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Vacant land expenses no longer deductible in “build-to-rent” investments

Vacant land expenses no longer deductible in “build-to-rent” investments

Starting from 1 July 2019, individuals who hold vacant land may not be entitled to claim those costs as an allowable deduction.

Prior to this, claiming tax deductions for holding vacant land was available in certain circumstances. An example of this may have been during the construction phase of a development when no income was being derived.

This tax season ATO is all set to emphasize Work From Home

Last year, a sum of 6.7 million tax payers claimed a record breaking amount of $7.9 billion in tax deductions that were associated with “other work-related costs” told Kath Anderson -Assistant Commissioner, Australian Taxation Office (ATO).

Ms. Anderson disclosed that “The current trend of working from home is on the curve and is touching the sky, while the additional costs that are in association with work from house generally come under as deductible. We have encountered several tax payers that were claiming their private costs or over claiming the amount than usual”.

“The taxpayers are not aware of what to claim or what not to and this can be a huge reason behind this scenario. There are some tax claimers who are claiming the costs they are not eligible for, or they are claiming expenses without supporting records or their own private expenses”.

Kath also unfolded that the expenses that are incorporated in work from home are permissible to be claimed, but the taxpayers are filing claims for their whole private expenses.

“People claiming their general expenses like mobile phone and internet that are even not related to their work is one of the major complexities we are facing these days. In fact, we are trying our best to subsidise their private internet utilization and phone calls, which is totally inacceptable”.

“If working from the house is all about lying on the sofa and watching TV while sending some emails, it states that you are not permissible to claim any private expense. However, if you have a separate area that is totally dedicated to your official work, then you are allowed to file a claim in order to incur the expenses related to running that space”.

“Occupancy-related expenses say: mortgage repayments, land taxes, establishment insurance and house rent are out of this list. Means employees are not eligible to claim them in their tax returns”.

“A tax agent assisted a school principal to file a return of huge $2,400 for phone usage and electricity in his home office expenses”, revealed in a case study provided by ATO.

While the tax agent tried to prove ATO that his client used to work from his house along with the school hours, they failed to manifest the way they used to calculate the expenses. Ultimately, ATO curtailed their claim by 70% and made them pay the penalty for not filing the tax claim properly.

ATO also disclosed that more than $53 million of tax claims have been rectified in the commencing two months of the year 2018, which were rooted from casual mistakes like not mentioning the over claims or the total annual income.


What Medicare Levy Exemption in Australia means for you?

Before we head on to the article, let us understand -What does Medicare mean? Medicare is a universal health scheme of the Australian Government. It is a program that assures access to all the citizens of Australia in wide-ranging services in health at no or little cost.

Medicare works in the way that all that Pay As You Go (PAYG) workers have took off the income tax from each cycle of the pay and roughly equates to 1.5% of the rate of tax, typically paid by us.

So, why do you need to pay this when you don’t get the associated health advantages?

Medicare is the part of the tax rates, however exemption can be filed when the financial year ends or when you permanently leave Australia. Bonus- Where and when applicable, the charges on Medicare shall be reimbursed as a segment of your refund on income tax.

Am I entitled?

Before explaining the details of the exemption procedure, let us have a look at the qualifying factors. To qualify filing for a Medicare exemption, here are the two core criteria:

  • You should be in Australia on a temporary visa like Student Visa, 457 Sponsorship or 417 Working Holiday.
  •  You should have earned more than $21,980 in the financial year.

When you are from any non-Commonwealth nation which does not include the Medicare advantages and fulfill the above criterion, an exemption certificate can be requested. This application cannot be applied if you are dwelling in Northern Ireland, Sweden, Italy, UK, Finland, Netherlands, Slovenia, Malta, Belgium or Norway

ATO targets holiday homeowners’ and property investors’ deductions and income

Taxpayers merely have three weeks remaining to organize their abodes, particularly the 1.8 million populace owning holiday properties and investments; warning issued by the Australian Taxation Office.

Owners of the homes who have modified their rooms into rent bedrooms to tourists or long-term boarders or into home offices will also have their deductions and gains carefully examined- the ATO says.

The ATO Assistant Commissioner- Kath Anderson says that they will observe taxpayers who place reliance on the agents of tax, utilized by around 66% of the individuals submitting returns, who may be compliant to offering bigger claims and more deductions than they are accredited to.

“We possess state-of-the-art systems that can match data from a number of sources” says Anderson on how the exaggerated claims, fraud or mistakes are identified by the ATO from 9.6 million individual returns on taxes.

Investment property

The ATO will be closely observing the unreasonable claims on interest rate, like where the owners of the properties endeavor to assert borrowing costs on the rental properties and the family home, says the H&R Block Communications Director- Mark Chapman.

An emphasis will be incorrect dispensation of expenses and rental income between the co-owners, like where deductions on a property that is co-owned are asserted by the owner who has more taxable income, than taking it jointly.

Investors making incorrect claims for the newly bought rental estates are on notice.

“The estimates to defects and repair damage present at the period of renovations costs or purchase cannot be instantly claimed”, says Chapman.

“These prices are deductible rather over the years. Be prepared to see the checking of such claims by the ATO”.

The BMT Tax Depreciation’s chief executive- Brad Beer adds: “While rules say that the owners of the second-hand residential property cannot claim on the formerly present equipment and plant, they can claim on the things they have bought and installed in their property on their own, after it started producing income”.

The landlords of any Airbnb are qualified for expense deductions but the assertions must directly relate to the income earned and will be needing records or receipts as an evidence.

“Do not forget that the ATO can access multiple third party data sources which includes access to renowned holiday rental listing sites like Airbnb and Stayz, hence it is comparatively convenient for them to find out that the property was accessible for rent or not”, adds Chapman.

Holiday Homes

Owners of the holiday homes are the principal target of ATO, especially those who are not genuinely trying to rent out their properties.

Anderson refers a holiday home owner in Victoria who made income by the way of rent of around 27,000$ during the year 2014-15, yet claimed expenditures of above 700,000$.

She further extends that issues arrive if the owners of a property attempt to claim 100% of the expenditures for periods when their estates are basically rented to intimates at below market prices, are not rent accessible while on the peak holiday times and are intentionally unoccupied for around 90% of the year. While the others are rented under situations that scare off the rent payers like banning women who use to wear stilettos or golfers and minimum unattractive night stays.

Anderson commends the ones with house offices keep receipts, diary accounts, claims and invoices to prove spending on internet expenses, mobile phones and meals which are linked with business or work.

She further says that the ATO is familiar with the abuse of concessions by the individuals who claim all their laundry, mobile phone, dining or internet costs when they represent only a part of the complete expenses that are linked with business or work and the remaining is personal.

Some individuals are even abusing the provisions that are record-keeping including common car expenses related to work claimed by around 4 million tax payers, combining around $9 billion.

“It is permissible to assert for 5000 kilometers if you did them literally as a segment of making your earnings”, says Anderson. “Yet we are worried that mistakenly, some of the taxpayers presume that it is a usual deduction to which they are entitled, without any need of offering the proof of having that distance travelled”.

“The ATO differentiates taxpayers among the others who are in alike occupations and earning same incomes to discover trips, work travel; not needed as a segment of their jobs”, she adds.

Crypto currencies

Crypto currencies like bitcoin are evaluated for the purpose of tax as a type of property that is considered as an asset for purposes including tax on capital gains.

ATO is working with the state revenue offices, AUSTRAC and banking institutions to discover any suspicious activity, especially for the transactions in property.

The crypto currency movement is unspecified, yet it gets traceable upon modifying into the form of a fiat currency.

“While a number of people hold an opinion that crypto currency offers anonymity, functioning in the digital era, leaves an electronic impact”, says Anderson. “We have got state-of-the-art systems that give us an access to compare data from online exchanges, financial and banking institutions for following the money back to the taxpayers”.

Senior tax agent for the site Liz Russell, says losses on dealing with the crypto currencies can counterbalance that sum from the capital gains that are made on any other asset in the later or same financial year. However, losses on the net capital cannot be balanced out against any other income. It is taxable upon selling.

Carrying crypto currency as an investment, for over a period of one year will qualify the holder for a CGT discount.

“Be it a short-period trading strategy or a long-period investment, the tax consequences need the taxpayers to maintain records”, alerts Anderson.

Payments on crypto currencies that are made for services and goods are required to be maintained as a standard income.

Family Trusts

Family trusts are a highly common layout for holding investments of a family which includes shares, property and other assets and excludes their residence. Current tightening of the rules of superannuation is complementing them. Income of all the trust members is to be offered for the present financial year and typically an estimated statement on the income for further periods. It is recommended that an accountant should present tax-efficient methods to portion out any income.

The HLB Mann Judd Director- Bill Nussbaum says- “The key element is to find out that how the trust’s income is to be allocated to the trust beneficiaries for the current financial year. Trustees must speak with their accountants regarding how the trust income shall be paid like payments, dividends from interest or a business”.

Trustees also have to create a recognized resolution in writing to the ATO about the allocation before 30th of June, he says.

Advises are of the view that the perfect scenario for increasing the beneficiaries distribution is when the spouse is not paying or is paying a little amount of tax and youth does not have much income sources. Distribution tax to the children is punitive, usually about 47% on the things that are over the range of 1300$.

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