Tax Planning 101 - Start Now!

New Years' Eve already, hey? I don't know about you but I can't believe just how quickly it's gone. And, with just a few hours left until the end of this financial year, now is the perfect time to start your tax planning.

For 2010/11, of course.

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Tax Planning 101 - Give & Take

If you've got the cash lying around, I'd like to encourage you to consider making another donation before the end of the year.

It feels good, it makes a difference, and you'll probably get a tax benefit.

Everyone wins.

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Tax Planning 101 - Education Expenses (part two)

Danny's post last week spoke about spending up on your children's education expenses to take advantage of the 50% rebate. We also get a lot of enquiry from clients about claiming their own education expenses, referring in particular to investment education.

There are a couple of things to be aware of, on that one. The first thing is that the first rule of claiming tax deductions is found in Section 8-1 of the ITAA 1997. The short version is that for the expense to be deductible, it needs to relate to your existing income.

So, learning about new ways of earning income doesn't really fall under that description. According to the tax office, neither do courses for personal development, wealth psychology and general wealth creation seminars.

Education expenses that do relate specifically to your existing income streams (say, books and seminars about property management, accounting concepts for property, strategies for increasing rental returns, etc) will usually be much easier to claim.

Often, a course or product will explore a range of different concepts and it's these that fall into more of a grey area. In some cases, you might be able to claim based on the portion that is relevant to you. For example, Positive Real Estate suggest that about 25% of their content is about accounting and depreciation ideas, and so that gives a basis for claiming at least part of their course fees. On the other hand, a book about vendor finance structures might not be deductible at all, for an investor who isn't already wrapping properties before making that purchase.

With this in mind, developing your knowledge and abilities won't always result in a deductible expense for you, but it's always worth asking the question. The real benefit - often overlooked for the tax advantage - is going to be in your increased likelihood of making a profit, anyway!

Tax Planning 101 - Selling Property

If you’ve been preparing to sell an investment property over the last couple of months and are just about ready to get a contract finalised for the sale of that property, you may want to at least consider holding off on that contract until after June 30th, if you’re not doing so already. Just in case you weren't already aware - the CGT trigger is based on the contract date, not when it eventually settles.

Selling your property before the end of June means any profit on that property will be taxed this financial year and you may be required to pay a rather hefty tax bill around March 2011. However, if you wait until July it won’t be included until the 09-10 returns, which means you won’t have to pay that bill until around March 2012!

Note if the property is making a capital loss then delaying doesn’t really hold much benefit; and if you are making a profit on the sale of other assets the capital loss on your property would offset those other gains. If you are in that situation you may want to get the contract for sale finalised as soon as possible.

Another reason for delaying a profitable sale is it could be the difference between being eligible for the 50% discount method and not being eligible. Only assets that have been held for a year or over qualify for this discount.

You should also consider your taxable income for this current year, and what you expect to make over the next twelve months. Sometimes, it does work out better to sell sooner, rather than later, particularly if you plan to sell two properties and doing so means that you can stagger them into separate financial years.

As always if you have any questions or would like to run through the strategies you are looking to employ in regards to your own investments, please feel to give us a call or shoot us an email.

Tax Planning 101 - Buying Trees

Tax-effective "investments" are perhaps a little less popular now than they used to be (for which we can thank Great Southern and Timbercorp), but every now and then they raise their ugly head and people ask us if it's really worthwhile.

Generally speaking, and without giving specific financial advice (of course), I like these things about as much as I like cleaning up after a tenant has trashed a property. There are two main reasons for this;

  • As far as return on investment goes, rarely do we see one of these things make any sense, and,
  • As we've already hinted in this tax planning series, doing things purely for a tax benefit doesn't make any sense either.

After all, if all you want is a massive tax deduction, just let me know and I'll happily write you an invoice.

The tax office like to warn people about some of the more dodgy schemes, as well. We received an email from them today, which I've quoted (in part) below for you;

Making investment decisions - have you done your research?

Are you considering a tax-effective investment? It's important you have all the facts to make an informed decision.

Some investments offer tax benefits such as reducing assessable income or increasing deductions, but end up being outside the law. You can check with the ATO to ensure promised tax benefits will be available.

Find out as much as you can about an arrangement before investing. Make sure the arrangement has a prospectus or product disclosure statement and get independent advice about the promised tax benefits from a professional advisor. A person associated with the scheme is not independent.

Start by visiting and read the Investigate before investing fact sheet. It provides information about tax effective investing and how to detect potential tax avoidance schemes.

You can also check if the arrangement you're considering is covered by an ATO product ruling confirming the tax benefits, or if a Taxpayer alert has been issued warning about the arrangement.

Doing your research will help you avoid negative consequences including having to repay tax and incurring interest and penalties.

So not only do these things (in our experience) often fall short of the expected return, the tax office are also suggesting that many of them will not provide the expected tax benefit, either.

Personally, I think that there are much better ways of organising your affairs to reduce your tax burden.

Tax Planning 101 - Travel Expenses

A little while ago James posted a blog about the traps to avoid when claiming travel expenses in relation to investment property. I’d just like to quickly go through some of the different types of travel you could be thinking about claiming on your next tax return, and how to prepare yourself now.

Firstly, if you own an interstate property, you can claim a deduction for a trip to that property so long as the main purpose for that trip is to inspect / maintain the property. If you are heading interstate for another purpose, but wish to inspect a property while up there, you will still be able to claim a portion of that trip on your return. Make sure you take a travel diary with you that states how long you were away for and how much of the trip was relating to your property. Also, even if you are travelling next financial year, you are often able to claim the flights and accommodation this year so long as you book and pay for them before the end of June.

If you are running your investment activities through a company or a trust, you can usually afford to be a little more creative with your deduction for interstate travel. You can have the investment entity pay you a “travel allowance”, using rates based on the ATO’s reasonable travel allowance rates. If you send us details of how much you spent with receipts, and also how long you were away, we will be able to calculate the way to get the best deduction for you.

Also, don’t forget you can claim a deduction for travelling to more local properties in your car. You can also claim travel to your property manager, accountants and travel to a property that doesn’t have a tenant as long as it isn’t the first time it’s being rented out. If you have a kept a logbook then you can use this to claim your expenses.  Don’t forget that for a logbook to be valid it needs to cover at least 12 consecutive weeks and be less than 5 years old. If you don’t have a logbook, don’t worry. We can claim a deduction for the kms you think you travelled in relation to the property, so long as it’s reasonable. We can only claim up to 5,000kms per car though.

I hope this helps you see where you are in relation to your own properties as tax time approaches, and gives you some ideas on how to maximise those claims.

Tax Planning 101 - Home Office

So there seems to be quite a few of you who do a fair bit of work at home for either your job, or in managing your investments. Good on you! I thought it mightn’t be a bad idea to talk a bit about claiming home office expenses and, of course, the related tax planning tricks.

As you’ve probably figured by now, one of the main keys to tax planning is making tax-deductible purchases before the end of the financial year (and preferably purchases you were going to make sooner or later anyway). Some of these purchases, depending on your circumstances, could include:

  • New computers/laptops
  • Desks, chairs and filing cabinets
  • Software such as MYOB or PIA
  • Stationery and printing supplies
  • Even coffee and biscuits!

So if you think you might need any of these things sometime soon (I know I could go for a biscuit!), it may be in your best interests to stock up before June 30.

As well as the costs of supplies and equipment such as those listed above, we can also claim a deduction for every hour you spend working at home, to cover the costs of heating, lighting and power. Alternatively, you could also make a claim based on the comparative floor space that your dedicated home office takes up and the actual amount paid for gas and electricity.

Of course, you need to be actually working at home, and ideally not just in your lounge room, for reasons relevant to your current situation to keep the tax office happy. If your job legitimately requires you to bring some work home, or if you perhaps have a growing property portfolio you need to manage, we shouldn’t have much trouble claiming many of these things. You also need to be careful with occupancy costs (such as interest, council rates and insurance) as these could potentially cause CGT issues down the track.

This is just one more way you can help us get you the best result come tax time. And as always, do get in touch if you'd like to clarify how these tricks can work for you this year.