Monthly Newsletter

June 2019

Tax office to double audits of 'dodgy' rental deductions

Rental property owners are being warned to ensure their claims are correct this tax time, as the ATO has announced it will double the number of audits scrutinising rental deductions, with a specific focus on:

  • over-claimed interest;
  • capital works claimed as repairs;
  • incorrect apportionment of expenses for holiday homes let out to others; and
  • omitted income from accommodation sharing.

Assistant Commissioner Gavin Siebert said:

“A random sample of returns with rental deductions found that nine out of 10 contained an error.  We are concerned about the extent of non-compliance in this area and will be looking very closely at claims this year.”

“We use a range of third party information including data from financial institutions,property transactions and rental bonds from all states and territories, and online accommodation booking platforms, in combination with sophisticated analytics to scrutinise every tax return,” Mr Siebert said.

“Once our auditors begin, they may search through even more data including utilities,tolls, social media and other online content to determine whether the tax payer was entitled to claims they’ve made".

The number one cause of the ATO disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim.

Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.

The ATO has also reminded taxpayers that, since 1 July 2017, they can no longer claim travel expenses related to inspecting, maintaining or collecting rent for a residential rental property, unless they are an "excluded entity".

New rules for immediate write-offs

Small business entity ('SBE') taxpayers who choose to depreciate their assets under the simplified depreciation rules are entitled to an immediate deduction with respect to low-cost assets in the year they are first used or installed ready for use for a taxable purpose.

Thanks to recent changes, SBE taxpayers may be entitled to an immediate deduction in the 2019 income year for acquiring certain depreciating assets costing up to$30,000 (net of entitlement to GST input tax credits) for assets used or installed ready for use from 7:30pm AEST on 2 April 2019 until 30 June 2019.

Assets acquired prior to 2 April 2019 may also be eligible for immediate write-off,although the thresholds may be lower (e.g., the threshold is $20,000 for assets used or installed ready for use from 1 July 2018 until 28 January 2019, and$25,000 for assets used or installed ready for use from 29 January 2019 until 7:30pm AEST on 2 April 2019).

On top of this, for the first time, medium sized businesses (with an aggregated turnover of less than $50 million) may also be eligible to claim an immediate deduction for acquiring assets from 2 April 2019.

Editor:While helpful, these changes have complicated matters for the 2019 year, so please contact us if you need any help.


Paying super to backpackers

The ATO has issued the following reminders to employers, that backpackers on working holidays:

  • are considered temporary residents, and are entitled to superannuation guarantee if they are paid $450 or more before tax in a calendar month; and
  • who leave Australia can claim the super paid to them as a Departing Australia superannuation payment ('DASP'), providing all requirements are met.

Anyone employing backpackers should:

  • check they hold a valid visa using the Visa Entitlement Verification Online ('VEVO')service;
  • use the ATO's Super guarantee eligibility decision tool to determine if they are eligible for super;
  • offer them a choice of super fund if requested, and follow the same steps as for any other worker before they start working for the employer; and
  • advise them that they can start their DASP application using the ATO's free online application system while they are in Australia.

Cryptocurrency data matching program

The ATO is collecting bulk records from Australian crypto currency designated service providers ('DSPs') as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax, and correctly meeting their tax (and superannuation) obligations.

The ATO will collect data from cryptocurrency DSPs to identify individuals or businesses who have or may be engaged in buying, selling or transferring cryptocurrency during the 2014/15 to 2019/20 financial years (the ATO estimates that there are between 500,000 toone million Australians that have invested in crypto-assets, including SMSF trustees).

Editor:The ATO has also noted that cryptocurrency can be considered a "high risk,volatile investment", and they have already seen incidences of SMSF's losing significant amounts of their retirement savings.

They strongly recommend all trustees undertake their own investigation and appropriate due diligence before investing with any organisation investing super assets into cryptocurrency holdings.

Employees and payment summaries

The ATO has also reminded employees that how they get their end of financial year information from their employer, showing their earnings for the year, depends on how their employer reports their income, tax and super information to the ATO.

Specifically:

  • Employers that are not yet reporting through STP will continue to provide employees with a payment summary by 14 July.
  • Employers that report through STP are no longer required to give employees a payment summary; instead this information will be provided in an 'income statement', available via the employee's myGov account by 31 July (i.e., when the employer marks it as 'Tax Ready').

Editor:We will be able to access employee clients' payment summaries or income statement information through our connections with the ATO (this has not changed).

Please contact our office if you have any queries about STP (whether as an employer or employee).

Single Touch Payroll Update

Employers with 19 or fewer employees are required to start reporting through Single Touch Payroll (‘STP’) from 1 July 2019.

The ATO will be working with employers to support them as they transition to STP, including allowing small employers to start reporting any time from 1 July to 30 September (and the ATO will also be "generous" in granting deferrals to small employers who need more time to start STP reporting).

Note also that employers with 19 or less employees do not need to report 'closely held payees' in 2019/20 and can report closely held payees information quarterly from 1 July 2020.  

Single Touch Payroll & PAYG Summaries

If your employer is using Single Touch Payroll you will no longer be provided with a payment summary. Your payment summary information will now be called an income statement and will be available in ATO online in myGov.

 

If your employer is using Single Touch Payroll you will no longer be provided with a payment summary. Your payment summary information will now be called an income statement and will be available in ATO online in myGov.

 

What you need to know:

 

›             your employer will not be providing you with a payment summary

›             your payment summary information will be called an income statement in ATO online in myGov

›             you will need to log into your myGov account, select ATO online services, click on my profile, select my employment and then income statement to access this information

›             we as your tax agent will receive your income statement information directly from the ATO though our online portals

›             if you don't have access or cannot create a myGov account and don't use a registered agent then you will need to call the ATO on 13 28 61 and the ATO will provide this information to you.

 

If you need help creating or logging in to your myGov account and linking to the ATO's online services, you can access helpful information at ato.gov.au/onlineservices

BMT’s top tax time tips for property investors

With tax time fast approaching, here are five tax time tips to ensure you maximise the deductions for your investment property.

 

1. Understand what deductions you’re entitled to

 

As a property investor, you’re entitled to a range of tax deductions. These will help lower your taxable income and make owning an investment property more viable.

 

For example, some of the tax deductions available to investors include deductions on council rates, the interest from a mortgage,property management fees, land taxes, strata fees, maintenance costs,insurance, accounting fees and depreciation.

 

Of these deductions, depreciation is the most commonly missed. This is because it’s a
non-cash deduction and the owner doesn’t need to spend any money to be eligible to claim it. Research suggests 80 per cent of property investors are missing out on the depreciation deductions they’re entitled to.

 

During the 2017-2018 financial year BMT Tax Depreciation found their clients an average of $8,212 in depreciation deductions in the first year alone for residential properties. These deductions shouldn’t be overlooked and could inject healthy cash flow back into your investment.

 

A BMT Tax Depreciation Schedule outlines all the deductions you can claim for your property. The schedule lasts for forty years and the fee is 100 per cent tax deductible.

 

2. Don’t wait until the next financial year to make a claim

 

If your property has only been income producing fora short time, you will still be able to make a partial-year claim.

 

The Australian Taxation Office (ATO) allows investors to make a depreciation claim based on the amount of days a property was available for lease. This rule applies if you’ve only recently purchased an investment property, if the property was only listed as available for part of the year or if is a holiday home only rented for part of the year.

 

3. If you’ve made updates to your property, you may need to amend your tax depreciation schedule

 

If you’ve made any updates to your property in the past financial year, such as a renovation, it’s a good idea to get in touch with your Quantity Surveyor to see if you will require an updated depreciation schedule.

 

It’s important to be aware there is a difference between repair and maintenance and a capital works improvement, as this will affect your claim. The cost of any repairs or maintenance can be claimed in full in the same financial year work is completed. However, a capital improvement occurs when you improve the condition of a structural item or asset beyond its original state at the time of purchase. Such improvements are capital in nature and must be depreciated over time.

 

An updated tax depreciation schedule may be required after a renovation to capture all newly installed plant and equipment assets or capital works expenditure and in some circumstances, items removed during a renovation can be scrapped and any remaining deductions written off.

 

5. Discuss tax depreciation deductions with your Accountant

 

An Accountant should be recommending you claim depreciation for your investment property. They can organise a schedule on your behalf or refer you to a Quantity Surveyor, but they can’t estimate construction costs or provide you with a tax depreciation schedule. Only a qualified Quantity Surveyor can do that.

 

Quantity Surveyors are one of the few professionals recognised under Tax Ruling 97/25 as  having the appropriate construction costing skills to estimate building costs for depreciation.

 

However, not all Quantity Surveyors specialise in tax depreciation. Only a tax depreciation specialist such as BMT can be relied on to maintain detailed knowledge of all current ATO Tax Rulings relating to depreciation.

 

Once you have a tax depreciation schedule completed, your Accountant can input these deductions into your annual income tax return.

 

6. It’s not too late to claim on past years’ deductions

 

Investment property owners often enquire about a property they haven’t claimed depreciation for they have owned and rented for a number of years.

 

The ATO allows tax returns to be easily adjusted for two years after the initial submission. This enables property owners to recoup some of the deductions that may have been missed.

 

To start claiming or maximising your depreciation deductions with BMT, Request a Quote now or call an speak to a depreciation expert on 1300 726 728.

 

Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is theChief Executive Officer of BMT Tax Depreciation.  
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.

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