Strata or Bodies Corporate are required to lodge tax returns if they have $1 or more in assessable income that is not considered “mutual income.” For income tax purposes, a strata plan is treated as an Australian public company, even if it is self-managed. A tax return must be lodged for any year in which non-mutual income is earned, such as income from sources outside the group, like investment income. However, if the strata only derive income that falls under the principle of mutuality, which is not assessable, then a tax return does not need to be lodged.
Mutual Income (from owners) – NON-TAXABLE:
Strata Levies
Interest on Arrears
Recoveries
Non-Mutual Income (from non-owners) – TAXABLE IN THE HANDS OF THE BODY CORPORATE:
Interest from cash at bank or term deposits
Monies collected from coin-operated laundry facilities (derived from tenants or the public)
Non-Mutual Income (from non-owners) – TAXABLE IN THE HANDS OF INDIVIDUAL LOT OWNERS:
Income from communications tower leases
Rent from common property apartments
Income from advertising billboards
Example as per TR 2015/3 – A strata title body leases the rooftop of a residential rental property to a telecommunications company for $50,000 per year. The Commissioner allows proprietors to report this income in proportion to their unit entitlement and claim deductions under Division 40 and/or Division 43 of the ITAA 1997 for the common property.
Many taxpayers end up paying tax on the sale of their primary residence simply because they are not fully aware of the six-year exemption rule. Understanding how this exemption works, and the eligibility criteria involved is crucial for minimising your tax liability.
For foreign residents and Australian citizens who are classified as foreign residents for tax purposes, the main residence exemption from Capital Gains Tax (CGT) does not apply. This means you will be liable to pay tax on the capital gain or profit from the sale of the property if you sell it while classified as a foreign resident. The only exception is if you meet the criteria outlined in the life events test, which is specific and has limited applicability.
However, this restriction does not apply to Australian residents for tax purposes. If you are classified as an Australian resident at the time of the sale, you are entitled to the main residence exemption, like all other Australian resident taxpayers. This includes the six-year exemption rule. It allows you to treat the property as your main residence for CGT purposes for up to six years, even if it has been rented out during that period. However, this applies only if you do not nominate another property as your main residence during that time.
Proper understanding of these rules can significantly reduce your tax obligations, making it essential to seek professional advice tailored to your situation. If you’re unsure about your eligibility or how these rules apply to your situation, contact Investax Property Tax Specialists for expert advice.
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.
