laptop and client paperwork to and from work, but is also used to carry personal items and is used outside of work hours, then the bag is considered to be used for both income producing and private purposes, so the deduction would need to be apportioned between both uses.

Types of Tax Deductions

The type of deduction you claim depends on the cost of the asset:

  • for items that don’t form part of a set and cost $300 or less, or form part of a set that together cost $300 or less, you can claim an immediate deduction for their cost
  • for items that cost more than $300, or that form part of a set that together cost more than $300, you can claim a deduction for their decline in value.

News Article: In the bag: tax deductions that didn’t exist a decade ago

 

Unsure whether an expense which you incurred is tax deductible? Send us all your receipts when requesting for your tax return to be prepared. Our tax accountants will check and advise on tax deductibility. Contact us for assistance with your tax returns today!

Eliminate Division 7A Problems

Division 7A is an ATO integrity measure to ensure that private companies don’t make tax free distributions of profits to shareholders or shareholders’ associates in the form of payments, loans and debts forgiven.

These rules only apply where the companies have retained profits. Under Division 7A shareholders or associates who receive payments or loans from their private company must include the value of those payments or loans as unfranked dividends in their individual tax return. As these unfranked dividends will be taxed at the individuals marginal tax rate this is not a tax effective strategy.

Options to Eliminate Division 7A Loan Problems

  • Arrange for the shareholder enter into a share buy-back with the company to eliminate the Division 7A loan.
  • Arrange for the payments or loans repaid prior to the date of lodgement of the company’s tax return with the ATO.
  • Enter into a written Division 7A loan agreement prior to the date of lodgement of the company tax return. The Division 7A loan agreement must have a maximum seven year loan period (if the loan is unsecured) with interest and repayments dictated by the Division 7A legislation. The interest rate is based on the FBT interest rate.
  • Pay directors’ fees or wages in the 30th June financials to eliminate the Division 7A loan. The directors’ fees will be taxable to the individual but the company will receive a tax deduction for the payment.
  • Arrange for the director to sell assets to the company or take over some of the company’s liabilities.
  • ay a dividend (ideally franked).

ATO website: Loans by private companies

Draft Tax Determination: TD 2017/D3

At Fortiz Accountants, we sincerely care about your business and will learn its inner workings so that we can offer the best advice on a timely basis, helping to you maximise your business profits while minimising your tax bill. Contact us if you require any advice or assistance with eliminating Division 7A problems.

When Dogs Could Be Tax Deductible

Dogs can be a legitimate tax deduction when used in the following ways:

  • On farms for rounding up sheep, cattle and other livestock.
  • Guard dogs at factories.
  • Guarding tradespersons’ tools on work sites from theft.

The purchase cost of the dog (and training fees) are not deductible as they are capital costs.

In contrast, vet bills and pet food bills may qualify as a tax deduction. Whether an individual’s dog costs are deductible will depend on the facts of each case and whether the dogs are actually helping to generate income.

For this deduction to be successful with the ATO, the taxpayer must be able to explain how the dog generates income. If the dog is mainly used for private and personal reasons i.e. the family pet, then no expenses will be deductible.

ATO ID 2011/18: Deductions: guard dog expenses

 

Unsure whether an expense which you incurred is tax deductible? Send us all your receipts when requesting for your tax return to be prepared. Our tax accountants will check and advise on tax deductibility. Contact us for assistance with your tax returns today!

Super Withdrawal and Re-contribution Strategy

Are you approaching retirement and wondering when you can withdraw your superannuation funds (also known as, ‘super’?

Withdrawing Your Superannuation Funds

You can withdraw your superannuation funds:

Superannuation Withdrawal Options

You can receive your super as a super income stream, super lump sum or a combination of both. Check with your fund to find out what options are available to you.

The super withdrawal option that you choose may affect the amount of tax you pay and the amount of money you have for your retirement.

Super Income Stream

You receive a super income stream as a series of regular payments from your super fund (paid at least annually). The payments must be made over an identifiable period of time and meet the minimum annual payments for super income streams.

Super income streams are a popular investment choice for retirees because they help you manage your income and spending. Super income streams are sometimes called pensions or annuities.

Your super income stream may be either:

  • an account-based super income stream
  • a non-account-based super income stream.

Your super income stream will stop:

  • when there is no money left in your super account
  • minimum annual payment is not made
  • commutation (when you convert a super income stream into a super lump sum)
  • when you die, unless you have a dependant beneficiary who is automatically entitled to receive the income stream.

Super Lump Sum

If your super fund allows it, you may be able to withdraw some or all your super in a single payment. This payment is called a ‘lump sum’.

You may be able to withdraw your super in several lump sums. However, if you ask your fund to set up regular payments from your super it is considered an income stream.

If you take a lump sum out of your super, the money is no longer considered to be super. If you invest the money, the money that you earn on those investments will not be taxed as super and may need to be declared in your tax return.

Tax Tip:

The superannuation withdrawal and re-contribution strategy involves the withdrawal of superannuation funds and the re-contribution of the superannuation funds back to the same fund.

The superannuation withdrawal can only be done if the member has met a condition of release, such as retiring or turning 65. Superannuation withdrawals by members over the age of 60 are generally tax free. The funds withdrawn have normally been allocated to a ‘taxable’ component as it is comprised of taxable super contributions and fund earnings.

If the member dies and their superannuation balance is paid out to an adult child, the ‘taxable’ super component will be taxed at 17%. The benefit of this strategy is that the re-contributed super turns into a ‘tax free’ component in the fund. As such, if the member dies their superannuation balance can be paid to adult children tax free (thereby saving 17% tax).

 

Fortiz Accountants is one of the few accounting firms which is licensed to provide advice on superannuation and SMSF (AFSL No. 483940). Contact us today for assistance with your SMSF tax returns and tax advice!

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