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Tax Newsletter – October 2016
September 19, 2016 | 
Author Personal middle income tax rate cut on the way
The Federal Government has introduced a Bill which proposes to implement its 2016 Budget proposal to increase the third personal income tax threshold that applies to personal income taxpayers. The rate of tax payable on individuals’ taxable incomes from $80,001 to $87,000 would fall from 37% to 32.5%.
The non-resident tax schedule would also be amended as a result of the Bill, increasing the upper limit of the first income tax bracket to $87,000. A tax rate of 37% would apply to taxable income between $87,001 and $180,000, and the top marginal tax rate of 45% would remain for taxable income over $180,000.
Shortly following the Bill’s introduction in Parliament, the ATO issued new PAYG withholding tax schedules that reflect the lowered personal tax rate in the Bill. Effective from 1 October 2016, employers will be required to lower the amount of tax withheld for affected taxpayers to factor in the new lower tax rate. Any tax overpaid beforehand will be refunded by the ATO on assessment after the end of the 2016–2017 financial year.
Small business tax breaks in the pipeline
A Bill has been introduced in Parliament which proposes to:
- increase the small business entity turnover to $10 million from 1 July 2016;
- increase the unincorporated small business tax discount from 5% to 16% over a 10-year period;
- increase the turnover threshold to qualify for the lower company tax rate; and
- lower the company tax rate on a schedule over 11 income years, reaching a unified company tax rate of 25% in the 2026–2027 income year.
Small business entities with aggregated turnover of less than $10 million would be able to access a number of small business tax concessions, including, among others, immediate deductibility of small business start-up expenses, simpler depreciation rules and simplified trading stock rules.
TIP: The $2 million threshold for the purposes of the small business capital gains tax concessions will be retained.
The tax discount for unincorporated small businesses – introduced in the 2015–2016 income year – entitles individuals who are small business entities, or who are liable to pay income tax on a share of the income of a small business entity, to a tax offset equal to 5% of their basic income tax liability that relates to their total net small business income. This offset is capped at $1,000. Although the proposed increases in the offset would increase the amount of offset an eligible individual may claim, the offset would remain capped at $1,000.
TIP: With a difficult Senate, the Coalition Government may make further changes in order to pass its Bill.
Please contact our office for further information.
Single touch payroll reporting legislative changes
A Bill to establish a new reporting framework, Single Touch Payroll (STP), has been introduced in Parliament. Under the proposed changes in the Bill, “substantial employers” would be required to automatically provide payroll and superannuation information to the Commissioner of Taxation at the time the information is created. A number of related amendments aim to streamline employers’ payroll and superannuation choice processes by allowing the ATO to pre-fill and validate employee information.
Entities with 20 or more employees (substantial employers) would be required to report the following information to the Commissioner of Taxation:
- withholding amounts and associated withholding payments on or before the day by which the amounts were required to be withheld;
- salary or wages and ordinary time earnings information on or before the day on which the amount was paid; and
- superannuation contribution information on or before the day on which the contribution was paid.
The changes are proposed to apply from the first quarter beginning on or after the day the Bill receives Royal Assent.
In general, STP reporting will commence on 1 July 2018 for substantial employers and the related amendments will apply more broadly from 1 January 2017. In some cases, the Commissioner may defer these start dates by legislative instrument.
TIP: The ATO has issued a consultation paper, published on its website, which seeks comments on the ATO’s proposed administration of STP reporting.
Take care with work-related deduction claims, says ATO
The ATO has reminded individuals to make sure they get their deductions right this tax time. Assistant Commissioner Graham Whyte said the ATO has seen “claims for car expenses where logbooks have been made up and claims for self-education expenses where invoices were supplied for conferences that the taxpayer never attended”.
Mr Whyte said that in 2014–2015 the ATO conducted around 450,000 reviews and audits of individual taxpayers, leading to revenue adjustments of over $1.1 billion in income tax. Mr Whyte said “every tax return is scrutinised”, and if a red flag is raised and the claims seem unusual, the ATO will check them with the taxpayer’s employer. In addition, Mr Whyte reminded taxpayers that this year the ATO has introduced “real-time checks of deductions for tax returns completed online”.
Please contact our office for further information.
ATO eye on SMSFs and income arrangements
The ATO is reviewing arrangements where individuals (at or approaching retirement age) purport to divert personal services income (PSI) to a self managed superannuation fund (SMSF) to minimise or avoid their income tax obligations.
The ATO notes the arrangement it has described in Taxpayer Alert TA 2016/6 and is encouraging taxpayers who have entered into such and arrangement to contact the ATO so it can help resolve any issues in a timely manner.
Where individuals and trustees come forward to work with the ATO to resolve issues, it anticipates that in most cases the PSI distributed to the SMSF by the non-individual entity would be taxed to the individual at their marginal tax rate. Issues affecting SMSFs will be addressed on a case-by-case basis, but the ATO will take individuals’ cooperation with it into account when determining the final outcome.
TIP: The ATO has said that individuals and trustees who are not currently subject to ATO compliance action and who come forward before 31 January 2017 will have administrative penalties remitted in full. However, shortfall interest charges will still apply. Please contact our office for further information.
Social welfare recipients data-matching program
The Department of Human Services (DHS) has released details of a data-matching program which will enable it to match income data it collects from social welfare recipients with tax return-related data reported to the ATO. The data matching will assist DHS to identify social welfare recipients who may not have correctly disclosed their income and assets. In addition, data DHS receives from the ATO will be electronically matched with certain departmental records to identify people’s noncompliance with income or other reporting obligations.
DHS expects to match each of the approximately seven million unique records held in its Centrelink database. Based on noncompliance criteria, the DHS anticipates it will examine approximately 20,000 records in the first phase of the project. The category of people who may be affected by the data matching includes welfare recipients who have lodged a tax return with the ATO during the period 2011 to 2014.
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Finance Newsletter – September 2016
Interest rates drop!
Do you have the best rate available for your home and investment loans?
You may have noticed a Difference between home loan and investment loan rates? You might be able to save thousands per year in interest by reassessing your current loans. It costs nothing to find out.
If your interest rate is over 3.74% variable then you may be able to save by changing loans and or banks. I have access to a major bank that is currently offering customers a 3.74% variable rate .This NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes, principal and interest payments, minimum loan $150 000, 80% LVR maximum –. No application fee, monthly or annual fees. If you are interested in saving thousands per year call Mercia finance to see if we can show you how to benefit from a better rate.
Investors will have read that most banks are increasing the rate on investment loans. This includes current investment loans. If you are a property investor check your rates and find out if these increases apply to you. If you are not sure Ask Mercia finance for an obligation free loan check. Some institutions are not increasing the rates for investors. So this is a good time to make sure you have the best loan for your circumstances.
If you have questions regarding any type of loan, call Dan Goodridge on 04144 233 40. Our service is free of charge to you the borrower and we have access to all the major lenders in WA. Call us anytime. After hours is OK.
Property Newsletter – September 2016
Case study: Managing cash flow amid life changes
Optimising your cash flow is crucial to reaching your investment goals, so as your circumstances change, such as marriage, children or a new job, investors need to ensure their loans suit their specific situation.
This was evident for a couple who contacted Momentum Wealth with some concerns about their cash flow.
The clients were expecting their first child and the mother-to-be was planning to take at least 12-18 months of maternity leave.
Given the associated costs of having a baby as well as the upcoming reduction in their household income, the couple were concerned that they wouldn’t be able to meet their repayments for their investment property and their home loan.
They were unsure if they should sell their investment property to cut their overall debt position and reduce their monthly loan repayments.
On review of their situation, our mortgage and finance specialist found that they had previously fixed their investment property loan for 3 years at a relatively high rate.
If the client sold their investment property, they would be up for approximately $25,000 in early repayment penalties for breaking their fixed rate loan prematurely.
This made the sale of their investment property far less attractive. It also prevented them from refinancing their investment loan to a lower rate, for the time being.
When it came to their home loan, the clients were paying principle and interest.
We advised them to change this to interest only at a lower fixed rate for 2 years.
This would give the clients a more predictable repayment schedule while their household income was reduced, and cut their repayment bill by $500 per month.
Our mortgage and finance specialist also talked with the clients’ accountant to discuss a PAYG Tax Variation for their investment property in which they could claim their tax rebate monthly instead of annually.
This would further help the clients by effectively smoothing out their cash flow.
In addition to taking these measures to optimise the clients’ cash flow, our broker helped them create a savings plan based on their budget, to set aside funds for expenses once their household income had reduced.
As a result, they started putting aside a large portion of their income as savings. On top of their existing $20,000 savings, they had aimed to save a further $15,000 by the time the expecting mum would take maternity leave.
By restructuring their loans to suit their personal circumstances and undertaking savings measures, the clients were able to hold their investment property despite the additional cost of starting a family and reducing their household income.
6 questions to ask a sales agent before placing an offer
About to place an offer on an investment property? Here are 6 questions you need to ask the sales agent before submitting your bid.
Before placing an offer to buy your next investment property there is some specific information you need to consider to ensure you’re positioning yourself to secure the best deal.
To gather this information, here are 6 questions you should ask the sales agent.
1) What’s the seller’s problem (i.e. reason for selling) All sellers will have a problem they need solved. As a buyer, you’re more likely to secure the property if you can help solve the seller’s problem. Properties are sold for many reasons, such as divorce or a job transfer. To understand the best solution to the seller’s problem you need to know as much as possible about why they’re selling. For example, if the seller has purchased another house and is close to settlement, they may be under time pressure to sell their old property. If they don’t sell their old property they may face financial stress and therefore are more likely to accept a lower offer if you offer a shorter settlement.
2) How was the asking price determined? The sales agent will mostly tell you that the price is based on comparable sales. If this is the case, ask the sales agent for which sales specifically so you can compare these yourself. If the sales agent has a justifiable case for comparable sales, then there should be no reason why they wouldn’t provide this information. In some circumstances, the sales agent might tell you it’s the seller’s price. It’s important to note their body language, mannerisms and comments as to whether they think it’s overpriced.
3) How long has the property been on the market? If the property has been on the market for a long time, other buyers will automatically think that there’s something wrong with it and immediately discount it. Often the only reason the property hasn’t sold is because it’s overpriced. In these circumstances, the seller’s motivation level may change and drop their price if they haven’t received any offers. In these circumstances, you can place an offer on the property but if it’s rejected, tell the sales agent you’re interested and to keep you in mind should the seller change their price expectations.
4) Have any offers been made already and when? This will help you form a price range that the seller may accept. For example, if the property is listed for $530,000 and the seller last rejected an offer of $500,000, then they’re not likely to accept a lower offer today. This is unless the offer was made some time ago, and the seller’s motivation levels may have changed.
5) Why do you think the property hasn’t sold? If the property has been on the market for some time, ask the sales agent why they think it hasn’t sold. The selling agent may indicate that the property is overvalued, it isn’t presented well or there is a flaw with the property. The answer will most likely imply that the asking price is too high which will play into your hands when placing an offer.
6) What’s the lowest price that you think the seller will take? Many sales agents will respond by quoting the advertised asking price however some may reveal that the seller is prepared to go lower. It will largely depend on the sales agent as well as the circumstances, i.e. if the property has been on the market for a long time and hasn’t received any offers.
These 6 questions will help you to gain a clearer understanding of the seller’s motivations, your potential competition and the property’s market history, which you can take into account when determining your offer.
By understanding these factors, you can place yourself in a much stronger position to secure a much more favourable deal and potentially save yourself thousands of dollars.
Making sense (and dollars) of split coding
Split coding can be a cash cow for developers. However, given each council controls their own planning policy, investors must be aware of the differing criteria needed to attain the higher coding.
When purchasing a property in Perth with plans for future development, it’s important to hold a comprehensive understanding of the local council planning policy and scheme to ensure the property meets the necessary criteria.
The most common form of strategic planning used to help guide development is through the use of split-density ‘dual coding’ (for example R20/40).
This split coding is then coupled with criteria that has to be met in order to obtain the higher coding. If this criteria is not met then property developers can only attain the lower code.
Because each council is in charge of their own planning policy, the zonings and associated criteria needed to meet the higher codes vary significantly from council to council.
For example, below are several Perth councils that have introduced split coding in the past 5 years. From these examples it’s easy to see the vast differences in local council planning policies.
City of Joondalup – Allows for the higher of the dual-density coding to apply when the lot/development meets 4 specific points. A major point that influences property investment selection is the requirement of a minimum 20-metre frontage for multiple dwelling developments and a minimum lot width of 10m for all lots, with the exception of battle axe sites.
City of Belmont – Allows for the higher of the dual-density coding to apply when the lot/development meets 13 criteria. The 2 major points that influence property investment selection include the requirement of a 16-m frontage or greater, and a minimum of 50% of the dwellings constructed must be double storey to achieve the higher coding in the zones R40 and above.
City of Wanneroo – Allows for the higher of the dual-density coding to apply when the lot/development meets 2 criteria. These points aren’t overly influential in site identification as they orientate around the planning of the development lay out with the requirement of only a singular crossover.
It’s not uncommon that investors purchase a property with split coding to find out later that it doesn’t meet the dual-density criteria needed to gain the higher coding.
This can severally affect an investor’s strategy and may set them back significantly in their financial goals.
Therefore, when considering buying a development site with split coding, it’s important to understand the criteria needed to meet the higher coding and apply this to the proposed property when completing feasibility studies.
Success is the sum of details: Property condition reports
Property condition reports are designed to protect the landlord and their investment as well as the tenant. But what exactly should be included in the report?
A property condition report should be completed at the start of every tenancy to record the condition of the premises, and signed by both the tenant and landlord (or the property manager if one has been engaged).
While it might not be the most exciting part of property investment, it’s important to conduct a thorough inspection to ensure you have proof of the state of the property as well as a full list of the inventory included in the lease.
So what exactly should the property condition report include?
- A full description of the window treatments (i.e. wooden venetians, vertical blinds etc) in every room
- A full description of the light fittings in every room
- The colour of carpets and walls, outlining any marks or damage
- A list of appliances included in the lease as well as the make and model and their working order
- Any furniture included and its condition
- General condition of each room
- Any noticeable damage inside and outside the house
When it comes to property condition reports, the more detail the better as this will help to avoid or overcome any disputes.
It’s also advised to take plenty of photographs as these can be used as evidence.
Failing to adequately describe the inclusions, fixtures and fittings can cause unnecessary disputes at the end of the tenancy or lead to a possible financial loss for the property owner.
As well as detailing the condition of the property, it’s important that the premise is presented in a clean and safe condition from the outset.
At the end of the lease when the tenant is vacating, they are required to leave the premise in the same condition as it was found, allowing for fair wear and tear.
If the property was not initially presented well then the tenant can leave the property in the same state and condition.
If you’ve engaged a property manager they will take care of the property condition report on your behalf, and a good property management firm will have thorough processes in place to protect the landlord.
Suburb snapshot: Edgewater
About 94% of housing stock in this Perth suburb is low-density dwellings, however that’s set to change following the recent introduction of higher-density zoning.
Edgewater is located in the City of Joondalup, approximately 23 kilometres north of the Perth CBD.
Development of the area dates back primarily from the early 1970s with significant residential development occurring during the 1970s and 1980s.
The area is majority low density with about 94% of stock identified as houses.
However, this is set to change following recent rezoning around the suburb’s train station to R20/40, which will allow for more medium density housing stock.
The area features very high amenity being close to Lakeside Joondalup Shopping Centre (2.5km), Joondalup Health Campus (3km) and high liveability being 5km from the beach and bordering Lake Joondalup with plenty of walking and cycling trails.
About 4,500 people live in Edgewater with a median age of 41 years, and the suburb’s median house price is $560,000.
Edgewater Primary School and Mater Dei College are located in the suburb, while Edith Cowan University Joondalup Campus is located immediately north.
Residents in the area will benefit from the new $29.5 million multi-story car park being built at Edgewater Train Station, which is due later this year.
There are also plans for longer term redevelopment of Edgewater Quarry, including botanical gardens, adventure playground, picnic and BBQ areas, amphitheatre and associated commercial uses, such as cafes.
About 82% of properties are either fully owned or being purchased, with 16% of properties being rented.
About 22% of the suburb’s residents identify as professionals (WA 19.9%), 18% as clerical and administrative workers and 18% as technicians and trade workers.
The suburb is bound by Lakeside Drive in the north, Lake Joondalup in the east, Ocean Reef Road in the south and the Mitchell Freeway in the west.
The main arterial roads include the Mitchell Freeway, Ocean Reef Road and Joondalup Drive, and neighbouring suburbs include Joondalup (north), Woodvale (south) and Heathridge (west).
Seminars prove popular with investors
More than 100 eager property investors and enthusiasts turned-out for Momentum Wealth’s latest seminar, ‘The changing face of property investing’. If you couldn’t make it, we’ll be holding our final seminar for 2016 in the coming weeks!
The latest seminar, which was held last week in West Perth, explained the benefits and setbacks of various property investment strategies and how to apply these in today’s property market.
The seminar also provided insights into the differences when investing in hot and cool markets and why it’s important for investors to understand the cyclical nature of property markets.
With more than 100 guests, the seminar received highly positive reviews scoring an average 9.1/10 from attendees.
Momentum Wealth launches new syndicates
Momentum Wealth has launched its latest residential development syndicates, which comprise two boutique apartment projects.
The first syndicate, the Momentum Wealth Red Gum Fund, is a develop-and-hold investment in which investors can acquire a finished apartment at wholesale prices – circa 15% under market value.
Investors in the Red Gum Fund can choose to sell their apartment at completion to realise the returns, or hold the dwelling to lease and receive strong rental yields as well as long-term capital growth prospects.
The minimum investment for the Red Gum Fund is $150,000 and the fund is forecast to have a term of investment of between 16-24 months.
The second syndicate, the Momentum Wealth Golden Wattle Fund, is a develop-and-sell investment, in which the apartments are constructed and sold with funds returned to investors at completion.
Target returns for investors are between 15-20% per annum and the fund is expected to have a term of investment of between 24-36 months.
The minimum investment for the Golden Wattle Fund is $100,000.
For more information on the Golden Wattle Fund, or to register your interest, follow this link.
These latest syndicates are part of the Momentum Wealth Growth Series of Syndicates, which also feature the Silver Bark Fund – a 16 apartment, 3 townhouse development which is expected to be completed later in 2016.
The Momentum Wealth Growth Series of Syndicates also includes the Silk Oak Fund – a 40-unit apartment project which was launched earlier in 2016 and raised more than $4 million.
If you couldn’t make the event, the next Momentum Wealth seminar for 2016 will be held on October 18 and those interested are encouraged to register their interest.
The next seminar will focus specifically on property development and feature a panel of experts from a range of industries, including architecture, accounting, law and property.
The panel will cover a number of issues related to property development, including managing cash flow and financing during development, what’s ahead for Perth’s multi-residential market, what impact councils are having and if there is an oversupply of apartments in Perth, among many other issues.
There will also be dedicated time for a Q&A session in which members of the audience can ask the panel their own questions.
Keep an eye out for more information on this upcoming seminar or you can register your interest by emailing info@momentumwealth.com.au
New breed of industrial tenants bring different demands
Perth’s burgeoning logistics industries are benefiting from a raft of major road upgrades, which is having flow-on effects for the city’s industrial property market.
In a bid to accommodate Perth’s forecast population of 3.5 million people, the state government has been proactive with infrastructure improvements that will help make the city a more efficient place to work and live.
The state has identified infrastructure spending to be a priority in its 2016/17 budget released in May.
Approximately $1.8 billion in 2016/17 will be spent on upgrading road infrastructure with an estimated $5.9 billion for the 3 years to follow.
Many of these road infrastructure projects are designed to support key industrial areas, making industry more cost competitive.
Such projects include the recently completed $1 billion Gateway WA development and the future construction of the $1.6 billion Perth Freight Link and the $1.1 billion North Link.
Together, these projects will create greater accessibility for many prime industrial zones linking the Fremantle Port, the Perth Airport and key metropolitan and regional markets to the city’s north and east.
The burgeoning transport and logistics industries, which are continuing to grow on the back of e-commerce, will benefit most from this improved road infrastructure.
These industries are helping to fill part of the gap in the industrial property market left by mining services firms, who have downsized or closed in the aftermath of the state’s mining boom.
The rise of the transport and logistics industries is good news for investors as this increased activity is helping buoy the industrial property markets.
However, as the state’s economy continues to transition away from the resources sector, these new industrial tenants require different property specifications.
This includes changes in truss heights and office/warehouse proportions that are more conducive to warehousing operations over engineering type uses that were required by mining services firms.
This has promoted a form of ‘design and construct’ investment where tenants are dictating the building configurations to landlords/investors so properties are built to their needs.
Investors with existing industrial properties need to be aware of the requirements of this new breed of tenant or face long vacancy periods because of outdated fitouts and property specifications.
Deal makers and deal breakers
Here we take a look at some of the different properties on the market and explain why they’re either deals (that represent a good investment) or don’ts (that should be carefully avoided by investors).
Deals
Bibra Lake Purchase price: $485,000 Purchase date: June 2016 Block size: 718sqm Specification: 3 bedroom, 2 bathroom, 2 car bay house built in 1979 zoned R20
Deal: This property makes a good investment because it was purchased under market value, was in good condition and holds future development potential. The property is currently zoned R20 but is subject to rezoning as a draft R40, which would provide significant development upside and high capital growth prospects. The interior has also been recently renovated meaning the buyer wouldn’t have to spend much, if any, money to be able to rent the property. It would also allow the buyer to rent the property until the rezoning is gazetted, at which time redevelopment could be completed. At $485,000, the property also represents good value given Bibra Lake has a median house price of $556,000.
Mount Lawley Purchase price: $1,635,000 Purchase date: July 2016 Block size: 1,181sqm Specification: 4 bedroom, 3 bathroom, 2 car garage character house built in 1927 zoned R12.5
Deal: This property represents a good investment because it was purchased under market value and features a high land component in close proximity to the Perth CBD. The property also features high nearby amenity, such as Beaufort Street café strip and local parks. The house has been renovated to a high specification and features a below ground pool and rear building with a workshop, pool room and bathroom.
Bassendean Purchase price: $520,000 Purchase date: June 2016 Block size: 809sqm Specification: 4 bedroom, 1 bathroom, 2 car carport house built in 1925 zoned R20/40
Deal: This property makes a good investment because it was purchased for under market value, holds a large land component that can be developed and is in walking distance to the Bassendean train station. The property is also in good condition allowing the buyer to rent the property until such time that they’re ready to redevelop.
Don’ts
Cloverdale For sale price: $495,000 Block size: 387sqm Specification: 4 bedroom, 2 bathroom, 2 car garage front duplex
Don’t: This property doesn’t represent a good investment because it’s located under the Perth Airport flight path, it is surrounded by state housing and is in an area with a high supply of similar product, which would contain future capital growth. The property is also brand new meaning much of the value of the purchase price is in the dwelling, which is a depreciating asset.
Tax Newsletter – September 2016
Share economy participants reminded of tax obligations
The ATO has reminded people who earn income in the share economy that they have tax obligations. The type of goods or services you provide, and how much you provide, will determine what you need to do for tax. Popular sharing economy services include:
- providing “ride-sourcing” services for a fare;
- renting out a room or a whole house or unit on a short-time basis;
- renting out a car parking space; and
- providing personal services, such as creative or professional services like graphic design and website creation, or doing odd jobs like deliveries and furniture assembly.
The ATO notes that you need to get an ABN if you are carrying on an enterprise providing goods and services through the sharing economy, and register for GST if:
- your turnover is $75,000 or more per year; or
- you are providing ride-sourcing services, regardless of how much you earn from doing so.
TIP: No matter how much you earn or your reasons for providing goods or services, it’s a good idea to maintain records of your income and expenses, so you can keep track of your activities and deal with tax obligations when they arise.Tax deductions may also be available in certain circumstances. Please contact our office for more information.
Itinerant worker claim denied, so travel deductions refused
An individual has been unsuccessful before the Administrative Appeals Tribunal (AAT), where he argued that he was an itinerant worker and was therefore entitled to claim tax deductions for travel expenses of some $38,000 for the 2011–2012 income year.
The taxpayer worked a number of short-term jobs in various country towns across New South Wales. He and his wife had a house, but they would travel to the work locations, taking their car and a motorhome to live in. The individual argued he was entitled to claim deductions for car expenses and travel expenses such as meals and accommodation.
The AAT found that he was not an itinerant worker and that the expenses were private in nature and therefore not tax deductible. Among other things, the AAT noted
that his duties did not in fact require him to travel between and stay near the different workplace locations in the course of his employment.
ATO flags retirement planning schemes of concern
The ATO has launched the Super Scheme Smart initiative to inform people about retirement planning schemes that are of increasing concern. According to the ATO, people approaching retirement are most at risk of becoming involved in schemes that are “too good to be true”. While retirement planning schemes can vary, you should be aware of some common features of problematic schemes. These schemes generally:
- are artificially contrived and complex, and usually connected with a self managed super fund (an SMSF);
- involve a lot of paper shuffling;
- are designed to leave you paying minimal or no tax, or even receiving a tax refund; and/or
- aim to give you a present -day benefit.
The ATO has previously issued statements about concerning schemes that involve non-arm’s length limited borrowing arrangements, dividend stripping and diverting personal services income.
TIP: The ATO encourages people to report their involvement in such schemes early. In specific circumstances, penalties may be reduced. Please contact our office for more information.
Deductibility for gifts to clients and airport lounge membership fees
The ATO has recently released the following Taxation Determinations:
- TD 2016/14 states that business taxpayers are entitled to a tax deduction for the outgoing incurred for a gift made to a former or current client, if the gift is made for the purpose of producing future assessable income. The gift is not deductible if the outgoing is capital, relates to gaining “non-assessable, non-exempt” income, or is non-deductible under another provision.
- TD 2016/15 states that employer taxpayers are entitled to a tax deduction for annual fees incurred on an airport lounge membership for use by employees, if that membership is provided because of the employment relationship.
Changes to $500,000 lifetime super cap confirmed
The Federal Treasurer has confirmed that there will be some changes to the Government’s proposal for a lifetime cap of $500,000 on non-concessional superannuation contributions. A number of exemptions will be available.
Scott Morrison said in a radio interview that he had previously spoken about the changes and that draft legislation on the measures, to be released soon, will contain a number of changes. He said if someone gets a pay-out “as a result of an accident or something like that, then that is exempted from the $500,000 cap”. He also said that if someone had entered into a contract before Budget night to settle on a property asset out of their SMSF and they use after-tax contributions to settle that contract, “that won’t be included” in the $500,000 cap. Mr Morrison said there also would be “other measures” in the exposure draft legislation.
He effectively ruled out lifting the $500,000 cap amount, saying “the only people that would benefit are people who […] already on average have $2 million in their superannuation scheme, have already put $700,000 in after tax contributions”.
TIP: The ATO can only calculate the amount of your non-concessional contributions available based on the information it has. You may wish to review your own history of contributions. Please contact our office for more information.
Home exempt from land tax for “world-traveller”
An individual has been successful before the Victorian Civil and Administrative Tribunal (VCAT) in seeking the principal place of residence land tax exemption for his home located in Shoreham, Victoria, despite being a “world-traveller” whose wife lives overseas.
In 2003, the taxpayer was left the property in Shoreham in his mother’s will. After moving into the property, he continued his interest of overseas travel, meeting and marrying his now wife, who continues to live in Canada. Broadly, for each of the five tax years in question, the taxpayer spent a couple of months in Australia at the property, with the balance spent mostly in Canada and other overseas destinations. He submitted that he considered the Shoreham property his “home”, where he kept “all his personal treasures”, among other things. He also noted “significant and communal family ties” in Victoria (including his three children and eight grandchildren in Melbourne) and “financial ties” to Australia.
In finding in favour of the taxpayer, VCAT said that in this day and age people are far more mobile than in the past, and it is not unreasonable that someone would have a base at a particular place to which they intend to return and resume occupation. In this regard, the Tribunal was of the view that the land tax exemption applied to the taxpayer’s circumstances.
TIP: Land tax regimes differ from state to state. Please contact our office for assistance or more information.
Finance Newsletter – August 2016
Interest rates drop!
Do you have the best rate available for your home and investment loans?
You may have noticed a Difference between home loan and investment loan rates? You might be able to save thousands per year in interest by reassessing your current loans. It costs nothing to find out.
If your interest rate is over 3.73% variable then you may be able to save by changing loans and or banks. I have access to a major bank that is currently offering customers a 3.73% variable rate .This NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes, principal and interest payments, minimum loan $150 000, 80% LVR maximum –. No application fee, monthly or annual fees. If you are interested in saving thousands per year call Mercia finance to see if we can show you how to benefit from a better rate.
Investors will have read that most banks are increasing the rate on investment loans. This includes current investment loans. If you are a property investor check your rates and find out if these increases apply to you. If you are not sure Ask Mercia finance for an obligation free loan check. Some institutions are not increasing the rates for investors. So this is a good time to make sure you have the best loan for your circumstances.
If you have questions regarding any type of loan, call Dan Goodridge on 04144 233 40. Our service is free of charge to you the borrower and we have access to all the major lenders in WA. Call us anytime. After hours is OK.