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  Omega Finance
  • Home
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    • Commercial Finance >
      • Asset Finance
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      • Franchise Finance
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    • Residential Finance >
      • First Home Buyers
      • House & Land Packages
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Picture


Taxman eyes home offices and cars

The ATO hopes to reel in millions from a crackdown on inflated work expenses, saying lots of little fish are draining more from tax coffers than the big fish. We look at common pitfalls in standard claims.
In recent years, the perception has grown that you need to get it pretty far wrong to attract serious attention from the tax office.
That's due, in no small part, to the publicity given to some brazen claims, such as the Sydney businessman pinged in 2016 for claiming he paid his seven-year-old son more than $5,000 for secretarial services.
This year the Tax Office has announced it will be coming down hard on burgeoning numbers of Australians thought to be fudging smaller work-related claims. This follows Tax Commissioner Chris Jordan making headlines last year when he told a Tax Institute conference that lost revenue from inflated work-related claims cost the economy more than multinational tax avoidance.1
This year, claims for standard deductions on home offices and car expenses will be coming under the microscope, with assistant commissioner Karen Anderson saying the ATO was dedicating time and resources to rein in abuses.
Last year Australians claimed about $8.8 billion in car-related expenses and about $7.9 billion in 'other' work related expenses, which includes home offices, phones and internet.
"Now we're not suggesting that that's all wrong, but it is something that we'll be able to look into," ATO Assistant Commissioner Kath Anderson says.
"The ATO's ability to identify unusual claims or red flags is improving every year due to enhancements in technology and extra data that we have available to us."
For the first time, records of all digital payments to businesses in Australia in 2017/18 are available to the ATO to check against lodgements.
"We use analytics to identify unusual claims being made by taxpayers by comparing them to their peers. We also use analytics to identify claim patterns," Ms Anderson says.
There are a few key areas for business owners.
Home offices
Unless you operate your business from home, you cannot claim occupancy expenses such as mortgage interest, rent, home insurance or council rates, says H&R Block director of tax communications Mark Chapman.
"It's a common area people (mistakenly) claim, but if you're simply working from home and your business is actually based somewhere else, you can't claim those costs," Mr Chapman says.
What you can claim is a proportion of the costs of running a dedicated home office space - cleaning and furnishing along with phone and internet bills. Getting that proportion right is where people can slip up, he says.
To avoid any potential issues, use a floor plan of your home to calculate the proportion of the total area that your office represents, then work out how many hours, on average, it is used each week.
"What you need to do is keep a diary for a typical four-week period - you don't need to do it for the whole year. And you just need to record all of the time spent working from home over that four-week period," he says.
"That, allied with the percentage of the floor area will give a percentage that you need to apply to all your various bills."
Cars
First, ensure any car expenses claimed are not already covered and claimed by the business.
If you plan to claim the standard 5,000km deduction doing the cents/km method, you need to have travelled that distance for work.
Ms Anderson says although log books aren't required to substantiate this claim, people do need to show how they calculated their mileage. "For example, by keeping a diary of places you have had to drive for work, and how often," she says.
"We are concerned some taxpayers mistakenly believe that this is a 'standard' deduction they are entitled to, without needing to provide any evidence of having travelled that distance."
Many 'tick a box' deductions are being thoroughly scrutinised this year, Mr Chapman warns. For example, although people can claim up to $300 on work-related expenses without receipts, claiming exactly $300 may raise red flags.
"They've really gone to town on some of those standard deductions this year," he says.
Claiming the journey from home to work was also a common mistake.
It's not too late
Work-related tax claims are notoriously tricky and the ATO makes allowances for genuine mistakes, says Mr Chapman.
"The reality is most taxpayers get it wrong inadvertently," he says. "If you become aware that you've claimed something you shouldn't have done, and you put in an amended tax return within the acceptable period, which is within two years, then you could potentially not suffer any penalty at all."
Check your super
Legislation passed the House of Representatives in June, granting a 12-month amnesty to employers behind on staff super payments.
The amnesty is an attempt to rein in ballooning unpaid Super Guarantee debts ahead of an expected crackdown next year.
It remains in effect until May 23 and applies to all Super Guarantee payments outstanding as of April 1 this year.
With payments tax deductible, Mr Chapman advises all employers to check their Super Guarantee payments and take advantage of the scheme if they are in arrears.
"The point of this really is to enable the ATO to draw a clear line in the sand and say, "Look we're giving you a chance now, get up to date. If you do that you'll be good. If you don't we'll come after you."
Businesses that don't come forward voluntarily can face penalties of 50 per cent on top of their Super Guarantee charges.
Tax: the information in this article does not constitute advice. As taxation legislation is complex we recommend you speak with your financial advisor, tax advisor or contact the ATO for further details and expert advice regarding your personal circumstances.


 

 
[1] Mather, J, The ATO just accused you of being a bigger tax problem than Apple, The Financial Review, 16 March 2017, https://www.afr.com/news/the-ato-just-accused-you-of-being-a-bigger-tax-problem-than-apple-20170315-guz6im 

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Taxing times for property owners

10/5/2018

 
It's no secret tax deductions, in addition to capital gains, remain a carrot for property investors. But tax rules have tightened, and the landscape is always shifting, making it hard for the average person to keep up with what's claimable, and what's not.

With June 30 creeping up, we look at tax impacts for property owners and how to maximise returns.

Property purchase costs

Expenses you incur when buying an investment property - i.e. the actual property cost, stamp duty, legal fees and inspections - can't be claimed immediately as tax deductions1. But they can be added to the purchase price when you eventually sell to reduce your capital gains tax (CGT). If, for example, you pay $400,000 for a property, plus $16,000 in stamp duty2 and $1,500 for conveyancing, your cost base increases to $417,500, reducing the profits that attracts CGT3. Similarly, you can deduct from your sale price any costs associated with the property's disposal, including agent and advertising fees.

Borrowing expenses

To many investors' surprise you also can't claim borrowing costs straight up in that income year, unless they are under $100, which is unusual. Borrowing expenses include loan establishment fees, title search fees, lender valuation fees and mortgage fees. Instead, these costs must be claimed over five years.

Depreciation

When you spend more than $300 on a permanent fixture or fitting for your investment property, such as a dishwasher, air-conditioning or carpet, the ATO requires you to spread the cost of the capital item across the item's 'effective life'. In other words, the length of time it is considered usable. As the value of the item diminishes over time, this type of claim is known as depreciation. Rules around depreciation have tightened recently. Previously you could claim some items that came with the property. Now, you can only claim on capital items you buy yourself.

Capital gains

When you make more than $30,000 profit on an investment property you must pay capital gains tax. CGT is applied at the same rate as your income tax rate, so if your personal tax rate is 25 per cent, so too is your CGT rate. However, if you hold a property for more than 12 months, the ATO will give you a 50 per cent discount on CGT.

Some investors will aim to sell a property at the beginning of the financial year, so they have as long as possible until they have to pay CGT come tax time. Other investors may try to avoid paying CGT by purchasing a property through their self-managed super fund, paying the loan off through super contributions and selling once they have retired4. Make sure you speak with your financial advisor or tax specialist to understand the implications of this strategy for your situation.

Capital gains tax also doesn't apply to the sale of your own home, unless you have rented part of it out, or used it for a home business and claimed deductions against it5. Property purchased before 20 September 1985 is also exempt from CGT6.

Property inspections

Up until 30 June 2017, investors could claim travel costs associated with maintaining their property, including two inspections a year. The ATO has now closed that window, denying travel deductions for maintenance, inspections, attending body corporate meetings or collecting rent. If your investment property is far afield, you might come up shorter on your tax return this financial year.

Working from home

With nearly a third of us now working regularly from home7, chances are you can claim some deductions on your place of residence, even if you don't run a home-based business. The ATO will allow you to claim equipment, such as printers and computers, and a portion of energy and internet costs if you work at home8. If you have a separate, dedicated home office you may also be able to claim depreciation on fixed fittings, such as flooring and lights. Just note, working from home does not entitle you to claim any part of your rent, mortgage or home insurance, unless you operate a home business.

Expert advice

With tax rules changing year on year, it's important you speak with your accountant or financial adviser to find out what you can and can't claim in your situation.



Tax: the information in this article does not constitute advice. As taxation legislation is complex we recommend you speak with your financial advisor, tax advisor or contact the ATO for further details and expert advice regarding your personal circumstances.

1 www.yourmortgage.com.au/home-loan-guide/what-tax-deductions-are-available-for-property-owners/246761/
2 Fictitious figure only due to state/territory stamp duty variances
3 https://propertyupdate.com.au/understanding-capital-gains-tax/
4 www.finder.com.au/capital-gains-tax-selling-property
5 https://propertyupdate.com.au/understanding-capital-gains-tax/
6 www.finder.com.au/capital-gains-tax-selling-property
7 www.smh.com.au/business/careers/one-in-three-australian-workers-now-regularly-work-from-home-20160921-grl3a1.html
8 www.yourmortgage.com.au/home-loan-guide/what-tax-deductions-are-available-for-property-owners/246761/
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