With Financial Year End Coming up, Do You Have Any Tax or Tax Return Questions I Can Answer for You?

Edit final time:

Started a new thread for this to keep up with everyone's new questions. This is the link…

https://www.ozbargain.com.au/node/309978

Edit again:

Thanks for all the questions once again everyone. We have now reached over 600 comments.

I will do another Q & A in about a month when it is closer to tax time.

Hope you have all got a bit of extra general tax knowledge. ]]

If your inquiry is urgent then you can PM me.

Goodbye for now and see you in about a month!

Hi All,

I just thought with financial year end coming up in just over a month's time, many people have tax and specifically tax return related questions.

I am a tax professional and I am constantly getting asked similar questions coming up to tax time by family, friends and new clients. So I thought that I could be of some use and answer any tax questions you may have.

Disclaimer: Any advice or answers given will be general in nature and you may need to speak to a tax adviser for more personalised advice.

Ok, start posting your questions :)

Edit: Thanks for all the questions. I am trying to get to everyone as soon as I can. If I miss your question please send me a PM or ask again so that I can see it. There are so many questions I am sure i've missed a few.

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closed Comments

  • How can I stash $$ off shore then bring them back tax free?

    • +101

      Go to Columbia and buy headphones

      • -2

        is be a hooker included in that?

        • Only if you book a night at the Bogota Penitentiary.

        • @ruddiger7:
          i thought penrith was enough

      • +5

        Colombia*

        • +1

          Maybe they meant Columbia, Queensland?

      • District of Columbia?
        or
        Province of British Columbia?
        or
        Republic of Colombia?

      • -16

        Wow.
        A young Australian citizen finds herself imprisoned in Colombia and some bean counter thinks it's joke material.
        And then a bunch of sycophantic OB's join in.
        Contemptible.

        • +5

          Logged in just to neg you.

          Just because she's Australian doesn't mean she can transport drugs into another country.

        • The entire country thinks its joke material. Specifically, professors and my entire classes at my university called her a retard. My boss called her a typical blonde.

        • -6

          @zenex2:

          Didn't know that's what i said, and didn't know you were on the jury.

          @ripesashimi:

          Ah yes, who needs to think when you've got group-think.
          You speak for the entire country? That's news, to the entire country.
          Maybe you, your class, and your 'professors' should review your use of the word 'retard'.
          All class your class…
          BTW you're obviously an international student - we don't say 'professors' here.

  • what is the gossip i heard about we cannnot claim depreciation on investment properties anymore?

    • +3

      From July 1, 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties.

      This means property investors can only claim depreciation on fixtures that they paid for themselves, presumably by buying the property brand new. Until now, investors who bought established properties could continue to claim depreciation on those items going forward.

      Please note existing investments will be grandfathered which meant that anyone who purchased a property until 9 May 2017 would be able to claim depreciation as per normal.

      • .. if I've recently converted my previously PPOR (bought new say 3 years ago) to an investment property, I am still able to claim depreciation on the existing fixtures less the initial 3 years when it was a PPOR, no?

        • +1

          Yes you are able to claim the depreciation.

          Did you obtain a depreciation report when you first purchased it? I would assume not as you were living in it.

          Probably a good idea to obtain one now :)

        • @nicolemcmilllon: Nope, I haven't. But I will look at getting it one now. Thanks!

        • @nicolemcmilllon:
          can i clarify what if you live in your property for a few years and make it an investment property after july 2017

          ps thanks for answering these questions

        • +1

          @nicolemcmilllon:
          If you were still living it, would it be best to obtain a report now, or later when you start to use it as an investment property?

        • @Shuey:

          Paid about $600 for mine. More than paid for itself in the first year! Highly recommended if you have reasonably new crap in there

        • @nicolemcmilllon: Where do we get depreciation report for an investment property from and how much does it cost typically?

        • @Gimli:
          According to the budget papers (note I haven't seen the legislation yet), as long as YOU personally purchased the item, it should be ok. I.e. it seems only if you purchased, not changed its status after 9 May 2017 does the change apply.

          e.g. if you were living for a few years, and say on 1 July 2016 you bought a new oven and from 1 August 2017 you decided to rent the property out, you could quite easily depreciate the value from 1/7/16 to 1/8/2017 with no tax deduction, then depreciate going forward.

          In my view, as you purchased the property pre 9/5/17, you'll be ok and can still use a depreciation report. It will be a very interesting bit of legislation in how they're going to deal with all the variables.

        • @wozz: Thanks! Yup, I will definitely get one :)

    • Thanks OP.

      And to add to this:
      How do you calculate depreciation to the day? I suppose tax professionals just use an app?

      Similarly for investment properties, how do deductions for interest work? Do you just deduct the interest payment paid within the financial year? And for rental income does it work like depreciation to the day or do I just add when the rent was received? For example, if the rent is late and it falls into the next financial year should it get included in the latter or former year?

      One employer once paid me 2 months late and I received the income in the next financial year.

      • +3

        get depreciation schedule/report. when you buy investment property this is one of the first MUST thing you get.
        just google it

      • +5

        Most definitely get a depreciation report. Use a company like BMT Depreciation - the report costs around $700 but will get you back much more in the coming years.

        For rental income, you add it the day it was paid to you. No need to apportion days. Same with interest, it is when the interest is applied to your loan account. Most bank statements will have an "interest paid for the financial year" section and you just take that number.

        • Thank you!

        • My house is currently being built, could I make a claim on the depreciating assets this year or would I have to wait until it is completely built?

        • +1

          @StevenUniverse:

          To claim any rental deductions (including depreciation) you will have to wait until the property is available to rent which will be when it has completely been built.

        • With obtaining a depreciation report, is there much benefit in getting one on an older property? Iā€™m currently in the process of leasing out my recently purchased main residence. The property itself was built in the mid 1970s, with everything in the house essentially original (no renovations apart from minor things like paint). Will the amount of depreciation that can be claimed offset the cost of the report?

        • @mjm2:

          I'm not the AMA man but do tax depreciation reports for a living. You can depreciate the content such as carpet and appliances as brand new but not the actual house structure. Tax depreciation reports are tax deductible anyway!

        • +8

          @scbrother:

          AMA woman*

        • @mjm2:

          im no tax expert. But I would say no.
          With my report it was only worthwhile because the kitchen and a few other rooms had recently been renovated - they were the ones that made it worthwhile

        • @mjm2:
          Probably not. BMT have a guarantee if they don't save you enough to cover the cost of their report in the first year, then its free! Best to chat with them first, during the booking. I was lucky when ordering one for a client, as they had done next door unit and had a good idea for a line-ball call.

  • +1

    How to obtain $20k small business rebate/write off on equipment?

    • +1

      The $20,000 small business write off is available to small businesses (those with turnover of less than 2 million).

      If you purchase an asset for less than $20,000 you will be able to depreciate the asset fully in the first financial year. Effectively, this means that you are getting an immediate 100% deduction for the purchase price of the asset.

      Any assets that are purchased for over $20,000 must be placed into a pool and depreciated at 15% for the first year and 30% for subsequent years.

      • +4

        $10 million now.

      • +1

        Would this apply to sole traders as well (such as purchasing a laptop that's 100% for work purposes)?

        • Interested in knowing the answer to this as well for sole traders.

        • +1

          @magikz:

          Yes it applies to all Small business including sole traders.

        • @magikz: Thank you!

        • +2

          @nicolemcmilllon:

          What about people under PSI rules, eg me as an IT contractor, own company?

      • so if the tax for the car is $2000, you will get $2000 back immediately? am i right?

        • I dont understand exactly what you mean.

          Claiming a deduction is different from getting a refund.

          You will only get a refund if you have tax withheld by an employer.

          You do not automatically get money back for claiming a deduction.

        • @nicolemcmilllon: what i mean is that; lets say im a contractor and ive paid 10k in taxes, and i buy a car for 20k, the tax on the car is 2k, i get that back automatically, right?

        • You get tax benefit on $2000. Say if your tax slab is 30%, you get full amount tax exempted i.e. you would save $666 worth of tax, that only if that much of tax was payable in your case.

          @Nicolemcmillon: Please correct if I am wrong.

    • Quick thing to note. Is that this is mostly just a timing adjustment, and deferral of tax.

      For eg.

      If you purchase a M/V for <$20K and you are eligible for the Small business write off, you get the immediate deduction in Yr 1.

      But if you decide that in Year X that you want to sell it / trade it in for another M/V, the sale/trade in value would technically need to be reported as an assessable balancing adjustment in the year that you sell it/trade it in.

  • I have never offered my residential property for rent. Tax wise what benefits can I wrangle if I was to rent the property out

    • I assume you are referring to negative gearing which effectively reduces your taxable income.

      If the expenses relating to the renting of the property (rates, management fees, interest) are greater than the rental income that you receive, that net loss can be offset against other income you may have for that financial year.

      Please note this may affect your ability to claim the main residence exemption when it comes time to sell the property but that will depend on if you have other properties etc.

      • Re: primary residence exemption - if I lived in a house for 12 months (primary residence), then move and rent the property for 24 months, can I then sell it and claim the exemption? My understanding was that there is a 7 year window

        • There is a 6 year window provided you did not have another main residence at the same time.

          So if you lived in the house as your primary residence for 12 months, and then moved out, I assume you were renting somewhere else? If so, you will be able to claim the exemption and not pay any tax on the capital gain.

        • @nicolemcmilllon: whats the criteria for "another main residence" and thanks for doing this I find it very informative to read through these

        • @nicolemcmilllon:

          I have the same question as F1Maniac's ques. To my understanding when I move out after 12 months, i can live in my 2nd house and still claim CGT exemption as long as I am not renting out for more than 6 years.

        • If you rent out for more than 6 months in a year, you will lose your primary residence exemption.

        • @tg:

          Probably best not to give incorrect advice to people.

        • @amsaini15:

          Unfortunately no. You can move out and treat the house as your main residence as long as you are not treating the second house as your main residence. You can live in it, but only one of them can be your main residence and hence claim the full exemption.

      • Please note this may affect your ability to claim the main residence exemption when it comes time to sell the property but that will depend on if you have other properties etc.

        If one has already lived there for a few years (depending on each state's requirements) before renting out, he can still claim as PPOR when selling it for capital gain declaration purpose. Isn't it?

  • Some guy told me that if you use your phone and internet for work at some point during the year, you can claim 100% of the costs.

    It was my understanding was that it is divided amongst business/private use by saying 10% is business and 90% is personal so you claim 10% of the total cost. This caused a long ridiculous argument and I still think I am right :P

    Also as a guy who works in an office with no travel etc……what actual expenses could I claim. Stationery expenses just aren't cutting it! Cant even get close to the $300 allowable without receipts! Any secrets?

    • " in an office " what kind of industry?
      if finance for example, can you say you buy financial review newspaper everyday without receipt? no one buy newspaper and ask for receipt, right?

      • Yes probably should have elaborated more :P - It is Finance

        That seems dishonest :P But….I like it :D

        • well never heard anyone got audited by ATO and got fined because you cant give receipt of buying newspaper related to your work - but hey welcome to take risks. life is a gambling anyway.

        • +1

          @dragonindespair:

          Hope you are using a VPN. Meta Data and all that šŸ•µšŸ»

        • @dragonindespair: Whether you're caught or not has nothing to do with it being dishonesty or not. In fact, surely it's fraud?

          Not that I can say I wouldn't do the same if I could…

        • @callum9999: agree. But I do read financial reviews everyday. It's part of my job.

    • +4

      If you estimate that 10% of your phone and internet is used for work related purposes, then you can claim 10% of the total cost of phone and internet for that financial year.

      Most office jobs will not have many deductions as your employer would provide everything for you.

      You do not need to substantiate deductions under $300 total. So the "secret" is to claim $300 worth of deductions.

      • Yeah thought that guy was wrong! Glad I know :)

        What deductions would I be looking at? Cant really claim anything with uniform - don't wear a "logo" on my uniform or anything. Is there anything else that would be the most common types of deductions that I am forgetting about.
        All I really have is donations and stationery.

        • $150 for laundry is commonly known as the easiest deduction because you don't need receipts for anything under $150.

        • The best thing would be getting an accountant that will be able to find some deductions for you such as telephone/internet costs as well as some travel expenses for a variety of reasons.

      • What if my work gives me a phone and internet allowance? Can I still claim the % because I am paying income tax on what my work is giving me? Eg it just gets added as income anyway so I should be able to claim …

      • +2

        Technically incorrect.

        If you are audited for whatever reason, then yes, you still need to substantiate that initial $300.

      • On top of the "300" claimed, can I claims for internet/AFR/mobile phone say for another $300? In other words, is it ok to claim other things that you can justify on top of the "unjustified" 300? Thanks Op! I have only been claiming $300 but would like to go further.

        After all, as a plebs, where household spending is in a downtrend, every little dollar helps the greater good! Ok I'll get off my high horse, I am just a t*ghtarse

        • Snip from ATO:
          https://www.ato.gov.au/Individuals/Tax-Return/2016/Tax-retur...

          Record keeping for work-related expenses

          You must be able to substantiate your claims for deductions with written evidence if the total amount of deductions you are claiming is greater than $300. The records you keep must prove the total amount, not just the amount over $300. The $300 does not include car and meal allowance, award transport payments allowance and travel allowance expenses. There are special written evidence rules for these claims which are explained at the relevant items.

          If the total amount you are claiming is $300 or less, you need to be able to show how you worked out your claims, but you do not need written evidence.

          Newerseydamo: there's a difference between what people regard as substantiate (show receipts) vs substantiate the deduction (i.e. have a reasonable basis). Yes, you still have to have a reason for claiming the $300. E.g. journals, some mobile phone/internet usage or home office for reading up, maybe some travel to a course. The thing is, you don't actually have to have any record of this. Most professional/office jobs can simply say stationery, industry magazines and they're done. Most blue collar workers can say laundry ($150) and some protective clothing, equipment, glasses. You don't have to show receipts.

          WillKillfor5cents: no. if you claim $301, you need to show all $301 dollars of receipts. If you claim $300, then no receipts at all.

          As a side fact, the ATO won't audit you for $300. Honestly! It takes about $1200 to do a basic review + amendment. and min $2500 if a human has to enter it (based on ANAO's figures). I used to work as an auditor for the fellow who is currently in the papers. He used to sign off on some of my work up until 3 years ago.

  • My partner and I may have a family taxable income this year that eclipse the 180k limit making us due the 1% Medicare Levy Surcharge.

    If we sign up for Private Health prior to the end of the FY do we avoid this or do you need to have held it from the start of the FY?

    • The Medicare Levy Surcharge will be apportioned based on the days that you held adequate Private Health Cover. So if you got it today for example, you will save approximately 11/12ths of the levy.

      Also worth noting that if you expect your adjusted taxable income to exceed the threshold for next year, getting it now will also save you paying the levy next year.

    • +3

      common sense said, from the beginning - otherwise all ozb members will signup on the last day and cancel the following week. rinse and repeat.

    • +2

      We are in the same boat. 1% of 180k is 1,800. I could not find any family private health insurance that avoids the levy (not all products are eligible for the levy exemption) for under 3k, not sure if it is worth it! But we are still looking, which insurance are you considering?

      • Yep same boat as you. Can't justify the need to pay for something, that we won't use. I'd rather stick that money into our offset account.

    • If we sign up for Private Health prior to the end of the FY do we avoid this or do you need to have held it from the start of the FY?

      I thought some insurers will let you back date the policy for the MLS (but not for claims, go figure)… not sure if they'll do an entire year though…

  • +1

    OP can you clarify here, many property investors are keen about getting $ back from ATO by claiming depreciations.
    especially the marketing agents always tell this is the benefit of buying off the plan brand new properties. claim $$$$ in depreciation! full stop.

    they dont know that when you sell, you have to kind of "return back" all those depreciations that you have claimed.
    is this correct?

    • +3

      There are different types of deductions relating to rental property.

      Depreciation (Div 40) is the depreciation of plant and equipment, which is removable fittings and fixtures in a property, such as dishwasher, fans, blinds. Without going into too much detail, you don't have to add back this depreciation when you sell the house.

      Capital works allowance, otherwise known as building write off, is the deduction allowed for structural elements of a building and items that are deemed irremovable. This deduction is usually 2.5% of the expenditure. When it comes time to sell the house, these deductions have to be deducted from the purchase cost of the property which is the portion of your question where you mentioned "return back".

      • To add to the Capital Works allowance section of the calculation:

        The capital works claimed over the years in your return reduces your cost base of the property.
        This therefore increases your capital gain.
        However, remember you will have received a deduction on the capital works each year at your marginal tax rate.
        This usually leads to increased tax refunds which can in turn help you pay off the loan quicker.
        Although it increases your capital gain you get a 50% immediate deduction on the capital gain meaning you are better off.
        Plus you have now sold the property, so you should be in a position to be cashed up and able to pay any excess Capital Gains Tax.

        Compare it in the followiig example:
        1) you claim $5,000 Capital Works deduction over 10 years ($50k total deduction) with an average tax rate of around 30%. This would equal roughly $15,000 in extra tax credits towards your refund over the 10 years. (providing you have paid tax during the year)
        2) When you sell the property your capital gain is increased by $50k. As you held it for over 12 months you get access to the 50% discount bringing the capital gain on the capital works portion to $25k. $25k x 30% equals $7500 tax payable.
        3) So based on this example you are $7.5k better off, plus there is a chance you paid down the loan quicker as a result of extra refunds over the 10 years.

  • Hey Op, what's the deal about no longer being allowed to claim travel to inspect the property? Does this mean, that even If I apportion my travel according to private use, I still cant claim come next FY?

    • If you apportion the travel expenses incurred, there is no reason that you will not be able to claim the deduction. If there is a new measure brought in by the budget, I am not aware of it.

  • We bought a property last Nov, with the intention of living in it. The load is a owner-occupied, not investor loan. However, the property came with a tenant, whose contract only ends this July. So, we've been renting elsewhere, while this tenant lives in the property. They'll move out in July, and we'll move in at that time.
    Is it wise to claim negative gearing on this, for this year? If we do, and a few years later, if we sell the house would we have to pay the capital gains tax?

    • +2

      As you have not moved into the home when it was first purchased, you will not be entitled to the full main residence exemption.

      Also as you are renting it out, you have to include the rental income and expenses in your tax return. You do not have a choice as you are receiving rental income.

      The good news is you will be entitled to a partial exemption, being the apportioned time you lived in the house as your main residence over the total time you owned the house. So if you rent it from November to July ( 8 months) and sell it in July 2020, then you will pay capital gains on 8/44months apportioned basis. Meaning if your gain on sale was $100,000 you would pay tax on $18,000.

  • Any advice on salary sacrificing extra super contributions when you have a HECS/HELP debt? I can't find any information on calculating it and if there is any FBT etc, is there a formula to use?

    • Do you want to salary sacrifice to pay off your HELP debt?

      • I want to salary sacrifice additional super contributions. If it increases my HELP repayments as a result I don't mind. I just want to find that sweet spot where I am making contributions but not completely decimating my take home pay.

        • +1

          Salary sacrificing won't affect your HELP repayments. All it will mean is that your work may pay withhold a little less from you throughout the year because of your lower taxable income.

          However HELP repayment income for the year (calculated in your tax return) includes the salary sacrificed amounts so you will be required to pay it back in your tax return. Effectively you are not any worse off in terms of HELP repayments.

          Now in terms of superannuation, the contributions will be taxed at 15%. Assuming you are on an average wage of $75,000 your tax rate is approximately 34.5%. Therefore you are effectively saving 19.5% of tax by salary sacrificing. However this is coming at a cost as you do not have access to the money because you are contributing it to super.

          Please note the concessional contributions cap is $25,000 for the 2018 financial year.

        • +1

          @nicolemcmilllon: And just be prepared for the tax bill because of the HELP repayment amount is calculated based on what you actually earned and unless you cover it by putting away a bit more in tax over the year, you get slugged with a bill. I stopped salary sacrificing because my payroll could not get their head around this in spite of me asking for them to put away a bit extra and they didn't.

        • +1

          @nicolemcmilllon:
          note that your employer may not pay you super on anything you salary sacrifice; reducing the over all benefit of this..

        • +1

          @happy aardvark:

          That's correct. You have to negotiate your package with your employer to make sure they pay super on the salary sacrifice amounts.

        • @MissG:

          A little confused on the HELP debt salary sacrifice. So just to confirm if you salary sacrifice for HELP debt you may be a little better off during the year (say $60 each week) total of $3120. BUT you would have to pay this total amount back once your tax return is lodged?

        • @DaneD: It's not that you have to repay it per se. It's just that salary packaging reduces your taxable income so you pay less tax and get some money back throughout the year. At tax time though, your HELP debt and Medicare levy is calculated based off what you actually earned, not the reduced amount that salary packaging generates and if your employer/salary packaging service hasn't put away a little bit extra for tax purposes, you get slugged with a bill.

        • @MissG:

          Got ya thanks :).

  • I find that when I do my own tax I have minimal deductions.
    I do not purchase any items for work, and although I use my home computer / internet / car for work sometimes I don't record how long and I wouldn't think it would be worth much over a year anyway.
    It is the same year after year.

    Do you think it would be beneficial to see an account, i.e. for relatively simple tax affairs like mine does the benefit of paying an account outweigh doing it yourself?

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