Surviving the silly season

Ah, Christmas! – the time of year when your bank account shrinks, your social calendar explodes, and your family dynamics resemble a poorly scripted soap opera. As we navigate this festive minefield of shopping, social gatherings, and feasting, it’s common to feel a little frazzled.

In fact, research has found that the holiday season is one of the six most stressful life events we go through, in the same category as moving house and divorce.i

But it does not have to be – before you let the silly season get the better of you, here are some ways to not just survive, but thrive, to make it through the festive chaos and bring in 2025 feeling energised and on track to reaching your goals. 

Get organised

Let’s face it, the silly season is a whirlwind. Between work parties, family catch-ups, and obligatory gatherings with distant relatives you only see once a year, it’s enough to make anyone want to retreat to a deserted island.

However, rather than running off to Bora Bora, if you want to survive the silly season relatively unscathed, planning ahead is a must. With the social calendar filling up quicker than you can say cheers, it becomes easy to overcommit and leave yourself feeling a little stretched. Rather than maintaining a constant schedule of parties and social engagements, why not learn the power of saying ‘no’. Choose the events you really want to attend and think about each invitation before you send that RSVP. Remember to allow for some guilt-free ‘down time’ amongst all the festivities.  

Shopping shenanigans

Shopping during the silly season can be akin to a scene from an action movie—chaotic, frenzied, and with a distinct chance of an all-in brawl.

Channel your inner Santa Claus and make a list. And yes, check it twice! A good list keeps you focused and reduces the chances of impulse buys—like that life-sized inflatable Santa that seemed like a good idea at the time. (Spoiler alert: it wasn’t.)

Consider shopping online, too. You can sip your coffee in your pyjamas while avoiding the chaos of the shops. Just remember: the delivery cut-off dates are real! Don’t be the person frantically searching for gifts at 9 PM on Christmas Eve.

The present predicament

Let’s talk presents. It’s lovely to give and receive gifts, but when did we all agree that every adult needs a new mug or another pair of socks?

To combat the gift-giving madness, consider doing a Secret Santa among adults. Set a reasonable budget and unleash your creativity. Who doesn’t want a mysterious gift that could range from a novelty toilet brush to a box of chocolates? 

Navigating the family dynamics

Family gatherings can be a delightful mix of love, laughter, and the occasional argument that would make for great reality TV. You know the drill—everyone has an opinion, and even the Christmas ham can become a hot topic of debate.

Before the big day, set some ground rules. No politics, no discussing that relative’s questionable life choices, and absolutely no karaoke unless everyone is fully prepared to participate. If tensions start to rise, a little humour can go a long way. Embrace the absurdity of it all. If Uncle Bob starts arguing about the best way to cook prawns, counter with a story about how Auntie Sheila once tried to deep-fry a turkey—because that’s a Christmas classic in its own right.

Don’t try to do it all

If you’re hosting this year, congratulations! You’re officially in charge of managing the chaos. But you don’t have to shoulder the entire load.

Encourage those who are coming to bring their ‘special’ dish. Not only does it lighten your load, but it also allows everyone to show off their culinary skills (or lack thereof). Plus, you might discover that Aunt Margaret’s “special” potato salad is actually a hidden gem—just don’t ask what’s in it. 

Survive and thrive

At the end of the day embrace the chaos, lean into the hilarity of when things don’t go to plan, don’t take it all too seriously and be prepared to step back a little when you need a break from all the festivities.

Here’s to a joyful festive season filled with laughter and the wonderful chaos that is Christmas. We’ll catch you on the other side. Cheers!

i Christmas stress | Relationships Australia

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SMSFs: keeping it in the family

Self managed super funds (SMSFs) can offer their members many benefits, but one that’s often overlooked is their potential as a multigenerational wealth creation and transfer vehicle.

Family SMSFs are relatively rare. According to the most recent ATO statistics (2022-23), the majority of SMSFs (93.2 per cent) have only one or two members.i Just 6.6 per cent have three or four members and only 0.3 per cent have five or six members (the maximum allowed).

Advantages of a family SMSF

An SMSF is sometimes established when two or more generations of a family share ownership or work in a family business. The fund can then form part of a personal and business succession plan, potentially making it easier to pass on ownership and management of assets to the next generation.

With more members, SMSFs also gain additional scale, allowing them to invest in larger assets (such as property). You can add business premises to the SMSF and lease it back without violating the related parties rule and 5 per cent limit on in-house assets.ii

Reduced tax and administration costs are also a benefit of multigenerational funds.

Running a family SMSF means the costs of establishing and administering the fund are spread across more members. This can be particularly helpful for adult children just beginning to save for their retirement.

In addition, more fund members means more people to share the administrative burdens of running an SMSF, which may be helpful as you get older.

A family SMSF does not need to be automatically wound up if you die or lose mental capacity and they can simplify the process of paying out a member death benefit as well as potentially allowing it to be paid tax-effectively. Note that death benefits paid to non‑tax dependent beneficiaries incur a tax rate of up to 30 per cent plus the Medicare levy.iii

More fund members also make setting up a limited recourse borrowing arrangement (LRBA) easier because their contributions reduce the fund’s risk of being unable to pay the borrowing costs. (An LRBA allows an SMSF to borrow money to buy assets)

Funding pension payments

Another advantage of an SMSF with up to six members may be when the fund begins making pension payments to older members.

If younger members are still making regular contributions, fund assets don’t need to be sold to make pension payments, which avoids the realisation of capital gains on assets.

Family SMSFs can also provide non-financial benefits, helping to transfer financial knowledge and expertise between the generations. And, while your children gain a solid financial education from participating in the running the SMSF, they can also provide valuable investment insights from a different perspective.

Risks and responsibilities

It is important to note that a multigenerational SMSF may not be right for everyone.

SMSFs of any size come with some risks and responsibilities. You are personally liable for the fund’s decisions, even if you act on advice from a professional, and your investments may not provide the returns you were hoping for.

Before you start adding your children and their spouses to your fund, it’s essential to spend time thinking about the challenges in running a family SMSF. Developing an asset allocation strategy catering to different life stages can be complex. Older members may prefer a strategy designed to deliver a consistent income stream, while younger members are usually more focused on capital growth.

Risk profiles are also likely to vary. Typically, younger fund members have a higher appetite for investment risk than members closer to retirement.

Family conflict can also be an issue when relationships are under pressure from divorce, blended families, and personality clashes.

The death of a parent can also create disputes over the distribution of fund assets or forced asset sales. Decisions about the payment of death benefits by the remaining trustees can derail carefully made estate plans and result in expensive legal battles.

Larger families with multiple adult children and partners may also find the six member limit an obstacle, forcing them to look at other options such as running a number of family SMSFs in parallel.

If you would look more information about establishing a family SMSF, call our office today.

i SMSF quarterly statistical report June 2024 | data.gov.au

ii Related parties and relatives | Australian Taxation Office

iii Paying superannuation death benefits | Australian Taxation Office

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Super vs property: what works for retirement income?

There is no debate that Australians love investing in property. The value of Australian residential real estate at the end of August 2024 was an estimated $10.95 trillion.i

Some love it so much that they believe property is a better option for providing a retirement income. They see a bricks and mortar investment as a more tangible and solid approach than say, superannuation, preferring to take their super as a lump sum on retirement to buy property. They may also choose to invest a windfall, such as an inheritance, or the proceeds from downsizing the family home, in property instead of their super.  

So, given that a retired couple above age 65 needs an estimated yearly income $73,337 to lead a comfortable lifestyle, could a property investment do the job?ii

While it’s true that a sizeable property portfolio could deliver rental income to equal a super pension, it might mean missing out on some useful benefits.

After all, super is a retirement savings structure with significant tax advantages. It also has the flexibility to provide investments in a range of different asset classes, including property.

Meanwhile, super fund performance has, generally speaking, outstripped house price movements over the past decade. Super funds (invested in an all-growth category) returned an annual average of 9.1 per cent during that time while average house prices in Australian capital cities grew 6.5 per cent per year over the same period.iii, iv

Not that past performance can give you any guarantees about what will happen in the future. Indeed, the average numbers smooth out the years of high returns and the years of negative returns. More important considerations in making an informed decision are your financial goals, your investment timeframe and how much risk you’re comfortable with.

Liquidity

One of the most significant differences between super and property investments is liquidity, or how quickly you can convert your investment to cash.

With super, assuming you’re eligible, funds can be accessed relatively easily and quickly. On the other hand, if your wealth is tied up in property it may take some time to sell or it may sell at a lower price.

Nonetheless, market cycles affect both property and super investments. They can be affected by volatile conditions and deliver negative returns just at the time you need access to a lump sum.

Long-term investing

Superannuation is designed for long-term growth, often spanning decades as you accumulate wealth over your working life. The magic of compounding interest can lead to substantial growth over time, depending on your investment options and the state of the market.

Property investments, on the other hand, can be invested for short, medium, and long-term growth depending on the suburb, the street, and the type of house you invest in. Of course, there are additional costs in buying a property (such as stamp duty) plus costs in selling (including capital gains tax). If there’s a mortgage over the property, you’ll need to factor in the additional costs of repayments and interest (bearing in mind that interest on investment properties is tax deductible).

Risk appetite

Investors’ attitudes towards risk also play a role in choosing between super and property.

Superannuation funds can be diversified across various asset classes, which helps to reduce risk. But property investments expose investors to a single market meaning that while there might be a big benefit from an upswing, any downturn may be a blow to a portfolio.

Making an informed choice

Ultimately, any decision between superannuation and property should align with individual financial goals, risk tolerance, and investment strategies. And, of course, it doesn’t need to be one or the other – many choose to rely on their super while also holding investment property so it’s best to understand how super and property can complement each other in a well-rounded retirement plan.

We’d be happy to help you analyse your retirement income strategy to develop a plan that works for you.

i Monthly Housing Chart Pack – September 2024 | CoreLogic Australia

ii ASFA Retirement Standard – June quarter 2024 | The Association of Superannuation Funds of Australia Limited (ASFA)

iii Super funds deliver strong result in FY24 | Chant West

iv SQM Research Weekly Asking Property Prices , 1 October 2024 | SQM Research

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Market movements and review video – November 2024

Stay up to date with what’s happened in the Australian economy and markets over the past month.

Welcome news on the inflation front in October pointed to the Reserve Bank of Australia (RBA) holding steady on rates this month.

The latest quarterly inflation figures show inflation has slowed to its lowest level since the height of the pandemic and now sits within the RBA’s target range at 2.8%.

Global share markets softened in the final two weeks of October, reflecting economic and geopolitical uncertainly.

The S&P/ASX 200 closed slightly down over the month of October, after again reaching record highs mid-month.

With the US election on the horizon there is much speculation about what that will mean for markets and the economy, both in the US and Australia.

Click the video below to view our update.

Please get in touch if you’d like assistance with your personal financial situation.

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The Age Pension and your retirement plans

Most people intend to retire between ages 65 and 66, according to the latest data and, surprisingly, despite growing superannuation balances, the Age Pension is the main source of income for many retirees.i

The intended retirement age has increased significantly in the last two decades, from just over 62 years on average in 2004.

Australian Bureau of Statistics (ABS) figures show that, in 2022-23, a government pension or allowance was still the main source of personal retirement income. This was followed by super, an annuity or private pension.

More than 60 per cent of those aged over 65 years were receiving the Pension in 2021ii

Am I eligible?

It is important to remember that, while you may not meet the eligibility requirements today, you may qualify later in life.

In 2021, only 44 per cent of people aged 65-69 received either full or part Age Pensions but this increased to 81 per cent for those aged 80 to 84 years.iii

Veterans who have served in the Australian Defence Force may be eligible for pensions or benefits from the Department of Veterans Affairs.iv

You are generally eligible for the Age Pension if you:

  • are over 67 years (depending on when you were born)
  • are an Australian resident and have lived in Australia for at least 10 years
  • can meet an income and assets test

What are the income and assets tests?

The Age Pension means tests considers your income and the value of any assets you own. If the value of your income and assets exceed certain limits, your payment will be reduced.

Income includes money from a job (including salary packaging), other pensions or annuities, earnings from investments and any earnings outside of Australia.v

Assets are items of value you or your partner own or have an interest in such as investment properties and artworks; caravans, cars, and boats; shares; and business assets. While your family home isn’t included in the assets test, your pension may be affected if you sell it.vi

Can I still work?

Singles can earn up to $212 per fortnight without their pension being affected. For every dollar over that amount, their pension will be reduced by 50 cents. Couples can earn up to $372 per fortnight and for every dollar over that amount, 25 cents in the dollar will be deducted from their pension payment.vii

If your income in a fortnight goes over a certain amount, you will not receive a pension payment. This cut-off amount is $2500.80 for a single person and a combined $3,833.40 for a couple. There are other higher cut-off allowances for those affected by ill-health.

The Work Bonus may help you earn more from working without reducing your pension. You don’t need to apply for it, the Bonus will be automatically applied to your eligible income – you just need to declare your income.viii

What does the Age Pension pay?

There are different rates of pension for singles and couples.

The current maximum basic rate for a single person is $1047.10 per fortnight. A couple would receive 1,578.60 per fortnight. With extra supplements, those on a full Pension could receive a fortnightly total of $1,144.40 for singles and $1,725.20 for couples.ix

Get in touch if you’d some help to work out your eligibility for the Age Pension and other government entitlements.

i Retirement and Retirement Intentions, Australia, 2022-23 financial year | Australian Bureau of Statistics (abs.gov.au)

ii, iii Age Pension guide | SuperGuide

iv Eligibility for benefits and payments | Department of Veterans’ Affairs (dva.gov.au)

v Income – Age Pension | Services Australia

vi Asset types – Age Pension | Services Australia

vii Income test for Age Pension – Age Pension | Services Australia

viii Who can get the Work Bonus – Work Bonus | Services Australia

ix How much Age Pension you can get – Age Pension | Services Australia

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Selling your investment property? Watch out for tax

If you are considering disposing of a property, it’s important to understand the implications so that there are no surprises when your tax bill arrives.

As with most investment assets, when you dispose of an investment property generally you are liable for capital gains tax. Capital gains tax (CGT) is levied when you make a profit on selling and is part of your income tax, rather than a separate tax.i

When you dispose of an investment asset, your capital gains and losses must be reported in your tax return. The capital gain or loss is the difference between what it cost you to obtain and improve the property (the cost base) and the amount you receive when you dispose of it.ii

The CGT event is triggered when you enter into the sales contract, not when you settle on the property.

Capital gains must be included in your tax return for the income year the property is sold, while capital losses can be carried forward and used in future years.iii

Under the 6-year rule, you may be entitled to a part or full main residence exemption if you lived in the investment property before renting it out. This rule allows you to continue treating a property as your main residence for up to six years if you use it to produce income.iv

Other taxes to check before selling

In most situations, you are not required to add goods and services tax (GST) to the sale price when selling an investment property.

GST does, however, need to be applied to the sale of newly built and redeveloped properties. This may apply even if you are not a business.v

In some states (such as NSW), land tax is levied on investment properties over a certain value, so it’s important to ensure you pay any land tax bills prior to selling.

How CGT works

When it comes to CGT, you pay tax on your net capital gains, which is your total capital gains less any capital losses less any discount you are entitled to on your gains.vi

An important factor in the CGT calculation is when you purchased the investment property and how long you have held it.

If you sell within the first year of ownership, 100 per cent of your capital gain will be subject to CGT. If you sell after 12 months only 50 per cent is subject to CGT. For example, if you sell your property two months after purchase and make a capital gain of $10,000, the entire $10,000 is subject to CGT, but if it’s sold after the first year, only $5,000 is subject to CGT.

Property acquired before 20 September 1985 is exempt from CGT as this was the introduction date for CGT.

Calculating your capital gain or loss

Correctly calculating your capital gain or loss requires you to identify all the legitimate expenses contributing to your property’s cost base.

This usually includes items such as the price paid for the property, costs of transfer, stamp duty and selling costs (such as advertising, accounting and agent’s fees).

You can also include the cost of owning the CGT asset (such as rates, land taxes and insurance premiums), but you are not permitted to include amounts already claimed as a deduction (such as depreciation and capital works).

If you acquired your property before 21 September 1999, you can index its cost base for inflation to reduce your capital gain.vii

For more information about the tax implications of selling your investment property, call our office today.

i What is capital gains tax? | Australian Taxation Office (ato.gov.au)

ii Cost base of assets | Australian Taxation Office (ato.gov.au)

iii CGT when selling your rental property | Australian Taxation Office (ato.gov.au)

iv Treating former home as main residence | Australian Taxation Office (ato.gov.au)

v GST and property | Australian Taxation Office (ato.gov.au)

vi Calculating your CGT | Australian Taxation Office (ato.gov.au)

vii Indexing the cost base | Australian Taxation Office (ato.gov.au)

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Run2Cure by Gabriel Guppy

On Friday the 18th of November I set out to run 100km around the local Yarragon Football oval to help raise awareness and funds for Neuroblastoma, a cancer affecting young children of which on average are just 2 years of age,

Our family has been affected by this terrible cancer with my nephew being diagnosed with stage 4 Neuroblastoma at 8 weeks old, thankfully he has been in remission for two years.

Throughout the day 20-30 people took part running lap after lap in the rain and many PB’s were achieved which made the km’s tick over much quicker,

My nephew and his brother were able to come along for the final few laps to run them with me,

Almost $3,000 was raised to add to Paddy’s tally by the end of the run.

QR code for donations

Paddy (Left) and his big brother Harry (Right)

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Which business structure is best?

A catchy business name, a trustworthy brand and an engaging website or social media presence are all vital to any small business. But don’t underestimate the effect of the business structure.

Choosing whether to operate as a sole trader, company, partnership or trust depends on many factors including cost, the size of the business, whether you have dependants and family members to share income with, and the degree of financial or legal risk involved in running the business.

Sole trader

Many small operators start out as a sole trader, and some decide to continue with this structure.

On the positive side, it’s easy to set it up and, with fewer business reporting obligations, it’s cheaper to run than other business structures.

There are one or two considerations that, depending on your circumstances, could mean a sole trader structure doesn’t work for you.

One of these is the extent of your liability if things go wrong. When you’re a sole trader your liability is unlimited, meaning your assets are at risk in the case of legal action. Some businesses may consider their risk to be too low to warrant changing the business structure or they may choose to find an insurance product to provide some protection.

Tax is another consideration. Among other issues, as a sole trader, you’re liable to pay tax on all income received by the business and you can’t split profits or losses with family members.i

Partnership

Two or more people can form a business partnership and distribute business income among themselves.

Like a sole trader structure, a partnership structure can be slightly cheaper to operate because there are minimal reporting requirements.

All partners are liable for all the debts and obligations of the business although there are different types of partnerships that vary liability among the partners.

For tax purposes, each partner reports their share of the partnership income or loss in their own return and pays tax on any income. Partners cannot claim a deduction for any money they withdraw from the business. Amounts taken from a partnership are not considered wages for tax purposes.ii

Company

A company structure has a number of advantages over a sole trader or partnership structure, but it costs more to set up and operate and there are more reporting requirements.

A company is considered a separate legal entity and has its own tax and superannuation obligations, but company directors have a number of legal responsibilities.

Companies pay an annual fee to be registered with the Australian Securities and Investments Commission (ASIC) and they usually cost more to put together the necessary annual accounts and tax return.

On the plus side, you will be able to employ yourself and claim a tax deduction for your wages.

But be aware of the Personal Services Income (PSI) rules. If more than 50 per cent of the income of the business is produced by your personal exertion, it’s considered PSI and you will pay tax at your marginal rate, rather than the lower company tax rate. This rule affects taxpayers with any business structure.

Trust

A trust is the most expensive and complex business structure to operate but it might be the most appropriate for your needs.

There are some pluses and minuses so expert advice from your accountant and lawyer is crucial. You will need help to decide on the type of trust, to set up a formal trust deed and to carry out annual administrative tasks.

On the positive side, there may be tax advantages and there are some protections from financial and legal liability.

On the flip side, all income earned must be distributed to beneficiaries each year otherwise tax is paid at the highest marginal rate. Also, losses can’t be distributed to beneficiaries, it may be difficult to dissolve or change elements of a trust and it may be more difficult to borrow funds.

Ask for guidance

The importance of choosing the best business structure for your needs and understanding the regulatory requirements is crucial to the success of any small business. Check in with us for expert guidance.

i Sole trader | business.gov.au
ii Business structures – key tax obligations | Australian Taxation Office (ato.gov.au)

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Tax update September 2024

New deductions and employer obligations

Employers need to check that payroll systems reflect recent legislative changes, and the ATO is highlighting deduction opportunities available to some small businesses. Here’s your roundup of the latest tax news.

Updated employer obligations

The ATO is reminding employers to stay on top of legislative changes affecting payroll systems.

The Super Guarantee rate increased on 1 July 2024 to 11.5 per cent of ordinary times earnings, so all payments (starting with those for the July to September quarter) to super accounts for eligible workers must reflect the new rate.i

Individual income tax rate thresholds and tax tables changed also changed on 1 July 2024 so you may need to check calculations for your Pay As You Go Withholding obligations.

Claims for energy expenses

Many small business are eligible for a bonus 20 per cent tax deduction for new assets (or improvements to existing assets), that support more efficient energy usage.

The Small Business Energy Incentive applies to eligible assets first used or installed ready for use between 1 July 2023 and 30 June 2024.ii

Eligible expenditure for external training courses for employees incurred between 29 March 2022 and 30 June 2024 could also qualify for a 20 per cent bonus tax deduction from the Small Business Skills and Training Boost.iii

Pay less capital gains tax (CGT)

While a business can reduce capital gains made during a tax year by offsetting them with capital losses from the same or previous income years, not all capital losses are eligible.iv

Capital losses carried forward from previous years need to be used first, with losses from collectables (such as artwork and antiques) only permitted to be offset against capital gains from collectables.

Losses from personal use assets (such as boats or furniture), CGT exempt assets (such as cars and motorcycles), paying personal services income to yourself through an entity you set up, and leases producing income (such as commercial rental property), are ineligible as offsets.

Fuel tax credit rates change

Before claiming fuel tax credits in your next Business Activity Statement (BAS), check you are using the latest rates as they have changed twice in the new financial year.v

On 1 July 2024, the rate for heavy vehicles travelling on public roads changed due to an increase in the road user charge, with the rate altering again on 5 August 2024 due to a change in fuel excise indexation.

Different rates apply based on when you acquired fuel for your business’ use, so ensure you use the correct rate. If you are unsure, try the ATO’s online Fuel Tax Credit Calculator to work out the amount to report in your BAS.

Records essential for rental expense claims

Rental property investors without correct documentation to substantiate their expense deductions may find their claims declared invalid.vi

The ATO is warning investors they need all receipts, invoices and bank statements plus details of how deductions were calculated and apportioned for a valid claim.

Lodging a ‘nil’ BAS

While taxpayers registered for GST automatically receive a Business Activity Statement and are required to lodge and pay in full by the due date, businesses with nothing to report are still required to lodge.

If you have paused your business, you are required to lodge a ‘nil’ BAS by the due date either online or via the ATO’s automated phone service.vii

i How much super to pay | Australian Taxation Office (ato.gov.au)

ii Small business energy incentive | Australian Taxation Office (ato.gov.au)

iii Small business skills and training boost | Australian Taxation Office (ato.gov.au)

iv Pay less capital gains tax (CGT) | Australian Taxation Office (ato.gov.au)

v From 1 July 2024 to 30 June 2025 | Australian Taxation Office (ato.gov.au)

vi ATO warning to rental property owners: don’t let your tax return be a ‘fixer-upper’ | Australian Taxation Office

vii Cancelling your GST registration | Australian Taxation Office (ato.gov.au)

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Rental investor? How to get your tax return right

With Treasury estimating the government misses out on billions in potential tax revenue from rental property deductions and the ATO recently warning extra care is needed when lodging returns with this type of income, rental investors can consider themselves well and truly in the tax man’s sights.

In fact, the ATO’s Random Enquiry Program (REP) showed 9 out of 10 returns reporting net rental income needed adjustment, leading ATO second commissioner Jeremy Hirschhorn to note: “This is startling and clearly something we need to address”.

So, if you’re a rental property investor, it’s time to ensure you’re getting your deductions right.

Deductions under the microscope

Rental property investors can claim a wide range of deductions for expenses associated with maintaining and financing their property interests. These include interest expenses, capital works and other deductions required to maintain the property.

It’s clear from the REP, however, many rental property investors need to learn a little more about what is deductible and also when they can claim a deduction for the amount.

Although some expenses can be claimed immediately (such as management fees and council rates), other expenses (such as borrowing costs and capital works) must be claimed over a number of years.

Red flags for the ATO

Common mistakes rental property investors are making include failing to include rental income for short-term arrangements and insurance payouts, overclaiming deductions, and claiming for improvements to private properties.

Rental income must be the gross amount received and must be reported in the same financial year the tenant pays.

Another common mistake is claiming an immediate deduction for initial repairs when purchasing. Existing damage must be claimed over several years as a capital works deduction and is also used to work out your capital gain or loss on selling.

Improvements such as renovating a bathroom, are a building cost and must be claimed at 2.5 per cent annually over 40 years from completion, while damaged detachable items costing more than $300 should be claimed as a depreciating asset.

Tips to get your tax return right

When completing your return, it’s essential to apportion both your rental income and deductions in line with your ownership share of the property.

If there is a mortgage over the property and the loan is also used for private purposes (such as a buying a new car or taking a holiday), your interest expenses must be apportioned. This needs to continue for the duration of the loan, even if you repay the personal expense.

Deductions also need to be split to reflect any private use. This also applies if you only use part of the property to earn rent.

Ensure your deductions are in order

Borrowing expenses (such as loan establishment fees and title searches costing over $100) must be deducted over five years. In the first year, these expenses should be apportioned for the number of days of ownership.

Purchase costs (such as conveyancing fees and stamp duty outside the ACT) cannot be claimed but form part of your capital gains tax (CGT) calculations.

Ask the previous owner for details of any capital works deductions claimed so you can correctly calculate your own deductions. Alternatively, hire a qualified professional to estimate previous construction costs.

Although payments to a body corporate administration fund are fully deductible in the year incurred, payments to a special purpose fund for capital improvements or repairs are not immediately deductible.

Don’t forget CGT

It sounds obvious, but it’s essential to have evidence of all your rental income and expenses when lodging a claim. This needs to be retained while you own the property and for five years after selling.

Another tip is to ensure you calculate your capital gain (or loss) correctly when selling.

You are not permitted to include amounts already claimed as a deduction, including depreciation and capital works.

Capital gains must be included in your tax return for the income year the property is sold, while capital losses can be carried forward.

Please don’t hesitate to call if you have any questions regarding the preparation of documentation for your next tax return.

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