The top Christmas tax questions

Every year, we are asked about the tax impact of various Christmas or holiday related gestures. Click below to read the most frequently asked Christmas tax questions: The Top Christmas Tax Questions

Tax and the Normalisation of Cryptocurrency

In early November, the Commonwealth Bank announced that it is now Australia’s first bank to offer customers the ability to buy, sell and hold crypto assets, directly through the CommBank app. You know when the banks come on board, cryptocurrency has become normal.

But cryptocurrency is only one part of the blockchain universe. Non-fungible tokens or NFTs (fungible means interchangeable) are one-of-a-kind digital assets which are part of the Ethereum blockchain. An example is the CryptoKitties game that allows players to purchase, collect, breed, and sell unique virtual cats – and, before you laugh, the game transacted over $1 million in virtual cats in its first few days of launching.

NFTs are also rapidly rising in popularity in the art world because ownership of the asset is on the blockchain and in some cases, the artist can take a percentage of every transaction of that artwork – so, no more starving artists because they can generate an income from the asset over time not just on the first sale. A stellar example is the sale of an NFT artwork by the digital artist Beeple, which was sold at auction by Christies in March 2021 for $69 million (USD).

Let’s look at what the Australian Taxation Office has to say about some of the commonly asked questions about the implications of investing in blockchain.

For more, Tax and the Normalisation of Cryptocurrency

The reality of your rental property

Your rental yield could improve by 13 percent.

Have you got a rental property and overwhelmed at tax time knowing what you can and can’t claim? It’s not uncommon for landlords to feel this way with what makes sense in the real world often not making sense for the Australian Tax Office (ATO).

Tax deductions in general can only be made in the period that you rented the property or during the time it was genuinely on the market for rent and actively looking for a tenant. If you are renovating for example, then you may not be able to claim expenses during this period, with some exceptions. A few common problem areas include;

Interest on bank loans

Only the repayments for the investment are deductible and not the loan itself, with some exceptions.

The sharing economy

The deductions made for renting out a room are like that of a rental property with tax deductions claimable for expenses such as the interest on your home loan, professional cleaning, council, insurance etc. However, these need to be in proportion to the lease period and in proportion to proportion of your house rented.

Repairs or maintenance?

Currently the ATO is looking very closely at deductions claimed for repairs and maintenance and is an area of major confusion. Repairs and maintenance can often be claimed independently with the deduction for capital works spread over several years. Repairs are defined as the wear and tear of the property as a result of being tenanted such as replacing fence palings or fixing a broken toilet. However, if looking to replace a whole fence, water system, improvements and extensions this falls under capital works as it goes beyond the general wear and tear.

However, with that said Australia’s renovation industry is profiting from weakened economic conditions and tighter lending standards. The Australian Bureau of Statistics (ABS) December building activity data showed a 6.6 per cent increase in alterations and additions in 2018, with renovation spending in the December quarter alone reaching $2.27 billion.

This indicates homeowners and investors are seeking to improve capital values and increase rental income, rather than purchasing anew. According to Corelogic’s quarterly rental review for 2019, gross rental yields are currently sitting around 4 per cent. In some scenarios however, renovators can achieve a 13 per cent return on their renovation investment.

Sounds a lot right? Let’s look at a case study by BMT Tax Depreciation, where an investor completed a $60,000 renovation.

Investor X purchased a $410,000 residential property in January 2018, originally built in 2004 and producing a rental income of $18,720 a year ($360 per week), producing a rental yield of 4.6 per cent.

In 2018 Investor X installed a new kitchen and appliances, split system air conditioner, blinds, lights, carpets and bathroom.

Post-renovation the property was now worth $565,000 and the rental income is now $26,520 per year ($510 per week).

Prior to the renovation Investor X was experiencing an annual cash loss of $1,207. Now, they have increased their rental income by $150, achieving a 13 per cent yield to their renovation costs and have a positive cash flow of $5,261.

This example shows the dream, it is important to be aware of some tips and traps. Choosing which assets to install can make a huge difference to what can be claimed upon completion of the renovation. Investors should stick to a budget when selecting items as it is easy to overcapitalise.

If all this just got you more confused, don’t hesitate to speak to your PrimeAccountant and make your property work for you, 02 9415 1511 or email us.

Tax – What The 2019 Federal Election Means For You!

There is only a short time before the Federal Election on 18 May 2019, and there’s a lot of wild speculation and “fake news” in the media.

We’re not trying to recommend who you should vote for, but instead we believe that it is vital that our clients understand how they will be affected by the result of the Election.

Here are some of the key ways you may be impacted:

• The amount of personal income tax and Medicare levy you will pay
• The amount of capital gain that will be subject to personal tax
• Opportunity to continue to convert excess franking credits into cash tax refunds
• Altering the tax treatment of trust distributions
• Ability to offset prospectively investment losses against other income (i.e. negative gearing)
• Ability to claim a full deduction for the cost of managing your tax affairs; and
• Remove deductibility on personal superannuation contributions and lower the annual concessional contribution cap

A note of caution here, as there is little detail associated with some of the proposed changes. While we have listed below the main policy announcements, the detailed legislation might differ substantially, so we encourage you to be mindful of this!

This is what we know so far (at time of writing):

LABOR’S TAX POLICIES

1. A tax on those receiving distributions through Family or Discretionary Trusts at 30%. These are small business structures, and this will affect many business owners.
2. Doing away with the cash refunds for excess franking credits through a SMSF.
3. Increasing the personal tax rate in the top tax bracket by an additional 2%.
4. Maintaining a company tax rate at the full 30 per cent (%) for companies with turnover exceeding $50 million.
5. Higher personal tax rates at the top end and lower personal tax rates at the lower end (i.e. less than $125,000).
6. Limit negative gearing on investment properties to newly built residential dwellings from a yet to be determined date after the election. Property investments made before this date will not be affected as they will be grandfathered. The ability to negatively gear other asset classes will also be restricted. If the total of the interest and deductions related to investments exceed the investment income, the excess will not be able to be used for offset against other non-investment income such as salary and wages. This excess will need to be carried forward for offset against future investment income or capital gains. It will apply on a prospective global basis to every taxpayer. In other words, it will apply to property and shares alike (and any other relevant asset classes) and it will apply by looking at a taxpayer and assessing their overall investment income as measured against their overall investment interest expenses;
7. Providing landlords who build new residential dwellings an annual subsidy for 15 years of $8,500 a year if the home is let out at 20 per cent below market rates;
8. Much higher capital gains tax when you sell an investment property or other taxable asset due to the halving of the Capital Gains Tax (CGT) discount to 25 per cent for individuals. All investments made prior to 1 January 2020 will be fully grandfathered, so the new rules won’t apply to them.
9. A new deduction (the Australian Investment Guarantee) that will enable a 20 per cent deduction in respect of the purchase of any eligible asset worth more than $20,000.
10. Capping of deductions for managing tax affairs to a maximum of $3,000. This cap will impact individuals, trusts and partnerships. A carve-out is to apply for individual small businesses with positive business income and annual turnover up to $2 million.
11. Whistle-blower rewards for tax evasion; and higher penalties for tax exploitation promoters.
12.  Superannuation:
    • Oppose catch up contributions on concessional contributions and tax deductibility on personal superannuation contributions;
    • Lower annual non-concessional contribution cap to $75,000 and reduce high-income super contribution threshold to $200,000 so that more Div293 Tax will be paid by higher income earners;
    • Increasing the superannuation guarantee to 12 per cent when fiscal circumstances allow;
    • Phase out the $450 minimum monthly threshold to receive super guarantee contributions, as part of a broader women’s super-security package; and
    • Higher penalties for employers not paying SG.

THE COALITION’S TAX POLICIES

1. Companies with a grouped turnover of less than $50 million have a reduced company tax rate of less than 30 per cent. Tax cuts already enacted as follows:
   • 5 per cent 2019-20 income year
   • 26 per cent for the 2020-21 income year
   • 25 per cent for the 2021-22 income year and for subsequent income years

The government will no longer proceed with implementing its plan to have a 25 per cent tax rate apply to all companies;

2. The government has legislated changes to personal income tax thresholds, as announced in the 2018-19 federal budget. Personal tax changes legislated are to be rolled out in three tranches over the next seven years as detailed in the table above;
3. No change to current arrangements regarding negative gearing of investment property;
4. No change to the CGT discount, which currently sits at 50 per cent for individuals;
5. No change to the current arrangements regarding trust distributions from discretionary trusts. Currently distributions are subject to tax in the hands of beneficiaries at marginal income tax rates, which could result in a lower effective tax rate for those distributions;
6. No change to the current arrangements regarding imputation, in particular the full refund of excess imputation credits. This means that excess imputation credits can be converted into cash refunds;
7. Superannuation – While not directly a tax policy, the government is proposing a three-year audit cycle for SMSFs that have a history of good record-keeping and compliance;
8. The $30,000 immediate asset write-off is available to 30 June 2019. There is no certainty beyond this date; and
9. Establish a Small Business Concierge Service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide support and advice about the Administrative Appeals Tribunal process. It will also create a dedicated Small Business Taxation Division within the AAT which will include a supporting case manager, a standard application fee of $500 and fast-tracked decisions to be made within 28 days of a hearing.

CONCLUSION

It’s hard to imagine not being impacted in any way.

There are many other election issues that will influence a voter’s preferences and, at the end of the day, it is about making informed choices.

Please contact us anytime if you would like our advice (before and after the Election) about these proposed tax policies and how they may affect you. We’re here to help you!

Warning on ATO and Medicare scams

Recently we’ve been contacted by a number of clients who have received suspicious calls and messages from people claiming to be from the Australian Taxation Office (ATO) and Medicare.  It’s important that you are aware of some recent scams.

Tax scams

The Australian Taxation Office (ATO) has warned about the emergence of a scam where “…scammers are using an ATO number to send fraudulent SMS messages to taxpayers asking them to click on a link and hand over their personal details in order to obtain a refund.”

The refund scam follows a more sinister four phase scam stating there is a warrant out for your arrest for unpaid taxes in prior years. The scam starts with a text message purportedly from the Australian Federal Police (AFP). Within minutes, your mobile rings and the caller identifies themselves as being from the AFP and working with the ATO. They then ask for your accountant’s details. You then receive a call purportedly from your ‘accounting firm’ asking you to verify the AFP/ATO claims. Finally, you are provided with a way, if you act quickly, to make the AFP go away by paying a fee before your ‘imminent arrest’.

The ATO states that it will not:

• Send you an email or SMS asking you to click on a link to provide login, personal or financial information, or to download a file or open an attachment.
• Use aggressive or rude behaviour, or threaten you with arrest, jail or deportation.
• Request payment of a debt via iTunes or Google Play cards, pre-paid Visa cards, cryptocurrency or direct credit to a personal bank account, or
• Request a fee in order to release a refund owed to you.

Medicare Scam

A new phishing scam sent text messages purportedly from Medicare advising the recipient that they are owed a $200 rebate from Medicare. Once the person clicks on the reclaim link, they are asked to provide their personal details including bank account details for the ‘rebate.’

If you are uncertain about any suspicious messages please contact the registered office of the “sender” or alternatively speak with your accountant or advisor.