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Practice Update
August 2024
🔶 TOP 10 TIPS TO AVOID COMMON RENTAL PROPERTY MISTAKES 🔶
1. Distinguish Repairs from Improvements
- Initial repairs (e.g., fixing damage present when purchased) can't be claimed immediately; they are capital works deductions.
- Improvements (e.g., replacing a roof or renovating) must be claimed at 2.5% annually over 40 years.
- For damaged items over $300 (e.g., hot water system), claim as a decline in value deduction over time.
2. Claim Interest on Loans Correctly
- Claim interest only on the portion of the loan used for the rental property.
- If the loan is partially used for personal expenses (e.g., buying a boat), apportion the interest accordingly.
3. Handle Borrowing Expenses Correctly
- If your borrowing expenses are over $100, the deduction is spread over 5 years. If they are $100 or less, you can claim the full amount in the same income year you incurred the expense.
- Include loan fees and document preparation, but exclude stamp duty.
- Apportion the first year's expenses based on days owned.
4. Exclude Purchase Costs
- Costs like conveyancing fees and stamp duty cannot be claimed but are used to calculate capital gains tax when selling.
5. Claim Construction Costs as Capital Works
- Claim building costs (e.g., extensions, alterations) at 2.5% annually for 40 years.
- If the previous owner claimed capital works deductions, get their details or hire a professional to estimate costs.
6. Deduct Body Corporate Fees
- Body corporate administration fund payments are fully deductible in the year incurred.
- For special purpose funds used for major improvements, claim as a capital works deduction once the work is done.
7. Apportion Income and Expenses for Co-Owned Properties
- Declare income and claim expenses based on your share of ownership.
8. Apportion Deductions for Private Use
- Limit deductions to the rental period. Apportion expenses if only part of the property is rented or it's rented part-time.
- Private use includes renting to family or friends below market rates or keeping the property vacant.
- To claim deductions during vacancy, show clear intent to rent, such as proper advertising and reasonable rent.
9. Keep Detailed Records
- Maintain records of income and expenses for the entire period of ownership and 5 years after selling.
10. Calculate Capital Gains Correctly
- Subtract the cost base (purchase, ownership, improvements) from the sale price. Exclude deductions already claimed and adjust for capital works deductions post-1997. Carry forward capital losses to offset future gains.
10. Calculate Capital Gains Accurately
- Capital gain or loss is the difference between the cost base (purchase, ownership, improvements) and the sale price when you sell your rental property.
- Exclude amounts already claimed as deductions, like decline in value and capital works, from your cost base.
- Report capital gains in the year of sale; carry forward capital losses to offset future gains.
🔶 SMALL BUSINESS ENERGY INCENTIVE: WHAT YOU NEED TO KNOW 🔶
In the 2023-24 Budget, the Australian Government introduced a new energy incentive for small businesses on April 30, 2023. This measure offers an additional 20% tax deduction for eligible expenditures that support electrification and improve energy efficiency. This incentive is now law.
Applicable to expenditures on assets and improvements made between July 1, 2023, and June 30, 2024, the incentive can help small businesses invest in:
- Electrifying heating and cooling systems
- Upgrading to more efficient fridges and induction cooktops
- Installing batteries and heat pumps
Businesses can claim the incentive on up to $100,000 of total expenditure, with a maximum bonus tax deduction of $20,000 per business.
🔶 ESSENTIAL TIPS FOR CLAIMING FUEL TAX CREDITS ON YOUR BAS 🔶
To ensure accurate fuel tax credit claims on your Business Activity Statement (BAS), follow these guidelines:
1. Verify the Latest Rates: Fuel tax credit rates have recently changed:
- On 1 July, rates for heavy vehicles on public roads changed due to a rise in the road user charge.
- On 5 August, rates were updated again because of fuel excise indexation.
Ensure you're using the most current rates based on when you acquired the fuel.
2. Eligibility Check: If you’re not currently claiming fuel tax credits, determine if you’re eligible. You must be registered for GST and fuel tax credits to claim. Only claim for fuels that were acquired, manufactured, or imported for business use.
3. Utilize the Fuel Tax Credit Calculator. This tool helps you:
- Calculate the amount to report on your BAS according to the fuel acquisition date and type.
- Make any necessary adjustments for previous BAS submissions.
4. Lodge Efficiently: Consider lodging your BAS through online services or with your trusted agent from the Lynden Group to benefit from extended lodging and payment deadlines.
5. Maintain Accurate Records: Keep detailed records to substantiate your fuel tax credit claims.
Following these tips will help ensure that your fuel tax credit claims are accurate and compliant.
🔶 TIME FOR A GOVERNING DOCUMENTS REVIEW 🔶
Have you recently reviewed your governing documents?
Non-profit organizations (NFPs) should revisit their governing documents before completing the NFP self-review return. These documents are crucial for assessing your eligibility for income tax exemption.
As you prepare for your Annual General Meeting, take the opportunity to locate and review your NFP's governing documents. This ensures that your organization is fulfilling its purpose and that the documents are current, including having the appropriate not-for-profit clauses.
What are Governing Documents?
Governing documents include:
- Your organization's purpose
- How it is governed, operates, and makes decisions
These documents may be referred to as rules, articles of association, constitution, rule book, or deed of trust.
When to Review Governing Documents
It's recommended to review your NFP's income tax-exempt status annually and whenever there are significant changes to the organization's structure or activities. Ensure that your governing documents meet all requirements and align with your organization's purpose.
If you discover that your NFP's purposes have changed or that your governing documents lack the necessary clauses to prevent income or asset distribution to members, updates may be needed.
You can still self-assess as income tax-exempt and submit the 2023–24 NFP self-review return if no assets or income have been distributed to members. However, it’s important to update your governing rules promptly once a need is identified.
🔶 UPDATED TRAVEL AND MEAL ALLOWANCES FOR
2024-25 INCOME YEAR 🔶
The Commissioner of Taxation has specified the reasonable amounts for employee claims for the 2024-25 income year in TD 2024/3. The guidelines include:
Employment Taxes Update:
- Overtime Meal Expenses: Up to $37.65 for food and drink during overtime work.
- Domestic Travel Expenses: Covers reasonable costs for accommodation, food and drink, and incidentals for overnight work travel. Specific amounts apply to employee truck drivers, office holders under the Remuneration Tribunal, and Federal Members of Parliament.
- Overseas Travel Expenses: Reasonable amounts for food, drink, and incidentals during work-related overseas travel.
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