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.

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!

Claiming mobile phone, internet and home phone expenses

Using your own phone or internet for work purposes is deductible if you have paid for these costs (i.e. they are not reimbursed), and have records to support the claim (i.e. receipts and diary of usage). If the phones or internet is used for both work and private use, you need to work out the percentage that reasonably relates to your work use.

Suggestions on how to substantiate the expenses:

  • If the deduction is greater than $50, you need to keep records for a four-week representative period (i.e. diary entries, electronic records and bills).
  • Letter from the employer confirming that you are required to use your phones and/or internet for work purposes.
  • Where usage is itemised on your bills, you need to determine your work use percentage over a 4-week period on the basis of the number of work calls made, time spent on work calls or data downloaded for work purposes.
  • Where usage is not itemised on your bills, you calculate your work use percentage by keeping a record of all work related calls over a 4-week period.
  • Where phone and internet services are bundled, and you are claiming deductions for work-related use of one or more services, the costs need to be apportioned based on the work use for each service.

ATO Website: Claiming mobile phone, internet and home phone expenses

News Article: ATO cracks down on home office claims

 

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!

Are You a Resident or Non-Resident for Australian Tax Purposes? Don’t Get Caught Out!

In order to know your tax responsibilities in Australia, you have to know whether you are considered a resident or non-resident for Australian tax purposes. This may seem clear but if you are working overseas, travelling often, or you do not have a permanent home in Australia, you may think you are exempt from Australian taxation laws when you really aren’t.

What is a Resident for Tax Purposes?

If you reside in Australia, you have a home and you’re settled in Australia, it is quite clear, according to the ATO (Australian Taxation Office), that you are considered a resident and that you are subject to Australian taxation laws. But if your situation is not as clear, you might want to check with the ATO to see whether you are considered a resident.

The ATO has a number of detailed residency calculators on their website which you can access here. Remember that you only need to pass one of these to be considered as an Australian resident for tax purposes.

The reason why residency for tax purposes is complex is because there is not one defining factor that confirms your status. The ATO looks at a number of factors in your circumstance to define your status. Your citizenship may have nothing to do with your tax responsibilities. Even if you are a citizen of another country, you can be considered a resident of Australia for tax purposes, depending on your activities.

For example, you can be considered a resident if you:

  • Perform your day to day activities, especially those of a leisurely kind, in Australia, even if you are moving often without a permanent residence.
  • Have a business, assets, or a family in Australia, even if you stay elsewhere.
  • Have the intention to stay in Australia as soon as you arrive.

Some of your responsibilities as a resident for tax purposes include:

  • Lodging tax returns
  • Declaring all sources of income receivedworldwide, meaning all income earned in Australia as well as overseas
  • Paying the 2% Medicare levy, which automatically comes out of your income, if you earn over $18,000 a year

What is a Non-Resident for Tax Purposes?

If you do not pass the tests provided by the ATO, you may be considered a non-resident (also called “foreign resident” meaning that you do not need to claim your overseas income in your Australian tax return. But it’s best to have the ATO or an accountant look into your situation to make sure you do not make an incorrect conclusion.

As a non-resident for tax purposes, you will have to lodge a tax return if you earned any income in Australia (eg. rental income from investment properties located in Australia, shares traded on the Australian Securities Exchange, etc.).

Why Does All This Matter?

In 2016, a Malaysian investor suffered the consequences of assuming his non-residency status for his tax responsibilities in Australia. Sir Yii Ann Hii was faced with an order from the ATO to pay $50m in taxes because ATO had considered him to be an Australian resident for tax-purposes for a number of years, simply because his wife and children lived in Australia. Sabrina Ong, who is a partner here at Fortiz Accountants, commented on this case, informing of the many ways that the ATO can decide your residency status. Read more here.

Your Worldwide Tax Responsibilities

If you are a resident and you are claiming income from Australia and overseas, it’s possible that that income overseas is also subject to taxation laws in its source country. Australian’s double tax agreements (DTA) ensures that you don’t have to get taxed twice for the same income.

For a comprehensive list of countries with a tax treaty with Australia, click here.

What You Should Do Now

Know your status as soon as possible to avoid incurring payments that you are not aware of. Refer to the ATO’s comprehensive residency tests (above) to see whether you are subject to paying Australian taxes and to know what you have to claim in your next tax return. If you are still unsure about your tax responsibilities as a resident or foreign resident, an accountant will be able to help you!

 

Disclaimer: This blog post has been simplified to cover the common scenarios. This should not be construed as advice from Fortiz Accountants. There are many other factors to be considered and each case is unique. Therefore, we encourage readers of this blog post to contact Fortiz Accountants for assistance with their specific circumstances.

 

Our accountants are well-versed in the complexities of Australian taxation laws. If you are unsure about your residency status, or youre concerned about income from employment and investments overseas, contact our accountants here at Fortiz Accountants! As registered tax agents, we can also help you prepare and lodge your tax returns. Most importantly, we can help you to ensure that you fulfil all your tax obligations in Australia.

Contact us and see how we can assist you!

What To Do Now That You Have Just Migrated to Australia

Are you a new migrant to Australia? Welcome! Here is a list of important things to do and consider now that you’ve arrived in Australia.

Get a Mobile Phone in an Australian Network

A mobile phone with connection to the Australian network will make sure that you can keep in touch with your friends and family in Australia and overseas. You might also need to make a lot of calls within the first few weeks of your arrival, such as calling for a taxi service. A mobile phone with internet access will also give you access to most everyday services online, without needing access to a computer or Wi-Fi.

Consider:

  • Pre-paid or post-paid (contract) phone plans? Note that post-paid phone plans will require you to make regular payments monthly (depending on the plan) and might have extra requirements.
  • Which network? Australia has plenty of network providers, such as Optus, Telstra, or Vodafone. Do your research and see which provider has a plan that will suit your needs or price range.

Find a Place to Stay

Do you have a place to stay? You may choose to rent an apartment or house before choosing where you would like to live long-term.

Here are a few rental sites to get you started:

Domain

property.com.au

realestate.com.au

Do your research in advance because your choice will depend on your needs, preference or budget. Know that there are a lot of cheaper options for you in the interim period, such as hostels and Airbnb, instead of hotels.

Know How You Will Travel

Do you know how you will get where you need to go? A few transportation options are renting/leasing a car, buying a car, or public transportation.

Consider:

  • Renting and buying can end up costing you the same amount. You can find some guide questions to help you decide here .
  • Make sure you have at least third party insurance for your car! This will save you money if you are ever in an accident.
  • Public transport may be adequate for you if you are intending to mostly travel around Melbourne’s CBD. Driving and parking is difficult in the city! Find out more about Melbourne’s public transport here.

Convert your Driving Licence

If you hold an international driver license, VicRoads may or may not recognise your licence or your driving experience depending on which country your license was issued to you or your age. Note that your right to drive in Victoria using your foreign license also depends on whether you hold a temporary or permanent visa.

Consider these:

If you are staying in Australia for more than 6 months, you must get a Victorian issued drivers’ license.

If you plan on using your license for identification purposes, your license must be issued in Australia.

This is especially important for the 100-point ID check that is used by the Australian government in order to confirm your identity. You will need to pass the 100-point ID check to register for some of the services on this page, such as Centrelink.

Register with Centrelink

Centrelink is a government program, part of the Department of Human Services, in charge of providing government payments to Australians, visa holders, students, seniors and more. For example, if you have dependent children, you can be eligible for the Family Tax Benefit and receive payments for your family. Or if you haven’t found employment after a certain amount of time, you can receive unemployment payments while you continue your search for a job.

Visit the Centrelink website to see a range of benefit payments you can be eligible for.

If you have never dealt with Centrelink, you will need to make an appointment at your nearest Centrelink office and apply for a Customer Reference Number (CRN) with valid documents to confirm your identity.

The CRN acts as a key for your Centrelink records. Once you receive your CRN you can create an account online and start using services.

Enrol for Medicare

Medicare is a government scheme which offers a range of services, including free or discounted access to public health services, doctors and emergency treatment in a public hospital. In order to access these services you must enrol for Medicare and receive a Medicare card.

To to enrol, visit: How to enrol or re-enrol in Medicare.

Start Looking For a Job

This will be one of your priorities but it can also be very challenging. Here are few sites where you can start your job hunt:

SEEK

Indeed

Job Search Australia

But don’t forget:

  • You may need to re-write your CV. What Australian employers expect from your CV to look like may be very different from what’s expected in your home country.
  • You may wish to look for a template on the internet or seek the services of a resume writer (just search up “resume writing services” on the internet and see what’s available for you).
  • Apply for as many jobs as you can. It will increase your chances of being hired.
  • Network, network, network! Some jobs are not advertised.
  • Remember that some jobs may require additional certification, such as those around children or those involving food and drinks.

Apply for a Tax File Number (TFN)

As a resident in Australia, a Tax File Number (TFN) is needed for many aspects of your life here.

You will need it in order to start getting paid by your employer, to access some government services/benefits or to apply for an Australian Business Number (ABN) which you will need to start a business. Holding a TFN will ensure that you are taxed correctly and will also allow you to lodge your mandatory tax return.

Your tax file number (TFN) is your personal reference number in the tax and super systems.It is an important part of your tax and super records as well as your identity, so keep it secure. Your TFN is yours for life. You keep the same TFN even if you change your name, change jobs, move interstate or go overseas.

Visit the Australian Taxation Office (ATO) to apply for a TFN.

Set Up a Bank Account

There is a large range of banks in Australia to choose from. It’s best to do your research to find the bank that will suit your needs. You will also need to provide your bank details to your employer once you have secured a job.

Be sure to provide you TFN to your chosen bank so they do not withhold tax from the interest you earn in your account at the highest marginal tax rate (currently 45%).

Apply for Superannuation

Superannuation is compulsory when you work in Australia. This is basically a retirement fund that you will be able to access after you retire. Your employer is liable to pay the superannuation guarantee contribution (currently 9,5%) on your ordinary time earnings into your chosen fund.

In most cases, you have the option of choosing your superannuation fund or allowing your employer to choose for you. More information is available here.

Understand your Australian Tax Obligations

Now that you are in Australia, it is very important to understand your tax obligations. Did you know that you have to claim your overseas income for taxation? This does not just mean money earned from employment overseas, but also income earned from investments, businesses and pensions. You will penalised if withhold this information on your claim, even if it is unintentional. An accountant can help you avoid this trouble early on.

Disclaimer: This blog post has been simplified to cover the common scenarios. This should not be construed as advice from Fortiz Accountants. There are many other factors to be considered and each person’s situation is unique. Therefore, we encourage readers of this blog post to contact Fortiz Accountants for assistance with their specific circumstances.

 

If you need help in understanding your tax responsibilities in Australia as a new migrant we can help you! Our accountants can help you make sure all your financial records, both in Australia and overseas, comply with Australian law. We can help keep track of your finances and ensure you successfully lodge your tax returns. Additionally, most of our accountants and staff have either been there, done that, so they are more than happy to advise you.

 Contact us and see how we can assist you!

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