The end of the financial year (now commonly referred to everywhere as EOFY) is approaching,
and it is worth spending some time making sure you are prepared for your 2017 Tax Return.
It also is worthwhile reviewing the rules expected to change from the 1st July 2017.
Tax Hints for Tax Time Preparation
- Account for all your sources of income during the year, particularly if your have had several jobs or received Centrelink benefits for part of the year.
- Make sure you have receipts for all your work related deductions. Some expenses like union fees can be taken straight from your annual PAYG Summary, but most require their own receipt.
- If you have made tax deductible donations during the year, you will need receipts for these.
- If you use your car for work make sure you have a calculation of how many km you have travelled and if you require a log book make sure it is up to date.
- Any other work related travel expenses will require diarised notes of where and when you travelled, the purpose of the travel and receipts for fares, accommodation and any other expenses.
- Did you purchase any uniform or protective clothing for work purposes?
- Did you undertake any study that was directly related to your work activities?
- If you studied or worked from home, how many hours per week?
- If you were required to use your personal internet or mobile phone, have you made an effort to establish the percentage usage for work?
- You will need details of any earnings from bank interest, share dividends and managed funds.
- If you sold any investments you will need both purchase and sales details if there is a capital gains calculation to be completed.
- Have you checked your insurances to see if they include tax deductible income protection premiums?
Small Business Owners
Many of the hints for individuals are transferrable to small business owners. However, there are some specific reminders that may apply to business owners.
- Have you reviewed your debtors to see if there are any bad debts to be written off?
- Do you have any obsolete stock or equipment that can be written off prior to 30 June?
- Are all your staff obligations for PAYG Tax and Superannuation up to date?
- Have you disposed of any capital equipment or bought any new equipment?
- Is any of the new equipment worth less than $20,000 and available for immediate write-off?
- Have you sat down and completed a tax planning exercise to in the past quarter?
Investment Property Owners
- Ask for an annual statement of income and expenses from your rental property manager
- Account for all the expenses paid directly by you in relation to the property – usually rates, water, body corp, insurance and some repairs.
- Have you checked whether you have a current depreciation schedule for the property.
- Have you diarised any travel expenses for maintenance and property expenses (still claimable in 2017)
Tax Time Appointment Options
Our offices are open all year round from 8am to 5pm. During tax season, from July to October, there will be extra evening appointments available on Tuesdays and Thursdays, plus some on Saturday mornings. To book phone 07 33595244 or email firstname.lastname@example.org
Our popular email service also will be operating, utilising our updated annual checklist.
Key Tax Changes from 1 July 2017
Investment Property: Pre And Post 30 June
Recent media attention on deductions, affordable housing, and negative gearing have resulted in some announced changes in this area.
The key tax issues for property investors pre and post 30 June include:
No more deductions for travelling to and from your investment property
The days of writing-off the costs of travel to and from your residential investment property are about to end. From 1 July 2017, the Government intends to abolish deductions for travel expenses related to inspecting, maintaining, or collecting rent for a residential rental property.
Depreciation changes and how to maximise your deductions now
Investors who purchase residential rental property from Budget night (9 May 2017, 7:30pm) may not be able to claim the same tax deductions as investors who purchased property prior to this date. In the recent Federal Budget, the Government announced its intention to limit the depreciation deductions available.
Investors who directly purchase plant and equipment such as ovens, air conditioning units, swimming pools, carpets etc., for their residential investment property after 9 May 2017 will be able to claim depreciation deductions over the effective life of the asset.
However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property. If you are not the original purchaser of the item, you will not be able to use the depreciation rules to your advantage. This is very different to how the rules work now with successive owners being able to claim depreciation deductions.
Investors will still be able to claim capital works deductions including any additional capital works carried out by a previous owner. This is based on the original cost of the construction work rather than what a subsequent owner paid to purchase the property.
Business as usual for pre 9 May investment property owners
If you bought an investment property recently, are about to renovate, or have not had a depreciation schedule completed previously, you should consider having one completed.
As a property gets older the building and items within it wear out. Property owners of income producing buildings are able to claim a deduction for this wear and tear. Depreciation schedules are completed by quantity surveyors and itemise the depreciation deductions you can claim.
The value of renovations
It’s best to get a depreciation schedule completed before you start renovations so the scrap value of any items you remove can be recognised and written-off as a 100% tax deduction in the year of removal. This is available for both plant and equipment depreciation and capital works deductions. When new work is completed as part of the renovations (i.e., a new roof, walls, or ceiling), this can also be depreciated going forward.
In some circumstances, there may be depreciation deductions available for renovations completed by a previous owner.
Deductions for older properties
Investors in older properties may still be able to claim depreciation costs. This is because a lot of the items in the house will not be the same age as the house or apartment. Hot water systems, ovens, carpets, curtains etc., have probably all been replaced over time. Additional works, extensions or internal refurbishments may also be deductible. **If you are not sure whether a depreciation report will be worth it for your investment property – contact BMT and they will be able to advise you.
Further restrictions on foreign property investors
We have seen a number of measures over the years restricting access to tax concessions for foreign investors, particularly for residential property investments. The recent Federal Budget goes one step further, restricting access to tax concessions, increasing taxes, and penalising investors who leave property vacant. Measures include:
- Charge for leaving properties vacant – Foreign owners of residential Australian property will incur a charge if their property is not occupied or genuinely available on the rental market for at least 6 months each year. The charge, which is expected to be at least $5,000, does not appear to apply to existing investments but those made on or after Budget night, 7:30pm on 9 May 2017.
- Excluded from main residence exemption – Foreign and temporary residents will be excluded from the main residence exemption. The main residence exemption excludes private homes from capital gains tax (CGT). Existing properties held prior to 9 May will be grandfathered until 30 June 2019. However, it remains to be seen whether partial relief will be available to those who have been residents of Australia for part of the period they owned the property and whether this change will apply to Australian residents who were classified as a foreign resident for part of the ownership period.
- Increase in CGT withholding tax – When someone buys Australian real property (i.e., land and buildings) they are currently required to remit 10% of the purchase price directly to the ATO as part of the settlement process unless the vendor provides a certificate from the ATO indicating that they are an Australian resident. These rules do not currently apply if the property is worth less than $2 million. From 1 July 2017, the CGT withholding rate under these rules will increase by 2.5% to 12.5%. Also, the CGT withholding threshold for foreign tax residents will reduce from $2 million to $750,000, capturing a much wider pool of taxpayers and property transactions.
- Rules tighten for property purchased through companies or trusts – Australian property held through companies or trusts by non-residents or temporary residents is also being targeted by expanding the principal assets test to include associates. The move is to prevent foreign residents avoiding Australian CGT liability by splitting indirect interests in Australian real property.
- Level of foreign investment in developments capped – a 50% cap is being placed on foreign ownership in new developments.
Super Reform: What SMSFs Absolutely Need To Consider Before 30 June
The wide-ranging superannuation reforms come into effect on 1 July 2017. With the changes come a series of issues that Trustees need to be across, even if they do not immediately affect you or your fund:
Understand the value of assets at 30 June
At 30 June 2017, SMSF Trustees will need to know the total superannuation balance held by members. If you have assets such as real estate in your SMSF, and to an extent other assets such as collectables, and artwork, you will need to have a current valuation of those assets. Real estate property values in particular may have varied dramatically over the last few years and should be reviewed. The value of the asset needs to be arrived at using a fair and reasonable process. Because of the extent of the changes, it is worth considering the use of an independent and qualified valuer for some assets.
Your total superannuation balance is the total value of your accumulation and retirement phase interests and any rollover amounts not included in those interests. The balance is valued at 30 June each year and it is this value that may determine what you can and cannot do during the following year. For example, if your total super balance is $1.6m or more at 30 June, you are restricted from making further non-concessional contributions in the next year as these contributions may create an excess contribution. And, if your balance is close to the $1.6m cap, then the fund can only accept limited non-concessional contributions.
Self funded retirees – avoiding adverse tax outcomes
If you are receiving a pension or annuity, a $1.6m “transfer balance cap” applies to amounts in your tax-free pension accounts. The cap is essentially a limit on how much money a member can transfer into or hold in a tax-free account. If you have $1.6m or more in a pension phase account, you will need to reduce the pension value level back below the cap before 30 June 2017. If the excess amount is not removed from the pension phase account the amount will be subject to a transfer balance tax.
If you opt to sell fund assets to manage the cap, transitional capital gains tax relief may be available to manage any adverse tax outcomes.
How do you value SMSF assets?
One of the emerging problems for many superannuation fund members is understanding whether they are close to or are likely to exceed the $1.6m cap at 30 June 2017. For those with assets such as real estate, collectables or art, a current valuation that meets the ATO’s guidelines will be essential. Real estate in particular has substantially risen in value in some areas creating uncertainty about the real value.
Fund assets need to be valued at market value. While these assets do not have to be valued every year by an independent valuer, it will be important to have documentation validating the value assigned to the asset. A qualified and independent valuer is recommended if the asset is a significant part of the value of the fund – if the asset is real property, this could be as simple as an online real estate agent.
Should you update your SMSF trust deed?
Over the years there have been continuous changes in superannuation legislation. While many of these changes do not require you to update your SMSF deed, where a deed has not been updated in at least the last 5 years, we suggest that the deed is updated to ensure it is compatible with current law.
If we have not already contacted you about your fund’s deed, we will be in contact shortly to discuss if an update is required.
As always, before buying, selling, transferring assets, or making any payments, make sure your trust deed allows you to complete the transactions in the way you intended.
Salary sacrificing concessional super contributions
If you have entered into a salary sacrifice agreement to make concessional super contributions, you will need to review these agreements to ensure your concessional contributions do not exceed the new $25,000 from 1 July 2017.
Source: Kaplan 2017. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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