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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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50 savvy ways to save $$$'s

1/6/2018

 
​Saving can be simple when you know how. Yes, sacrifice is needed to get ahead but you can also be frugal without being a total scrooge. Follow our 50 tips to sneak more savings into your life.

1 Talk to me to see if you can save on one of your biggest outlays - your home loan.

2 Switch all your household lights to energy-efficient globes.

3 Sell old smart phones on eBay or Gumtree - families with tweens often want second-hand tech vs expensive new. An old iPhone could get you $200 on eBay.

4 Bag your fruit and vegies at fresh food markets instead of supermarkets.

5 Review your broadband and mobile plans - do you really need all that data?

6 Book holidays for off-peak or shoulder periods. Even better, save on accommodation costs by using a holiday housesitting website such as mindahome.com.au or housesitters.com.au

7 MYO breakfast and lunch on work days.

8 Freeze your credit card. Stick it in a glass of water in the freezer - you'll need to thaw it to use it, by which time the impulse buy will have passed.

9 Shop around for better deals on your car, home and health insurances. Time-consuming maybe, but there are big savings to be made.

10 Love gigs and shows? Sign up to ticket agency and music venue email alerts to keep informed of two-for-one and ticket discount deals.

11 Try replacing expensive dishwasher tablets with a mix of two tablespoons of Borax combined with two tablespoons of bicarb soda. It'll clean your dishes and the machine.

12 Split bulk-buy meat with buddies.

13 Make sure your dentist, optometrist and physio are among your health fund's preferred providers.

14 If flying domestically, save with early morning or late evening flights on weekends or midday flights Monday to Friday.

15 Take advantage of free community events such as festivals, outdoor fitness classes and open-air movies.

16 Cancel your cable TV and subscribe to a more affordable streaming service.

17 Run your dishwasher and pool filter during off-peak energy periods, e.g. after 10pm or before 6am.

18 Make an agreement that you and your partner won't spend more than $100 without checking with the other first.

19 Book your beauty appointments (waxing, pedicure etc) at a training college.

20 Make a grocery list and stick to it to save on impulse buying (and don't shop hungry!).

21 Eat in, but head outside with a picnic blanket to make it a bit special.

22 Check you're not paying extra for monthly car and home insurance payments.

23 Organise a fashion or book swap with friends and co-workers.

24 Flush less - we use 6 to 18 litres of water every time.

25 Cook bigger batches of discounted meat and seasonal produce and freeze meals.

26 Unplug unused appliances and save on standby energy.

27 Pay your mortgage fortnightly instead of monthly.

28 The 'op' in op shop stands for opportunity - you never know what you might find.

29 Enjoy a movie night at home with friends.

30 Grow salad greens and herbs - easy to grow and manage in pots.

31 Pay your bills on time to avoid penalties.

32 Give homemade gifts: biscuits, granola, pasta sauce, chutney, jam, cards.

33 Don't discount the savings from shopper dockets.

34 Book quality, three-star hotels for overnight stays - you just need a comfy bed.

35 Wash and groom your own dog.

36 Turn your next dinner party into a pot luck.

37 Say yes to freebies and rewards and create a free email account just to receive deals.

38 Join the refill revolution with your own water bottle - save money and the environment.

39 Find a GP that bulk bills.

40 Dissolve four teaspoons of bicarb soda in one litre of water to clean kitchen and bathroom surfaces.

41 Buy loose fruit and vegies - snow peas, green beans, spuds - instead of pre-packed.

42 Never buy a new car.

43 Give favours instead of gifts - babysitting, mowing, cleaning, painting, car detailing, gardening etc.

44 Check out your local library for free activities, especially for kids.

45 Take advantage of sales on staples - laundry powder, shampoo, toilet paper etc. - and buy in bulk.

46 Tap into any workplace perks e.g. discounts on health insurance, gym memberships, entertainment, accommodation.

47 Consolidate your credit cards into one low-interest card.

48 Snuggle under a blanket instead of jacking up the heater.

49 Plan your meals around supermarket specials.

50 Exercise without a gym - there are loads of online workouts to help you cancel that membership. Or better still, go for a walk. The dog will love you for it!
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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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The five things every first time property investor should avoid

9/8/2014

 
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  1. BUYING  NEW OR OFF THE PLAN PROPERTIES

    Many investors make the mistake of chasing depreciation benefits offered to new properties or stamp duty savings that are available in certain states when buying off the plan. Many forget about the cardinal rule in real estate investing: buying well and buying property at or below what it’s worth.

    Most new properties are priced according to developer’s profit margin percentages and attract GST, which is paid by the developer and generally loaded into the purchase price. Often properties are overpriced and have limited capital growth as they are competing with newer apartments that are built every year.
  2. BUYING  PROPERTIES THAT BANKS DON’T LIKE

    If the banks don’t like lending against certain properties, it is usually for a very good reason. Banks won’t want to risk their money and exposure as they might not lend against certain properties such as country/regional/mining town properties or only lend on lower loan to value ratios (LVRs of only 70%) for commercial properties which they see as harder to tenant or resell.

    Some properties that banks don’t like include high rise apartments in the CBD and surrounds, stratum title or company share properties, small apartments including studios and student accommodation, defence housing and serviced apartments.
  3. BUYING PROPERTY OVERSEAS OR INTERSTATE

    Many investors make the mistake of buying properties overseas or interstate without really knowing those markets and doing their due diligence properly. They are often attracted to the cheaper entry level prices that these offer but they make the mistake of comparing prices in areas they know versus areas they don’t
    know.

    Many Australian investors have purchased property in America, having been attracted to low price tags of $100,000 promised rental returns of 10% per annum. One should ask the question - if the properties were so cheap, why aren’t the locals in America buying them all? 

    Our advice is to do your due diligence and study comparable sales in one or a few areas so that you can purchase the right investment property at the right price.
  4. BUYING NON-INVESTMENT GRADE QUALITY PROPERTIES

    A good investment grade quality property has a number of common fundamentals that set it apart from poor investment properties that miss a number of common fundamentals including being in a quiet but convenient location, car parking, street appeal, aspect or view and sunny orientation.

    Many investors make the mistake of buying a property that is cheap and are lured by a lower price but the problem is that this property will always be cheap and be limited in terms of capital growth prospects and future resale prospects because it doesn’t have key attributes such as an outdoor area or the appropriate floor plan or it is on a major highway. Investors should pay a bit more and get the “right” investment property, not the cheapest one.
  5. PROCRASTINATING  AND WAITING FOR THE “PERFECT” INVESTMENT

    Many investors procrastinate as they talk themselves out of buying an investment property because they are scared of increasing their debt position and getting into further debt, even though buying the “right” investment property is getting into “good debt” not bad debt items that depreciate in value such as new cars, boats, and plasma televisions.

    There are not many perfect investment properties that can be rated 10/10 as most properties have some pros and some cons. Investors should definitely do their due diligence before purchasing but should not over analyse or become emotionally involved when buying an investment property.

Article written by FRANK VALENTIC  managing director of award-winning buyers' agency Advantage Property Consulting.

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Mortgage market soars ahead

8/7/2014

 
A business analyst has claimed mortgages are a sector set to soar in the next 12 months.

A new report from business information analyst IBISWorld has identified the mortgage industry as one poised for strong growth in the year ahead. The company forecast 9.6% revenue growth for the industry for 2014-15,
and said a number of factors were set to drive growth in the year ahead.

"Over the past five years, mortgage lenders have significantly increased their residential mortgage portfolios in line with growth in demand for dwellings around the nation, particularly in the capital cities. IBISWorld  has identified this increase as being driven by favourable lending conditions,  declining interest rates and a suite of government assistance packages designed  to help boost demand for residential property," the report said.

While demographic shifts in demand may be occurring, IBISWorld general manager Daniel  Ruthven said demand for housing would remain strong in 2014-15.

"For many, the Australian dream of the quarter-acre block still exists. While most  will be enjoying a smaller acreage, faith in owning a home remains strong across  a broad range of Australian demographics, including new migrants and members of generation X trying to get into the property market," Ruthven
said.

Though the mortgage market is predicted to outperform most other industries, IBISWorld predicted its growth would be outstripped by superannuation funds management services. The analyst forecast the sector to
increase by 10.5% over the next 12 months.

"Our expansive superannuation  system is delivering strong returns for both holders and the funds themselves.
Compulsory contributions increased at the beginning of 2013-14, further driving  the amount poured into superannuation. This has been coupled with strong returns  in the financial markets over the past five years, bolstering consumer sentiment and allowing for some increase in the demand for investment options carrying
greater risk," Ruthven said.
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Christmas overspending has driven an increase in home loan delinquencies.

7/7/2014

 
A  new Fitch report shows arrears edged up slightly for March, rising to 1.35% from 1.24% at the end of September 2013. The ratings agency put the increase down to Christmas overspending, but said arrears were down 10bps on a year-on-year basis.

While Queensland was the worst performing state for arrears with a delinquency rate of 1.42%, Fitch said Victoria was the only state to see a year-on-year increase in delinquencies. Seven of the 20 worst performing suburbs in Australia were in Victoria, while no region in the state was among the best performing.

"Hume City, Victoria (VIC), continued to be the worst-performing region in Australia with a 30+ days delinquency rate of 2.93% at end-March 2014, the highest level since early 2008. Hume (VIC), Melton-Wyndham (VIC) and Northern Outer Melbourne continued to show a significant deterioration in mortgage performance and in the  six months to March 2014 the delinquency rate in these regions increased on  average by 59bp, compared with an average rise of 11bp nationally," Fitch  said.

Budgewoi on the Central Coast of New South Wales was the worst performing postcode in the  country, with a 30+ day arrears rate of 3.7%. The suburb has now been among the 20 worst postcodes each March and December for five years, with the exception of September 2012.
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Mortgage Index - May 2014

1/6/2014

 
INVESTMENT ACTIVITY IN QLD SURGES: LATEST MORTGAGE FIGURES

 The proportion of property investors in QLD surged last month to comprise 38% of all new home loans processed in the state – up from 32% in February this year according to AFG, Australia’s largest mortgage broker. The AFG Mortgage Index, published today, shows that investor activity in QLD is now ahead of that of
VIC, on 37%, SA, on 33% and WA on 32%. Investor activity was second only to NSW, which still leads the nation with 47% of all new mortgages arranged for investors.


National Loan to Value Ratios (LVRs), the value of a loan expressed as a  percentage of a property value, fell significantly from 68.0% in March to 66.7%  in April. The shift was especially strong in QLD, where LVRs fell from 68% to  65%. This trend is in keeping with the growth of investment buyers, who typically use equity in existing properties to support their new purchases.


Mark Hewitt, General Manager of Sales and Operations says: ‘Investor activity does seem to be gathering pace in Queensland. That said, the very low numbers of first home buyers, both in New South Wales and Queensland, makes investor activity seem proportionally higher than in states like Western Australia where there is a more even mix in borrower types. Helping first home buyers get on the ladder should be a much more urgent priority for the Governments of both New South Wales and Queensland.’


First home buyers, as a proportion of all borrowers, varied significantly in April from 22% in WA to 14% in SA, 11% in VIC, 5% in QLD and 3% in NSW. First home buying activity slumped from mid-teen levels in both NSW and QLD when state grants were removed in Sept and October 2012 respectively.


Major lenders continued to win back business from non-majors in April, comprising 75.2% of all new home loans – up from 73.1% in February. They made particular inroads in the first home buyer market, where they attracted 72.2%, compared to 68.4% in March.


 Download  PDF
May 2014 – NATIONAL
May 2014 – NSW
May 2014 – QLD
May 2014 – SA
May 2014 – VIC
May 2014 – WA

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