Archives: Investax FAQs

With the Labor government securing a strong election win, it’s highly likely the Division 296 tax will be reintroduced and passed—especially if the Greens support the bill in the Senate.

Under the current draft legislation, from 1 July 2025, individuals with a Total Superannuation Balance (TSB) exceeding $3 million will face an additional 15% tax on a portion of their superannuation earnings—including unrealised gains.

What’s changing?

If your TSB is over $3 million, a portion of your super earnings will be taxed at a higher effective rate of up to 30%—15% concessional tax (as usual), plus another 15% Division 296 tax on the proportion of earnings tied to the excess amount over $3 million.

This tax applies directly to you as an individual, not to your super fund. It will be calculated annually by the ATO, and you’ll have the option to pay it from your superannuation (even if you haven’t met a condition of release) or from personal funds.

Why is this controversial?

One major issue is that Division 296 tax includes unrealised gains—increases in the market value of your assets that you haven’t sold or received cash for. In simple terms, your super fund could be taxed simply because your investment property or shares increased in value on paper. This poses serious cash flow risks for SMSFs, especially those holding illiquid assets like real estate.

Is this just for the wealthy?

The government argues the tax will only affect the wealthiest 0.5% of super fund members (around 80,000 people in 2025–26). But there’s a catch: the $3 million threshold is not indexed to inflation. Over time, more Australians could be impacted, especially those making long-term contributions to SMSFs or holding appreciating assets.

Key Takeaways:

• Starts from 1 July 2025 if the bill pass.

• Applies only if your TSB exceeds $3 million at financial year-end.

• Taxed on a proportion of total earnings, including unrealised gains.

• The tax is personal—not levied on the fund.

• No indexation means the $3M threshold may impact more people over time.

• Cash flow planning will be critical for affected SMSFs.

 

Yes, you can rent your investment property to your parents or siblings and still claim negative gearing—but there are strict rules you need to follow, and the arrangement must pass the “arms-length” test.

In simple terms, the Australian Taxation Office (ATO) wants to ensure the rental arrangement is genuine and commercial. That means:

You must charge market rent. If you rent your property to your parents or family members at below-market rent—even as a favour—you won’t be able to claim the full tax deductions. The ATO requires you to apportion your expenses based on the rent you actually receive.

For example, if the market rent for your property is $500 per week, but you’re only charging your parents $400, you’re effectively charging 80% of the market rate. In that case, you can only claim 80% of your allowable expenses, including interest, rates, and maintenance costs.

There should be a formal lease agreement. Just like you would with any other tenant, put the agreement in writing. It should outline the rent amount, bond, payment frequency, and responsibilities.

The property must genuinely be available for rent. That means your family members are not living there rent-free or using it like a holiday home. The ATO wants to see that you’re actively trying to make a return on the property.

Expenses must be substantiated. Keep solid records of rent received, expenses paid, and communication around the tenancy. If the ATO reviews your return, they’ll want evidence the arrangement isn’t just helping out family under the guise of an investment.

Also, be mindful of perception—renting your investment property to parents or close family might invite closer scrutiny from the ATO. They want to ensure the deductions you’re claiming are for legitimate investment purposes, not personal arrangements.

In most cases, you can claim a tax deduction for prepaid interest on an investment property—but only for up to 12 months in advance, not 2 years.

The Australian Tax Office (ATO) allows property investors to claim a deduction for interest paid in advance, but only for up to 12 months. This is known as the 12-month rule. As long as the investment property continues to be used to earn rental income, and the prepaid interest does not extend beyond 12 months into the future, the full interest amount can generally be claimed in the financial year it is paid.

So, if you prepay 12 months of interest (e.g. from July 2025 to June 2026) in June 2025, and your investment property continues to generate rental income, you can generally claim the full prepaid interest as a deduction in the 2024–25 financial year, which is when the payment was made.

However, if you prepay interest for more than 12 months, such as 2 years, the deduction must be apportioned over the relevant income years. That means you won’t be able to claim the full amount upfront. Instead, the ATO will require you to spread the deduction across the 2 years the interest covers.

Yes, you can generally continue to claim a tax deduction for the interest even after converting a variable loan to a fixed loan—provided the purpose of the loan remains income-producing.

The key factor the ATO looks at is what the loan is used for, not whether it’s fixed or variable. If the loan was originally taken out to acquire an investment property, shares, or any other income-generating asset, the interest on that loan remains deductible—even if you change the loan type.

It’s important to understand that deductibility follows the purpose, not the loan structure.

That said, here are a few considerations:

• Redrawing for personal use: If you redraw from the loan for private expenses (like buying a car or funding a holiday), the interest relating to that portion will no longer be deductible.
• Splitting loans: When refinancing, it’s wise to split loans to clearly separate investment and personal components, which makes recordkeeping and deductibility much simpler.
• Break costs: If you break a fixed loan early (to lock in a new rate or refinance again), you may incur break fees. These are not immediately deductible, but they may be amortised over five years or the remaining term of the loan—whichever is shorter.

So, in short, yes—switching from a variable to a fixed loan doesn’t affect your interest deduction as long as the loan is still for an income-producing purpose. Just make sure it’s structured right and keep good records.

If you’re refinancing or considering loan changes, it’s a good idea to check in with your accountant or tax adviser to ensure you’re not unintentionally affecting your deductions.

This is a common question, especially among individuals who own several rental properties and actively manage them. The key point to understand is that owning multiple properties does not automatically mean you’re carrying on a business of property letting.

In most cases, if you’re an individual who receives rental income—whether from one property or several, including a mix of short-term (like Airbnb) and long-term rentals—you are generally classified as a property investor, not a business owner. Your activities are considered a form of passive investment rather than an active business operation.

The Australian Taxation Office (ATO) is clear on this: you are not in the business of letting rental properties unless your operations are substantial, ongoing, and conducted in a business-like manner. This usually means:

• You have a large-scale operation, possibly involving many properties.
• You have a high level of involvement, systems, and processes similar to a business.
• You may engage employees or a property manager full-time.
• The primary intention is to generate income consistently through business activities.

Because most individual property owners, even those with multiple rental properties, do not meet these criteria, they cannot claim certain deductions such as travel expenses related to managing or inspecting their rental properties. These expenses are only deductible if you are genuinely in the business of property letting—which is rare for individuals.

In summary, having many properties doesn’t necessarily make you a business owner. You’re most likely a property investor, which means travel and similar expenses are not tax deductible under the current tax rules. Always seek professional advice if you’re unsure, as individual circumstances can vary.

ATO – In the business of Letting 

You can only claim a tax deduction for a property seminar or webinar if the content directly relates to managing or increasing the income of an existing rental property. For example, if the seminar provides guidance on improving rental returns, managing tenants, or understanding rental property tax rules, then the cost may be deductible.

However, if the seminar or webinar is focused on finding or purchasing an investment property or discusses general strategies around wealth creation or optimising your financial position through property investment, the cost is generally not deductible. These types of seminars are considered to occur too early in the investment journey—before the property is acquired and starts generating rental income. As a result, they are treated as private or capital in nature and are not deductible against rental income.

Travel for attending a property seminar may also not be tax deductible, especially if the seminar relates to acquiring residential property. You cannot claim travel expenses for inspecting a property before you purchase it, or for attending seminars aimed at helping you find or secure a rental property to invest in. This applies to properties located both within Australia and overseas. The ATO considers these costs to be personal in nature, and they do not qualify as tax deductions.

Some promoters may incorrectly suggest that these types of expenses are claimable—but the ATO is clear: unless the expenses are directly tied to an existing rental property, you cannot claim them as deductions.

ATO – Travel Expenses 

Yes, an SMSF can generally reimburse a member for establishment costs that were initially paid out of their personal funds—provided that the reimbursement is for legitimate trustee expenses and there are no restrictions in the fund’s trust deed preventing it.

These establishment costs typically include expenses such as the preparation of the trust deed, incorporation of a corporate trustee, and other legal or administrative documentation necessary to set up the SMSF. Once the SMSF has a bank account and has received rollover funds, it may reimburse the member, assuming all documentation is in place and the payment is properly accounted for.

Important note: While reimbursement is allowed in these circumstances, SMSF establishment costs are considered capital in nature and are not tax-deductible. This means that although the fund can pay back the member, it must not claim these expenses as deductions in its tax return—they should be added back for tax calculation purposes.

Example:
John sets up an SMSF and pays $2,000 from his personal account for the legal documentation and registration of a corporate trustee. A month later, the SMSF opens a bank account and receives a rollover of $200,000 from John’s industry super fund. The SMSF can reimburse John the $2,000 from its bank account, assuming the trust deed allows such reimbursements and proper records are maintained. However, when lodging the fund’s tax return, this $2,000 must not be claimed as a deduction.

As always, it’s important to consult a qualified SMSF specialist or your accountant to ensure compliance with the SIS Act and ATO guidelines.

Yes, you can purchase a car in the name of your trust. However, whether you can claim a tax deduction for it is not a straightforward answer. It depends on how the car is used and the nature of your trust’s activities.

What Does Your Trust Do?

🔹 Investment Trust (Property or Shares):

If your trust is primarily used for passive income activities, such as holding rental properties or shares, then there is no clear business connection to justify claiming tax deductions for the vehicle. In this case, the car is likely to be used for personal purposes, which means deductions are generally not allowed.

🔹 Active Business Trust:

If the trust actively operates a business—such as a consulting firm, construction company, or retail store—then there may be a valid business reason for purchasing the vehicle. In this case, tax deductions may be available, provided the car is genuinely used for business purposes.

Fringe Benefits Tax (FBT) Considerations

Owning a personal-use vehicle in a trust can sometimes create additional tax reporting requirements because Fringe Benefits Tax (FBT) may apply.

If the trust provides a car to a trustee, employee, or beneficiary for personal use, the trust may be liable for FBT. This tax applies when a vehicle is used for non-business purposes, and it can significantly impact the overall tax benefit.

Vacant Residential Land Tax (VRLT) applies as an additional levy on properties that remain vacant for more than six months in a year in Victoria. VRLT is separate from land tax and distinct from both the absentee owner surcharge and the federal annual vacancy fee. However, if a property is exempt from land tax, it is also exempt from VRLT.

From 1 January 2025, a progressive rate of VRLT applies to non-exempt vacant residential land across all of Victoria. VRLT is calculated on the Capital Improved Value (CIV) of taxable land. Capital Improved Value (CIV) is the value of the land, buildings and any other capital improvements made to the property as determined by the general valuation process. It is displayed on the council rates notice for the property.

The VRLT rate increases the longer a property remains vacant:

• 1% of CIV in the first year it becomes liable.
• 2% of CIV if the property is vacant for a second consecutive year.
• 3% of CIV if the property remains vacant for a third consecutive year or more.

From 1 January 2026, Unimproved residential land in metropolitan Melbourne that has remained undeveloped for at least 5 years and is capable of residential development may attract VRLT from 1 January 2026 onwards.

If you would like to know more about the VRLT please feel free to read our article Vacant Residential Land Tax (VRLT) In Victoria.