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Tax Newsletter – July 2014
June 23, 2014 | 
Author Tax debt release on serious hardship grounds refused
In a recent case, the Administrative Appeals Tribunal (AAT) refused an individual’s application to be released from his tax debt of $58,000 on the grounds of serious hardship.
The AAT noted that no explanation was offered for the taxpayer’s failure to meet his tax liabilities as they arose. The AAT said that instead of paying what it considered to be manageable tax assessments, the taxpayer “largely ignored his tax liabilities over the last five or six years, and has allowed the amounts due to accumulate with interest”.
TIP: The Tax Commissioner has a discretion to release individuals from eligible tax debts. However, even if the Commissioner is satisfied that serious hardship would result from payment of the tax debt, he is not obliged to exercise the discretion in the taxpayer’s favour.
Broadly, serious hardship is said to exist when payment of a tax debt would leave an individual unable to provide basic living necessities for themselves and their dependants. Ultimately, it is a question of fact whether payment of an eligible tax liability would result in serious hardship – and the onus is on the taxpayer to prove their case before a tribunal.
GST credits for property development project managers denied
Two taxpayers have been denied GST input tax credits they had claimed in respect of purported acquisitions made in relation to property developments. The Commissioner had refused the taxpayers’ claims for input tax credits on the basis that neither taxpayer carried on an enterprise.
The AAT heard from the taxpayers that they were “principal contractors” in relation to the property developments. However, the AAT said that exactly what the “principal contractors” did in respect of the properties remained the subject of “quite profound mystery”.
It said that an entity is not a “project manager” simply because someone says it is. Further, the AAT said that to carry on an enterprise, an entity must “do” something, and that in this case, the AAT was unable to identify the activity that the taxpayers were doing in respect of the properties.
TIP: This case demonstrates the need for multiple parties, and in particular related parties, who are involved in large property development projects to clearly articulate and document the role of each party and the agreements they have with each other, particularly if one party intends to seek GST input tax credits.
Individual working overseas not a tax resident
An individual has been successful before the AAT in arguing that he was not a “resident” of Australia for tax purposes for the 2009 and 2010 income years. This was despite being an Australian citizen, maintaining an Australian bank account for his salary, and retaining his house in Queensland.
During the years in question, the taxpayer had signed up with a company to work on a project in Saudi Arabia. The project was expected to last three years and the taxpayer had an expectation that upon completion of the project, he would move on to another project located in Saudi Arabia.
In making various findings of fact, the AAT largely accepted the taxpayer’s evidence. It said that the taxpayer’s presence in Saudi Arabia “was hardly casual or passing”. The AAT accepted that the taxpayer had formed an intention to make Saudi Arabia his home for the duration of the project and beyond.
TIP: This case demonstrates that proving tax residency requires a detailed examination of various facts, and the weighing up of those facts, to come to a conclusion that an individual is (or is not) a tax resident. It also demonstrates the importance of having corroborating evidence to prove the taxpayer’s case.
ATO debt collection approach under review
The Inspector-General of Taxation, Mr Ali Noroozi, has announced that he will review the ATO’s approach to debt collection. To facilitate his review, Mr Noroozi has called for interested parties to submit comments. Public consultation closes on 18 July 2014.
“Despite the ATO’s debt assistance programs, its approach to collecting taxes has been a persistent source of taxpayer complaint”, Mr Noroozi said. He noted that the ATO’s approach to collecting debts accounted for 23% of all ATO-related complaints received by the Commonwealth Ombudsman in 2012–2013.
Furthermore, Mr Noroozi said some stakeholders believe that the ATO has recently taken a firmer approach to debt collection despite continuing economic pressures, while others are of the view that the ATO allows debts to accumulate for too long before taking action.
New ATO approach to identifying SMSF risks
Trustees of self managed superannuation funds (SMSFs) need to be aware of how the ATO gathers information about them in order for the ATO to assess whether their SMSF poses a tax compliance risk, and how the ATO may respond if it perceives a risk.
The ATO has recently announced that it will take a new risk-based approach to how it treats auditor contravention reports (ACRs). This approach will be based on the overall risk posed by the SMSF. Using new risk models, the ATO will analyse multiple indicators of possible non-compliance, including regulatory and income tax matters, information from the SMSF annual return, ACRs and other data such as trustee and member records. The ATO will then use this information to determine appropriate actions to take regarding each SMSF.
The ATO has also reminded SMSF trustees that from 1 July 2014 it will have more flexibility in how it deals with SMSFs that breach the super law – including new powers to issue penalties. The ATO says that SMSF trustees should therefore rectify any contraventions of the law as soon as possible, or have plans in place by 1 July 2014 to do so.
TIP: While the new SMSF trustee penalties start from 1 July 2014, the ATO has noted that contraventions of the law (such as loans to members or relatives) that exist on 1 July 2014 will come under the new penalty regime.
New integrity rule targeting dividend washing
The government has proposed to amend the law to introduce an integrity rule that will curtail taxpayers’ ability to obtain a tax benefit from “dividend washing”.
Broadly, “dividend washing” is a scheme that allows a taxpayer to obtain multiple franking credits in respect of a single economic interest by selling the interest after an entitlement to a franked dividend has accrued and then immediately purchasing an equivalent interest with a further entitlement to a corresponding franked dividend. The amendments, once formally enacted, are proposed to apply with effect from 1 July 2013.
Administrator of deceased estate breached duty
The Supreme Court of Queensland has ruled that an administrator of a deceased estate breached her fiduciary duty by applying for her deceased son’s superannuation benefits to be paid to her personally, rather than on behalf of his estate.
The Court had granted the woman Letters of Administration over her son’s estate after he died, aged 40, intestate and without a spouse or children. However, she applied to her deceased son’s superannuation funds for any death benefits to be paid to her personally.
The deceased’s father (the woman’s ex-husband) submitted that she had allowed a conflict of interest to occur by seeking the superannuation death benefits for herself personally. In finding against the woman, the Court ordered that she transfer all of the superannuation death benefits in dispute (approximately $450,000) to the son’s estate, where it would be shared equally with her former spouse under the rules of intestacy.
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Property Newsletter – June 2014
Who really cares about your retirement?
One of the hotly-debated initiatives announced in the recent federal budget is the plan to lift the pension age to 70 by 2035. Under this plan, Australians born after 1965 will have to work until they are 70 before they are eligible for the age pension.
Regardless of your specific views on the matter, the discussions should serve as a wake-up call that ultimately you can’t rely on the government to support you in retirement.
Why is this happening?
It is a well-publicised fact that our population is ageing, just as it is in most modern western economies. Currently 13% of Australians are aged over 65, but this figure will grow to 25% by 2047.
By some estimates, one in three of those aged 65 today will live past 90 and half of those could live beyond 100.
With more people on the pension and a declining tax base, it’s easy to see why the government is looking to reduce expenditure in this area. Whether the details are correct is for the politicians to debate.
The reality of retirement
While few people aspire to live on the pension, most retirees don’t have a choice. Almost 80 per cent of Australians over the age of 65 receive some sort of income support and life for many of them can be tough.
The single aged pension, including supplements, is currently only around $827 per fortnight or just over $21,000 per annum.
There is also the fact that many people will simply be unable to work until they are 70 due to the physical nature of their employment.
Even many of those who are lucky enough to have a sizable superannuation nest egg at retirement may struggle to afford their desired lifestyle in the decades following retirement.
Clearly, if you want something other than the norm, you need to take personal responsibility and actively plan for a better retirement future.
Time to get serious about property investment
I believe a growing number of people will look to property investment for the answer, hoping that a combination of capital growth and rental income will provide adequate financial support in retirement.
But casually owning one or two investment properties probably won’t be enough. More than ever you need to take a professional approach to investing. You need to choose the right type of properties, set up the right financial and ownership structures, manage your investment diligently and maximise your tax benefits along the way.
Unless you have the time and knowledge to do it properly, you should turn to the experts. Momentum Wealth was specifically established to guide people through all the stages involved in building wealth through property investment to provide long-term support through to retirement.
You also need to start as early as possible. If you start at the age of 30 and just buy just one property worth $500,000 and it grows at 8% per annum that will be worth around $5m at age 60. If you wait until 40 that same property will be worth around $2.3m at age 60. If you wait until 50 it will only be worth around $1.1m.
If you set realistic goals, employ time-tested strategies, and make informed decisions, you can enjoy the retirement you desire at a time of your choosing.
Having access to money is an advantage in itself
The Perth real estate market has performed well over the past 18 months, with many suburbs recording double-digit growth in values.
From a finance point of view, this creates an interesting opportunity for investors but one that is rarely exploited to its fullest.
The opportunity involves gaining access to – but not necessarily using – your equity until a future date when the market cools and good buying opportunities present themselves.
You basically want to guarantee that you’ll have access to money when the right opportunities come along, ideally when the market favours buyers more than sellers.
Now is a good time to execute this strategy because it’s often easier to gain access to your equity immediately following a period of growth than when the market is weak. This is because lenders are generally more willing to lend and valuers have the sales evidence to justify strong valuations.
There are always stages in the property cycle when finance dries up a bit, making it more difficult to obtain a loan. When this happens, it severely dampens the demand for property and therefore provides those with access to finance a significant advantage.
Equity can be a powerful tool for building wealth but only if you can use it.
How do you go about gaining access to your equity without necessarily using it? There are a number of options.
Through refinancing you might be able to get a ‘top-up’ or ‘cash-out’ on an existing loan and either put the money in an offset account or deposit it directly into the loan account for future redraw.
The beauty is that you only pay interest on whatever portion of the loan you use, so it can sit there waiting for your next investment opportunity.
Access to credit can be a powerful tool for property investors, but it can also be an unhealthy temptation for some. Just like a credit card, you can essentially use the money for anything, so you need to remain disciplined. If you are, then having the funds available may give you the inside edge on your next investment.
Why first-timers are choosing to invest rather than buy
There is always a lot of media coverage devoted to highlighting the struggles of first-home buyers.
But while some aspiring home owners complain about rising property values and dwindling government assistance, others are taking the bull by the horns and turning conventional thinking on its head.
Rather than trying to buy their first home, many young Australians are wisely choosing to become landlords, while either renting with friends or living with their parents. This goes against what we are regularly told is ‘the normal’ way of doing things.
Why this strategy makes a lot of sense
This strategy clearly works on a number of levels. Firstly, it allows the individuals to get a foot in the door of the property market in a much more affordable manner. This is because rental income and tax benefits can go a long way toward paying the mortgage.
It also allows this lifestyle-conscious demographic to live where they want, even when they can’t afford to buy there, while also providing the flexibility to travel on a whim.
In the long term, the goal for these innovative first-timers is to use rising equity to either expand their property portfolio or get into their dream home sooner.
Interestingly, buyers can still later qualify for the first-home owner’s grant, even if they own several investment properties.
A common trap for first-time investors
The biggest mistake made by first-timers is to invest in the same type of property that first-home buyers are typically buying – namely house and land packages on the outskirts of the city.
This type of property often has a low proportion of value in the land and is located in areas with abundant future supply. This result is that these properties just don’t perform in terms of capital growth.
Investors should always choose ‘investment-grade’ properties, which are more likely to be older and in well-established suburbs.
Dealing with a break up: what to do when your tenant decides to leave
So, you’ve just found out that your tenant wants to leave and you’re only a few months into the relationship. Now what?
Firstly, don’t take it personally. There are many reasons why a tenant might need to break their lease and prematurely end the tenancy. Usual reasons include work relocations and changes in family circumstances.
In fact, when the rental market is soft (as it is now) and rents start dropping, some tenants may decide to break their lease simply to move to a better or more affordable property.
Can your tenant just terminate automatically? No, they need your permission first and any agreement to terminate must be in writing, typically in the form of break-lease agreement that details all the costs and responsibilities involved.
Of course, you can agree to let them out of the lease with no cost, but that would usually be unwise.
A residential tenancy agreement is a legal contract and so you are entitled to ensure your financial position is no worse off as a result of the tenant breaking the tenancy agreement.
What costs are involved? The laws differ from state to state but as a general rule the tenant is responsible for a number of costs. For starters, the tenant will typically have to pay rent until a new tenancy agreement commences or the original tenancy expires (whichever comes first).
But it doesn’t stop there. The tenant will also have to compensate you for reasonable costs, including a proportion of the advertising and letting fees, which you will incur as a result of the break lease. Even maintenance costs (e.g. for lawn mowing) may be included.
The tenant has the option of advertising the property themselves to help find a new tenant, but this doesn’t remove their obligation to compensate you for advertising fees.
What’s your role in all this? Well, both you and your property manager will need to take all reasonable steps to re-let the premises as soon as possible. Otherwise, your tenant could make a claim to reduce their costs by arguing that you haven’t mitigated their risk.
Why the WA government wants small developers to succeed
Governments at all levels, but particularly the state government, recognise that WA needs to produce more housing to keep up with our booming population.
This means that when it comes to buying real estate, they want people to build or buy new homes, as this generally adds to the overall stock of housing.
There’s another reason the government wants us to build homes. It’s because construction activity is good for the economy as it creates jobs and demand for a whole variety of goods and services.
In the recent WA state budget, the government decided to reduce the threshold at which first home buyers pay stamp duty from $500,000 to $430,000, which will come into play from 1 July 2014.
This change will clearly make it harder for some first-home buyers to get into the market. But interestingly, the government didn’t change the stamp-duty-free threshold for the purchase of vacant land. Buyers will pay no stamp duty for land up to $300,000 in value, and the exemption phases out at $400,000.
This move will clearly encourage many first-home buyers to build a new home rather than buy an established one.
Last September the government again reoriented the first-home buyer market by slashing the First Home Owner Grant for people wanting to buy established properties to a meagre $3,000, while increasing the grant to $10,000 for new homes.
Put these two recent “tweaks” together and you get a fairly clear picture of the government’s priorities. They want to encourage first-home buyers to buy, or better yet, build a new home, which is good news if you’re a developer targeting first-home buyers.
With local councils urged by the state government to increase infill development throughout Perth’s established suburbs, there are many excellent sites waiting to be developed.
And thanks to government incentives (and disincentives) for first-home buyers, if you hit the right price point you could easily have buyers lining up at the door.
A quiet achiever destined to keep kicking goals
Lathlain is an established, largely residential suburb located 7km south-east of Perth’s CBD and part of the Town of Victoria Park.
It’s the type of suburb that many people would have heard of but is probably difficult to find on a map. Victoria Park sits to the west, Burswood to north, Rivervale to the east, and Carlisle to the south-east.
Lathlain was first developed in the 1890s (when quarter-acre blocks were on sale for £25–30), but significant residential development didn’t occur until the post-war years. In 1959 Lathlain Park, the most prominent natural feature of the suburb, became the home the Perth Football Club, which it remains today.
The suburb has a primary school and a growing number of local shops, but most commercial and other services are provided by nearby Victoria Park and Belmont.
The suburb has great access to the entertainment facilities of Burswood (and the site of the future stadium), and it’s just a quick trip to the airport for the suburb’s many fly-in, fly-out workers.
Lathlain has the convenience of Victoria Park train station on its south-western edge, and is serviced by various bus routes.
The median house price in Lathlain is $710,000, with a median rent of $500 per week. The real estate market has consistently outperformed the Perth average over 1 year, 5 years and 10 years.
Data released at the start of 2014 by RP Data reveal that units in Lathlain had a bigger annual growth in value than anywhere in the city.
The suburb is predominantly zoned R20, making it of lower density than neighbouring suburbs, but there are still lots of post-war houses on big blocks being demolished and the land subdivided.
The future looks bright for Lathlain. The West Coast Eagles and the Town of Victoria Park recently signed a Heads of Agreement which proposes that the club’s new training, administration and community facility be built at Lathlain Park.
Construction on the project is likely to commence in late 2014 or early 2015, with an expected completion date in early 2017.
The development, which will include a museum, café and sports medicine clinic, is part of a wider plan to transform the area around Lathlain Park and ensure the long-term desirability of the suburb.
RBA Update June 2014
The RBA Board has decided to leave the cash rate unchanged at 2.5 per cent again!
This is great news for property investors in Australia as this means that official interest rates have remained on hold at some of the lowest levels for 60 years. Many economic analysts in Australia believe that the federal budget cuts would prompt the RBA to delay a change in the cash rate.
Glenn Stevens, Governor of the RBA stated “In Australia, the economy grew at a below-trend pace in 2013 overall, but growth looks to have been somewhat firmer around the turn of the year. This has resulted partly from very strong increases in resource exports as new capacity has come on stream, but smaller increases in such exports are likely in coming quarters.
Moderate growth has been occurring in consumer demand and a strong expansion in housing construction is now under way. At the same time, resources sector investment spending is set to decline significantly. Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative, as firms wait for more evidence of improved conditions before committing to significant expansion. Public spending is scheduled to be subdued.”
It seems like the RBA are playing it safe at the moment and taking a wait-and-see approach to recent mixed economic data from overseas and are waiting to see how the federal budget is received in the long term.
Federal Budget – June 2014
PERSONAL TAXATION
2% deficit levy for three years from 1 July 2014 on incomes over $180,000
The Treasurer announced the introduction of a Budget deficit levy (ie tax), which will apply for three years from 1 July 2014. This temporary levy will apply at 2% for incomes over $180,000 (ie 2% on taxable income in excess of $180,000).
Example: An individual with a taxable income of $200,000 will pay 2% of $20,000, ie a levy of $400.
The new levy is expected to affect a relatively small number of people (around 400,000 taxpayers). When taking into account this new levy and the Medicare levy (which is already legislated to increase from 1.5% to 2% from 1 July 2014), the top marginal tax rate will be 49% from 1 July 2014 to 30 June 2017.
As a result of the new deficit levy, the government will also increase the FBT rate (see Business Taxation).
Medicare levy thresholds for families increased for 2013–2014
From 2013–2014, the Medicare levy low-income threshold for families will be increased to $34,367 (up from $33,693 for 2012–2013). The additional amount of threshold for each dependent child or student will also be increased to $3,156 for 2013–2014 (up from $3,094).
The low-income threshold for individuals will remain at $20,542 for 2013–2014 (unchanged from 2012–2013). Likewise, the low-income threshold for senior Australians will remain at $32,279 for 2013–2014 (unchanged from 2012–2013). This threshold applies to those entitled to the seniors and pensioners tax offset (SAPTO).
Several tax offsets to be abolished
The Treasurer announced that the following tax offsets will be abolished from 1 July 2014:
- nearly all of the dependant tax offsets, including the dependent spouse tax offset, for all taxpayers; and
- the mature age worker tax offset, which will effectively be replaced by new incentives to employ older works (see Other Changes).
WELFARE/PENSION MEASURES
Age Pension age to increase to 70 by 2035
The Treasurer confirmed his earlier announcement that the government will raise the eligibility age for the Age Pension to 70 years by 2035.
From 1 July 2025, the qualifying age will continue to rise by six months every two years from the qualifying age of 67 years (which will apply by that time) to gradually reach a qualifying age of 70 years by 1 July 2035. Individuals born before 1 July 1958 will not be affected by this measure.
Family Tax Benefit changes: two-year freeze on rates and other changes
The government will freeze the current Family Tax Benefit (FTB) payment rates for two years from 1 July 2014. Under this measure, indexation of the maximum and base rates of FTB Part A and the rate of FTB Part B will be paused until 1 July 2016.
The Treasurer also announced other changes to FTB, including a reduction in the FTB Part B primary earner income limit from $150,000 per annum to $100,000 per annum, with effect from 1 July 2015.
Freeze on eligibility thresholds for Australian Government payments
The government will freeze the eligibility thresholds for Australian Government payments for three years. This will apply to:
- non-pension payments (Family Tax Benefit, Child Care Benefit, Child Care Rebate, Newstart Allowance, Parenting Payments and Youth Allowance) for three years from 1 July 2014; and
- pension and related payments (Age Pension, Carer Payment, Disability Support Pension and the Veterans’ Service Pension) from 1 July 2017.
BUSINESS TAXATION
FBT tax rate impacted by deficit levy
The Treasurer said that in order to prevent high income earners from utilising fringe benefits to avoid the levy, the FBT rate will be increased from 47% to 49% from 1 April 2015 until 31 March 2017. The cash value of benefits received by employees of public benevolent institutions and health promotion charities, public and not-for-profit hospitals, public ambulance services and certain other tax-exempt entities will be protected by increasing the annual FBT caps. In addition, the fringe benefits rebate rate will be aligned with the FBT rate from 1 April 2015.
Reduction in R&D offset rates
The rates of the refundable and non-refundable research and development (R&D) tax offsets will be reduced by 1.5 percentage points with effect from 1 July 2014. This means that the refundable offset will be reduced to 43.5% and the non-refundable offset will be reduced to 38.5%.
Employee share scheme reform on hold
Many had expected the Treasurer to announce long-awaited changes to simplify the application of the employee share scheme rules. However, the Budget was silent on this.
The rules, which have operated since 1 July 2009, have been repeatedly criticised as being too complex, in need of simplification and a disincentive for companies to offer their employees share plans. While it is understood that the government is essentially receptive to the need for change, the Budget did not provide any welcome news in this area.
SUPERANNUATION
Option to withdraw excess non-concessional contributions
The government will give individuals the option of withdrawing excess non-concessional contributions made from 1 July 2013 and any associated earnings, with those earnings to be taxed at the individual’s marginal tax rate. (Non-concessional contributions notably include non-deductible personal contributions made from a member’s after-tax income.)
Currently, superannuation contributions that exceed the non-concessional contributions cap are taxed punitively at 46.5%. The proposed new measure will bring the tax treatment of excess non-concessional contributions in line with that for excess concessional contributions, for which taxpayers already have a withdrawal option.
Superannuation guarantee rate will rise to 9.5% on 1 July 2014
Instead of pausing the superannuation guarantee rate at 9.25% (as previously announced), the government will now allow the rate to rise to 9.5% on 1 July 2014 and will leave it at this level until 30 June 2018. As such, employers are required to increase their superannuation contributions on behalf of employees to 9.5% of ordinary time earnings from 1 July 2014.
The percentage will then increase by 0.5% each year until it reaches 12% from 2022–2023, a year later than previously proposed.
OTHER CHANGES
New incentive for employers to hire Australians aged 50 years or over
The Treasurer has announced that employers will be able to receive up to $10,000 in government assistance if they hire a job-seeker aged 50 years or over. This program will replace the Seniors Employment Incentive Payment.
Under the program, eligible employers will receive an initial $3,000 if they hire a full-time mature-age job seeker who was previously unemployed for six months and they employ that person for at least six months. The employer will then be eligible to receive further payments as the employee meets certain further service periods.
Fuel excise to rise (except for aviation fuels) – indexation to be re-established
The government will secure funding for additional road infrastructure projects by re-introducing biannual indexation by the CPI of excise and excise-equivalent customs duty for all fuels except aviation fuels. This will commence from 1 August 2014.
The diesel fuel rebate is unchanged, meaning it will continue to apply to excise, including the excise increase.
New assistance for small businesses
The government will establish:
- the “Small Business and Family Enterprise Ombudsman” to act as a one-stop shop and a single entry point as a means for small businesses to find out about government services and programs; and
- a unit in the Department of Finance to provide specialist advice on contracts and to ensure small businesses are not disadvantaged as part of Commonwealth departments’ tendering and procurement processes.
Tax Newsletter – June 2014
Tax amnesty for undeclared offshore income
The ATO has launched a voluntary disclosure initiative known as “Project DO IT: disclose offshore income today”. The Tax Commissioner, Chris Jordan, has warned that the initiative is a last chance opportunity for individuals who have not declared their overseas assets and income to come back into the tax system before 19 December 2014 in order to avoid steep penalties and the risk of criminal prosecution for tax avoidance.
The Commissioner says eligible individuals who make disclosures will only be assessed for applicable periods of review (generally only the last four years). A shortfall penalty of 10% (plus interest) will apply for these disclosures, although low-level disclosures will attract minimal or no penalties.
Individuals will also be able to obtain additional certainty (where circumstances call for additional surety) and seek assurance regarding the ATO’s tax treatment of repatriated offshore assets. In addition, Commissioner Jordan says individuals will not be investigated or referred for criminal investigation by the ATO on the basis of their disclosures under Project DO IT.
TIP: The ATO notes that in order to receive the benefits of Project DO IT, individuals must make a “truthful disclosure” and lodge their disclosure statement before 19 December 2014. The ATO further notes that until the individual lodges the statement, the ATO’s normal compliance activities will continue – if the taxpayer is detected first, they will not be able to benefit from the initiative.
ATO targeting online sellers
The ATO has announced a data-matching program targeting eBay online sellers. Broadly, the ATO is looking at and testing correct tax reporting by taxpayers and identifying areas that require improved educational and compliance strategies in order to encourage voluntary compliance by individuals. The ATO says it will gather data from eBay Australia & New Zealand Pty Ltd relating to registrants who sold goods and services of a total value of $10,000 or more in either or both of the financial years 2011–2012 and 2012–2013. It is expected that records relating to between 15,000 and 25,000 individuals per financial year will be matched.
TIP: The ATO says it will contact individuals and businesses that it identifies as being at risk of running part of their business “off the books” or in other ways that result in them not reporting all their income. It says individuals will be given the opportunity to respond to the information it collects before any administrative action is taken.
Review of small business tax hurdles
The government has asked the Board of Taxation to conduct a “fast-track review” to identify features in the tax system that are hindering or preventing small businesses from reaching their commercial goals. The government says it wants “small business owners to spend less time on paperwork and more precious time and resources on growing their business”.
The government says the Board’s report should provide business and broader community perspectives on issues in the tax system that are of most concern to small businesses, and identify the short- and medium-term priorities for small business tax reform in Australia. In particular, the government says the report should focus on high priority options for simplification and deregulation.
The Board is due to deliver its report to the government by 31 August 2014. To assist the Board in identifying the most serious tax system impediments that small businesses face, the Board is conducting broad public consultations with the business community. Public consultation closes on 23 May 2014.
Protection from announced but un-enacted tax changes
Treasury has released draft legislation that seeks to implement the government’s announcement that it would legislate to protect taxpayers in relation to previously announced but un-enacted tax amendments. The government had previously stated on 6 November 2013 that “there will be legislated protection for any taxpayer who has self-assessed with announced changes that the government will not proceed with”.
The draft proposes to amend the tax law to introduce a protection provision to ensure that tax outcomes are preserved in relation to income tax assessments in specified circumstances. This protection operates primarily by placing a statutory bar on the Commissioner amending an income tax assessment to the extent that it reflects a taxpayer’s anticipation of the impact of a prior announcement that was then later scrapped (and that meets other conditions set out in the legislation).
Small Business Superannuation Clearing House
The government has announced that the ATO has taken over responsibility for the Small Business Superannuation Clearing House. This clearing house is a free online superannuation payments service that helps small businesses with 19 or fewer employees to meet their superannuation guarantee obligations.
The Small Business Superannuation Clearing House was previously managed by Medicare. The government says there are now 58,000 employers registered with the clearing house. It says it is also encouraging the other 700,000 businesses that are potentially eligible to use the clearing house to sign up.
Superannuation guarantee obligations attracting ATO scrutiny
This year, the ATO is targeting the management advice and consulting, hairdressing and beauty, and clothing retail industries to ensure they meet their superannuation guarantee obligations. According to ATO Assistant Commissioner Emma Haines, these industries have been identified as being at risk of not meeting their obligations.
She says extra effort is being made to help businesses get their superannuation guarantee payments correct before audit activity focusing on these industries starts in July 2014. Assistant Commissioner Haines notes that contractors may also be eligible for superannuation contributions, even if they have an ABN.
TIP: Employers are entitled to a tax deduction for contributions made to a complying superannuation fund or a retirement savings account (RSA) for the purpose of providing superannuation benefits for their employees. The contributions are only deductible for the year in which they are made.
To maximise the deductions available, employers should ensure that the contributions are paid to their employees’ superannuation funds or RSAs before 30 June.
Value of goods taken from private stock
The ATO has updated the amounts that the Tax Commissioner will accept for 2013–2014 as estimates of the value of goods taken from trading stock for private use by taxpayers in certain specified industries. For example, for a restaurant/café (licensed), the Commissioner will accept $4,400 (excluding GST) for each adult or child over 16 years of age. The ATO intends to adjust the values annually.
TIP: If you take an item of trading stock for your private use, you must account for it as if you had sold it and include the value of the item in your assessable income. If you want to, you can keep records of the actual value of goods you take from your trading stock for your own private use and report that amount.
The ATO says it recognises that greater or lower values may be appropriate in particular cases. The ATO says that where taxpayers are able to justify a lower value for goods taken from stock than that determined by the Commissioner, the lower amount should be used. The ATO says that where the value of goods ex-stock would be significantly greater, the actual amount should be used.
Property Newsletter – May 2014
Why bubble predictions don’t carry any weight
There has been a lot coverage in the media about a so-called ‘property market bubble’, which has caused concern amongst some investors in Perth. They are questioning whether the market is ‘overheated’ and whether values could be set for a major correction.
For me, the ‘property market bubble’ is one of the most overused and misunderstood metaphors in real estate. It’s an idea that is largely perpetuated by misinformed journalists and publicity-hungry economists from near and afar.
There is no clear consensus on what a bubble actually is, but the term generally refers to a condition of unsustainable growth in property values driven by irrational exuberance. The idea is that the bubble could easily ‘pop’ at any moment.
The Perth property market is certainly not characteristic of a bubble, and any suggestion of such is wrong. Here are some of the reasons I believe we’re not in a bubble:
Australia is not just Sydney and Melbourne
Much of the talk about a bubble has related either directly or indirectly to the situation in Sydney and to a lesser extent Melbourne. This is because of the strong growth experienced by these cities in recent times and because many media publications are very east-coast centric by their nature.
Anyone who bothers to read beyond the superficial headlines knows that there isn’t a single ‘property market’ in Australia and that each city, suburb or area can have unique characteristics and drivers.
Housing debt
One sure sign of a bubble, we are told, is when households are heavily indebted and unable to service their loans. But we’re not seeing this at all. Debt servicing ratios (which show the proportion of a family’s income that goes to servicing loans) are at relatively low levels. Plus, many borrowers are ahead in the repayment having built up a buffer in recent years. The rate of non-performing loans (i.e. defaults) is also very low.
Recent growth
The Perth market experienced growth in values over the course of 2013, but beyond that, growth hasn’t exactly been spectacular. Look at the last 5 years when growth has averaged just 4.3% per annum, only slightly above inflation. Hardly bubble territory.
Remarkable resilience
The Perth market (along with those in the other capital cities) has proven to be remarkably resilient over the course of recent history. Consider the major economic events that each triggered a flurry of ‘crash’ predictions. We’ve had the Global Financial Crisis, the horror of 9/11, the Asian Currency Crisis of 1997, the recession we had to have in the early 1990s, the stock market crash of 1987 and so on. During all of these occurrences, people predicted a crash and they were wrong.
While some property markets have struggled at times (many of which later recovered), on the whole we’ve successfully weathered many storms. This has to speak volumes about the strong fundamentals of the market.
Population growth driving demand
One of the major drivers of the property market is population growth and it’s no secret that Perth is the fastest-growing capital city in Australia. According to the Australian Bureau of Statistics (ABS), the population increased by 3.5% (67,500 people) between 2012 and 2013. Amazingly, 395,000 people moved to Perth between 2006 and 2013.
Supply not keeping up
Although there is some debate as to whether or not Australia is building enough homes, new supply remains very much insufficient in Perth. According to dwelling approval figures analysed by RP Data, we are building around one new home for every 3.45 new residents in Perth. The latest Census data shows the average household contains only 2.6 persons, meaning supply isn’t keeping up.
Furthermore, a proportion of the new dwellings built are simply replacing existing homes that have been demolished and therefore aren’t adding to the housing stock. And the figures also include holiday homes and second homes, further highlighting the deficiency.
Strong economic foundations
The underlying foundations of the Western Australian economy are sound. We have an abundance of natural resources, world-class industries and are strategically positioned to take advantage of the massive growth in Asia. It’s no wonder that our residents have become amongst the wealthiest in the country.
Although mining investment has moderated, it is still pretty impressive. A quarter of a trillion dollars is being invested in the state, mainly on large gas projects, of which more than half are currently underway or committed. This high level of investment will maintain the employment level and puts to bed the idea of the mining sector collapsing.
Plus, let’s not underestimate how lucrative the production stage of the mining industry could be. Back in the 1970s, about one million tonnes of iron ore was being shovelled from the ground each week. Now it’s about 1.5 million tonnes a day. That’s a lot of money coming into the state.
Conclusion
It’s not the first time we’ve heard the Perth market described as a ‘bubble’ and it won’t be the last. While many experts, who are actually involved in the market, have helped to dispel the bubble myth, it still has an impact.
My biggest concern is that the misinformation spreads concern amongst the uninformed and ultimately robs them of the opportunity to invest.
Will property values drop? Perhaps in some areas. But this is all a normal part of the cycle. The latest data reveals that growth in Perth has already moderated, and the number of properties for sale may be increasing (though it’s still very low in historical terms). But I’m confident we still have growth in the market and the long-term fundamentals are very strong.
Meeting the needs of your future self
Choosing between different loan products can be a challenge at the best of times. The difficulty lies in trying to weigh up different features, fees and interest rates to work out which loan best suits your particular requirements.
Adding to the complexity is the fact that, ideally, you want to pick a loan that meets both your current and future needs.
While it is impossible to consider what will happen over the entire life of the loan, which could be 30 years, you do need to think about how your life could realistically change in the next three years.
What could change in your life? Will your family circumstances be the same? What about your job situation? Is there a promotion on the cards or are you worried about retrenchment?
You should also consider your specific plans for the property in question. Will you be selling the property in the near future or renovating it? Or, perhaps you want to leverage this property to expand your portfolio.
You should even consider things beyond your control, such as whether interest rates are likely to change during that time.
Your responses to these ‘what if’ scenarios will help determine how much flexibility you require in your loan.
For instance, will you need the flexibility to make additional payments or access any additional money you have repaid? What fees will apply in these situations and what are the restrictions?
When it comes to redraw facilities, loans often vary with regard to how many redraws are allowed, what fees are involved, and what the minimum and maximum redraw amounts are.
If you plan to sell the property within a relatively short space of time, you might consider the early repayment fees charged by different loan. Bear in mind, however, that these fees often come under different names, such as a delayed establishment fee.
Generally speaking, the more flexibility offered by a loan, the higher its interest rate will be. Basic, low-rate loans tend to offer very limited features.
However, having flexibility can save you money in the long term, so it’s important not to focus entirely on the interest rate.
If you find that a loan no longer meets your needs, you can always consider refinancing. But if you enlist the expert help of a finance broker, you can save yourself time and money.
Why investing near public transport is a ticket to success
Buying an investment with good access to public transport has always been considered a good strategy. But what many people in Perth don’t realise is just how important it actually is.
As Perth’s massive population growth brings with it increased road traffic and longer commutes, properties near public transport links will become more and more popular.
You just have to look to the bigger cities in Australia and around the world to understand the value people place on having good access to public transport. Many people in Perth don’t yet fully appreciate this fact, which creates opportunities for forward-thinking investors.
By some estimates, there will be 250,000 more cars on the road in just five years’ time. And as the roads get busier, some parts of Perth, such as the CBD, will become harder to access by car.
At the same time, suburbs with good public transport will become more desirable and lead to higher rates of growth in terms of property values and rent. In fact, research has shown conclusively that suburbs with good public transport, on average, have higher capital growth rates than poorly-serviced suburbs.
It’s not difficult to see why people value living near good public transport links. There is the time factor – people don’t want to spend hours in traffic going to and from work.
However, it’s not just about traffic congestion. The rising cost of petrol and parking is also a major factor in encouraging the use of public transport. There is also the general increase in environmental consciousness amongst the population, which is driving people to use their cars less.
In the world of public transport, rail is generally considered king. Properties within walking distance or a short drive from a train station will increasingly be high on the list for buyers and renters. Major bus routes will also be considered important.
There is another major bonus of investing near public transport nodes. It’s the fact that as local councils push to increase housing density in line with state targets, rezoning efforts will focus on areas with good access to public transport. We’ve already seen this happen and it will continue.
It’s worth noting of course that investors need to keep their wits about them when searching for a property near public transport. A property can sometimes be ‘too close’ to public transport when it brings excessive noise, pollution, traffic and safety concerns.
Supporting passionate riders
Momentum Wealth is proud to be supporting the Hall Masters Cycling Initiative, which is aimed at increasing participation and enjoyment around bicycle racing and training.
The Hall Masters Cycling Initiative prides itself on actively engaging new riders with the cycling sport regardless of age or ability.
Last month Hall Cycling and Momentum Wealth held an individual Time Trial event which saw 30% of participants ride the timed event for the first time as competitors, thus engaging new-comers to bicycle racing.
There is unprecedented growth in cycling as a sport, for fitness and as a social and recreational activity in Western Australia. WA has a higher participation rate than any other Australian state and an estimated 405,000 Western Australians ride a bike in a typical week.
At Momentum Wealth, we believe that cycling offers a great opportunity for self-development, preventative health and social interaction.
Find out more at http://bradhall.com.au/hall-masters-initiative/
Attracting the perfect tenant
It’s something every investor wants – to find the perfect tenant. But few investors know how to achieve this often elusive goal.
How do you increase your chances of finding and securing the perfect tenant for your investment property?
Although the definition of a ‘perfect tenant’ might vary from investor to investor, there would undoubtedly be a number of common characteristics.
For many investors, the perfect tenant would probably be described as one who pays the rent on time every time, actively cares for the property and deals with minor issues themselves rather than contacting the property manager.
The best tenants are those individuals who tend to take pride in where they live. Consequently, when searching for a suitable home, they expect a property to be well presented and everything to be in good working condition.
Each potential tenant will have slightly different needs and wants, but making sure your property is up to standard will go some way to attracting the best applicants.
Given that every landlord wants to secure a great tenant, it’s fair to assume the best applicants won’t be ‘available’ for very long. This means you can’t afford to make a bad first impression, both in terms of your marketing campaign and price. Poor photos or an inflated price can easily scare off potential tenants and therefore limit your pool of applicants.
Attracting the best tenants is one thing, but how do you actually spot them when they arrive? This is not always easy but involves the quality of their application, the strength of their references, and the general impression they make on the property manager at the viewing.
Skilled property managers certainly have an innate ability for spotting the best tenants, so it’s worth listening to their advice before deciding on a tenant.
Of course, if you’re lucky enough to secure a fantastic tenant for your investment property, you’ll want to do everything you can to hold onto them for as long as possible. This means responding quickly to any issues that arise, doing your bit to maintain the property and being reasonable when it comes time to increase the rent.
Is this one of the most underrated suburbs in Perth?
Innaloo is an established suburb located 9km north-west of the Perth CBD and part of the City of Stirling. Its neighbouring suburbs include Gwelup to the north, Doubleview to the west, Woodlands to the south and Osborne Park to the east.
With most of its development happening in the decades leading up to the 1970s, Innaloo consists mainly of older single detached homes. However, it now also features a scattering of modern units.
Residents of Innaloo appreciate its convenient location just a ten-minute drive to the city and a five-minute drive to popular Scarborough Beach.
The suburb also has many high quality schools and parklands and is close to Osborne Park Hospital, a major employer in the area.
Innaloo has its own major shopping centre (despite being close to Karrinyup Shopping Centre) and is home to many large-scale commercial and retail operations, including IKEA. It is also adjacent to Perth’s largest cinema complex.
A key feature of Innaloo is its excellent public transport options. It has direct access to Stirling train station and is well-serviced by a comprehensive bus network.
The median house price in Innaloo currently sits at $610,000 (REIWA) and the median unit price at $558,000. The median advertised rent is typically around $550 per week.
In a survey by Westpac, Realestate.com.au and RP Data, Innaloo was identified as one of Perth’s hidden property gems, offering excellent value for money compared to more expensive neighbours.
The future looks bright for Innaloo. It will benefit from ambitious plans to develop the Stirling City Centre, which includes the Innaloo shopping centre, cinema complex and a residential pocket within the suburb. The vision is to develop an integrated and modern, mixed use, transit-oriented centre around the Stirling train station.
It could also benefit from a planned redevelopment and expansion of the shopping centre by owner Westfield.
With older housing stock and favourable zoning, Innaloo offers numerous development possibilities, making it popular amongst investors and developers. Gradually, homes are being renovated or rebuilt, which is helping to revitalise the suburb.
People often make fun of its name, but Innaloo could be one of the most underrated suburbs in Perth and a potential gold mine for investors and developers.