Tag: Rental Income

WHATS HOT?

This article examines some topical issues that taxpayers and employers should be aware of at this time. Areas covered include ATO compliance, the instant asset write-off, Airbnb tax consequences, and more.

NEW ATO RULES

The ATO is currently on the look-out for and taking action against employers who are not complying with two new regimes:

BACKPACKER TAX
Employers who employ workers in Australia on a 417 or 462 visa must now be withholding 15% tax from every dollar that they earn up to $37,000 (from the first dollar that they earn). These workers can no longer claim the tax-free threshold. Beyond $37,000, the normal tax rates apply.

Employers who currently have these workers on their books, must have registered online with the ATO by 31 January 2017 at www.ato.gov.au/twhm/ to be able to withhold at this new rate. Employers who won’t have this class of workers on their books until later in the year can register their business at that time. When you register with the ATO, you will typically not receive an acknowledgement, however the ATO advise that they will eventually include your registration information in your business’s ATO profile. To confirm that your registration has been successful, at this stage you will need to phone the ATO. Employers who cannot register online, can register with the ATO by phoning their business info line on 13 28 66. Employers with this type of worker on their books who do not register with the ATO will be required to withhold at the 32.5% rate and may be subject to ATO penalties.

SUPERSTREAM
Despite the deadline having passed months ago, SuperStream non-compliance among employers is still relatively high. By way of background, SuperStream is a Government initiative that aims to improve the efficiency of administering Australia’s superannuation system. The system requires employers to remit employee contributions (including Superannuation Guarantee) and other relevant data in an electronic, standardised format. The data is linked to the payment by a unique payment reference number. All employers are now required to be SuperStream compliant except for:
  • Contributions to your own SMSF (i.e. if you’re a related-party employer) – for example , if you’re an employee of your family business and your Superannuation Guarantee contributions go to your SMSF.
  • Personal Contributions – for example, if you’re a sole trader and you contribute to a superannuation fund for yourself.
Fines of up to $8,500 can now be imposed by the ATO on employers who are not SuperStream compliant. For more information on the SuperStream regime including compliance solutions, see the September/October edition of our publication which is available in the subscriber section of our website https://www.taxrmytaxsavers.com.aueporter.com.au

INSTANT ASSET WRITE-OFF

If you are a small business (aggregated turnover of less that $2 million) contemplating buying machinery or equipment, be aware that these are the final months of the $20,000 instant asset write-off.

With a sunset date of 30 June 2017, small businesses may wish to start considering bringing forward any planned asset investments to the next few months – particularly in this current low interest-rate environment. You can read more about the cashflow benefits of the instant asset write-off in the previous edition of our publication (January/February 2017 ). Note that legislation is currently before the Parliament to increase the turnover eligibility threshold from $2 million to $10 million (to be back dated to 1 July 2016) however at the time of writing this has not yes been passed into law. We will immediately notify subscribers via email if and when this increase becomes law.

RENTING OUT YOUR HOME

With the advent of Airbnb many more residential home owners are now landlords – renting out their entire house, or one or two rooms. The ATO is at the moment,is particularly targeting those that rent out part of their property via Airbnb.

Whether you are renting out your entire home or part of your home through Airbnb or just traditionally by advertising it or through a real estate agent…. the tax consequences are broadly the same as follows:
INCOME
Any rental income will be assessable. You should keep records of your rental income, even when it is paid by the tenant in cash.
RENTAL EXPENSES
Where your rental income is assessable, you are generally entitled to tax deductions for expenses incurred in deriving that income.For landlords these generally fall in 3 categories:

To read the complete article please see the ATR Bi Monthly update for Mar/Apr 2017 – this can be accessed via our exclusive ATR Members Area https://www.mytaxsavers.com.au/login

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ATO Focus on Rental Property Owners

With Tax Time now here, the ATO is encouraging rental property owners to ensure that their deduction claims are accurate. It will be paying close attention to:

Excessive Interest Expense Claims
Your interest claim must be limited to interest you have actually paid from 1 July to 30 June on borrowed funds used to purchase the rental property.

Incorrect Apportionment of Rental Income and Expenses Between Owners
The way that rental income and expenses are divided between co-owners varies depending on whether the co-owners are joint tenants or tenants in common or there is a partnership carrying on a rental property business.
Co-owners who are not carrying on a rental property business (generally, it is very unlikely that a business is being carried on) must divide the income and expenses for the rental property in line with their legal interest in the property. If they own the property as:

  • Joint tenants, they each hold an equal interest in the property (therefore 50% of income, and 50% of expenses)
  • Tenants in common, they may hold unequal interests in the property. For example, one person may hold a 20% interest and the other an 80% interest.
Rental income and expenses must be attributed to each co-owner according to their legal interest in the property, irrespective of any agreement between co-owners, either oral or in writing, stating otherwise.

Homes That Are Genuinely Not Available For Rent
To claim rental property deductions, your property must either be being currently rented out, or be genuinely available for rent. In the case of the latter, the property must be habitable (for example, if you were carrying out major renovations this may render the property uninhabitable), and it would also be expected that you could produce evidence to show it being genuinely made available for rent (e.g. advertisements in newspapers, or listings with local real estate agents).

Incorrect Claims For Newly Purchase Properties
You cannot claim as a deduction acquisition costs such as Stamp Duty, conveyancing expenses, legal expenses). These costs form part of the property’s cost base and can only be taken into account for capital gains tax (CGT) purposes when you dispose of the property.
The other common expense that is not claimable as a deduction is initial repairs made to the property. If the repairs are performed just after the purchase of the property in preparation to rent it out, then they are considered to be initial repairs. These cannot be claimed as a rental property expense on your tax return. Instead they will form part of the cost base of the property and will reduce your capital gain (or increase your capital loss) when you sell the property.

REAL LIFE ATO CASE
Nancy recently purchased a rental property and had her tax return amended by the ATO to remove deductions for repairs, capital works and incorrectly apportioned borrowing expenses. Nancy had inappropriately claimed a deduction for repairs to defects present in a newly purchased property and the capital works, and borrowing expenses should have been spread over several years. Nancy also provided false receipts for property management fees undertaken by a family member.
Nancy was required to pay more than $57,000 back to the ATO as well as over $10,000 in penalties for making a false statement in her tax return.