Investment property owners can generally claim tax deductions for repairs and maintenance, but not for improvements, which can only be depreciated over time. This distinction often confuses property owners, especially at tax time. Simply put, a repair is about fixing wear and tear, accidental damage, or natural deterioration to restore the property’s function without changing its character.
To claim a tax deduction for repairs, one key rule is that the expense must be incurred in the same year you’re claiming it. You can also claim repair costs if they happen after the property is ready to earn income but before any income is actually received, as long as they’re not considered initial repairs. For example, if your rental property is vacant, advertised for rent, and gets damaged before a tenant moves in, you can still claim the repair costs because the property is held for income purposes, even though you haven’t earned any rent yet.
“Here are some common examples of allowable repairs and maintenance:”
• Painting
• conditioning gutters
• maintaining plumbing
• repairing electrical appliances
• mending leaks
• replacing broken parts of fences
• replacing broken glass in windows
• repairing machinery
A Bare Trust is essential when a Self-Managed Super Fund (SMSF) borrows money to buy a property, creating a structure that separates the property from other assets in the SMSF. This setup, known as a Limited Recourse Borrowing Arrangement (LRBA), ensures that the lender’s recourse is limited only to the property purchased with the borrowed funds, safeguarding the remaining SMSF assets. By law, a Bare Trust is required to facilitate this protective arrangement, as it legally holds the property on behalf of the SMSF.
Beyond regulatory compliance, a Bare Trust adds a critical layer of asset protection. Should any issues or claims arise related to the loan or property, only the property within the Bare Trust is at risk, protecting the other assets within the SMSF from potential legal or financial complications. This structure not only adheres to SMSF borrowing laws but also aligns with the long-term goals of SMSF investors seeking both growth and security in their property investments.
Motor vehicle expenses are among the most commonly claimed deductions by General Practitioners (GPs). Self-employed GPs typically claim these expenses for travel between their practice and a hospital, when making house calls, or when transporting bulky medical equipment. The ATO has issued specific guidelines detailing what GPs can and cannot claim for car expenses. Let’s explore a few crucial points:
❌ What You Can’t Claim
You can’t claim the cost of everyday trips between home and work or their regular practice, even if you live far away and practice outside regular business hours
You can’t claim a deduction for parking at or near a regular place of work. You also can’t claim a deduction for tolls you incur for trips between your home and regular place of work/practice.
✅ What You Can Claim
You can claim the cost of using your car when driving directly between separate jobs on the same day. For example, driving from your main workplace as GP to your second job as a university lecturer.
Alternate Workplaces: to and from an alternate workplace for the same employer on the same day – for example, travelling to different hospitals or medical centres
Transporting Bulky Tools or Equipment: In limited circumstances, you can claim the cost of trips between home and work if you carry bulky tools or equipment that are essential for your job. This applies if:
The tools or equipment are essential for your work and not carried by choice.
The tools or equipment are bulky and awkward to transport, making it necessary to use a car.
There is no secure storage for the items at your workplace.
Methods to Claim Car Expenses
Logbook Method:
Keep a valid logbook to track the percentage of work-related use.
Maintain written evidence of your car expenses.
Cents Per Kilometre Method:
Show how you calculated your work-related kilometres.
Ensure those kilometres were for work-related purposes.
The straightforward answer is ‘Yes,’ as long as the trust deed allows it. However, there are significant tax implications you should consider before you start living in a property owned by a trust or think of purchasing your home through a trust for asset protection.
The first hit comes in the form of losing tax deductions. Expenses related to the property, such as mortgage interest and maintenance costs, may not be deductible if the property isn’t generating rental income. This could affect the trust’s tax position.
If you, as a beneficiary, live in a trust-owned property rent-free or at a discounted rate, the trust may be liable for Fringe Benefits Tax (FBT), as this arrangement could be considered a fringe benefit.
The principal place of residence (PPR) exemption, which typically allows homeowners to avoid capital gains tax (CGT) on their main residence, usually doesn’t apply to properties owned by trusts. Therefore, any capital gain from the sale of the property will be subject to CGT.
Lastly, even though you are living in the property owned by the trust, you may still be liable to pay annual land tax to the state revenue office.
Many property investors miss out on claiming borrowing expenses or claim them incorrectly. Borrowing expenses include the fees associated with obtaining a loan, such as bank fees, legal fees, title search fees, and Lenders Mortgage Insurance (LMI), which are incurred when borrowing funds to purchase a property. These expenses are tax-deductible; however, they cannot be claimed as a full deduction in the year they’re incurred. Instead, they must be spread out (or amortised) over five years or the term of the loan, whichever is shorter.
A frequent mistake among investors is to continue using the original borrowing expense schedule even after refinancing. However, if you refinance, you are not required to maintain the previous five-year amortisation schedule. Instead, you can claim the remaining balance of the borrowing expense immediately in the year you refinance. This can provide a helpful tax deduction boost, as it allows you to recoup the unclaimed portion of the original borrowing expenses in a single tax year following the refinance.
This is an age-old question, and unfortunately, it doesn’t have a straightforward yes or no answer. Generally, novated leases are subject to Fringe Benefits Tax (FBT). When employers provide personal benefits like motor vehicles for personal use, gym memberships, holiday tours, etc., to their employees or their employees’ family members, these are considered fringe benefits. Employers then pay the top marginal tax rate (47%, which includes the 45% top tax rate plus the Medicare Levy of 2%) for these benefits.
Novated leases are often marketed as hassle-free, with claims that employees won’t have to worry about GST, running expenses, and can pay for the lease with post-tax income, as the employer handles the lease payments and FBT. However, complications can arise if you leave employment and are required to pay a significant amount to exit the lease. Additionally, if you wish to own the vehicle after the lease term, you may face a substantial balloon payment from your post-tax salary.
Employers often attempt to reduce FBT by using the Employee Contribution Method (ECM), where a portion of the lease is paid from the employee’s post-tax salary. If too much ECM is applied, the benefits of the lease may diminish, making it less attractive to employees.
For those planning to purchase an electric vehicle, a novated lease can be particularly beneficial, as employers are exempt from FBT, meaning no ECM calculation is required.
To determine if a novated lease is worthwhile for you, consult your accountant. If you don’t have a dedicated accountant, consider reaching out to Investax Tax Specialists for expert advice on these types of questions.
The 1st Quarter BAS is generally due on 28 October. However, if you engage a registered tax agent, you’ll receive an extra four weeks to lodge. Like many small business owners, you may not always be ready to sit down and go through your records to verify GST and PAYG information by 28 October. While hiring a tax agent involves a fee, it offers significant benefits for small businesses and business owners:
Extra Time for Small Businesses: Gain an additional four weeks to lodge, providing breathing room for busy business owners.
Bookkeeping Accuracy: Take the opportunity to meet with your accountant and ensure your bookkeeping is accurate, avoiding costly errors for your business.
Micro Tax Planning for Business Owners: Have a quick tax consultation with a qualified accountant to optimise your business’s tax strategy.
Tax-Deductible Accounting Fees: The cost of engaging a tax agent is tax-deductible, benefiting your small business at tax time.
Don’t let your BAS return be just another chore. Use it as a strategic opportunity to enhance your small business’s financial health and set your business on a path to success.
You pay tax on Employee Share Scheme when the shares become unrestricted and vested. Many employees are confused about this because they don’t get taxed when the shares are initially issued. However, when the shares become unrestricted (usually when they vest), that’s when the tax obligation kicks in. Let’s break this down further.
When you receive restricted shares under an Employee Share Scheme (ESS), you typically don’t pay tax immediately because you don’t yet have full ownership rights. These shares are subject to certain conditions, such as staying employed for a few years or meeting performance goals before they “vest.” Once the shares vest, they become unrestricted, and you gain full control. At this point, they’re considered part of your income, and that’s when you’re required to pay tax.
My Payroll Said It Won’t be Taxed when they are Issued? The answer lies in the fact that the shares were not fully yours. Since they were restricted, there was no taxable event, and the value of these shares wasn’t included in your assessable income. But now that they’ve vested, their value is considered taxable income—even if you didn’t sell a single share.
Why does it feel unfair? It’s especially hard to swallow the tax bill if you haven’t sold any of your shares. That’s because you receive the shares, not cash, when participating in the ESS. Yet, when it’s time to pay the tax, you have to come up with cash out of pocket. You can’t just transfer a portion of your shares to the ATO to cover your tax liability.
The takeaway? When you are issued shares under an Employee Share Scheme, try to understand the tax outcome and consult an experienced accountant like Investax. Remember, it’s your income, your tax, and you’re the one who has to ensure you have the cash flow to pay it. Don’t be that person who repeatedly says, “But I don’t have the money!” Plan ahead for the tax bill, and if you do sell your shares, set aside the amount for your marginal tax to cater for the future liability. This is especially important if you haven’t done any prior tax planning with an experienced accountant.
Australian taxpayers who earn above a certain income threshold and do not have adequate private health insurance are required to pay the Medicare Levy Surcharge
MLS income thresholds and rates for 2024–25
Threshold
Base tier
Tier 1
Tier 2
Tier 3
Single threshold
$97,000 or less
$97,001 – $113,000
$113,001 – $151,000
$151,001 or more
Family threshold
$194,000 or less
$194,001 – $226,000
$226,001 – $302,000
$302,001 or more
Medicare levy surcharge
0%
1%
1.25%
1.5%
MLS income thresholds and rates for 2023–24
Threshold
Base tier
Tier 1
Tier 2
Tier 3
Single threshold
$93,000 or less
$93,001 – $108,000
$108,001 – $144,000
$144,001 or more
Family threshold
$186,000 or less
$186,001 – $216,000
$216,001 – $288,000
$288,001 or more
Medicare levy surcharge
0%
1%
1.25%
1.5%
Your income for MLS purposes is the sum of the following items for you (and your spouse, if you have one):
Taxable income
Reportable fringe benefits
Total net investment losses, which include:
Net financial investment losses
Net rental property losses
Reportable super contributions, which include:
Reportable employer super contributions (RESC) as shown in your PAYG Payment Summary
Deductible personal super contributions
Additionally:
If you have a spouse, their share of the net income from a trust on which the trustee is required to pay tax (under section 98 of the Income Tax Assessment Act 1936) and which has not been included in their taxable income.
Your MLS income is calculated by combining your taxable income with all the figures mentioned above.
