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    To have a successful business it is vital to plan ahead. A clearly defined vision makes it easy to achieve your goals. Talk to us about organising a strategic planning session for your business.

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Accounting, Financial Services, Business Coaching, Mentoring, 4U Accountants , QLD, Australia

September 2012 Newsletter

  

Landlords, the ATO and deductions

One in seven taxpayers in Australia are property investors. Each year we claim around $5 billion in rental losses.  So you can understand the Australian Tax Office's (ATO) close scrutiny of the deductions claimed by landlords.  But a recent case before the Administrative Appeals Tribunal (AAT) demonstrates how far the ATO will go to test the boundaries of what is and isn't deductible.

In this case the taxpayer owned a property in country NSW.  The owner stated that the property was available for rent but she had been unable to find tenants.  As a result, the property did not derive any income for a number of years. The owners however had incurred the costs of interest on the property loan, maintenance costs, and rates, which they claimed as a deduction.

The Tax Commissioner had a different view and denied the deductions.  The central issue was whether the property was genuinely available for rent.  If it was not available for rent then the expenses incurred by the taxpayer are not deductible.  If the property was available for rent, then the expenses are deductible.  This is because you must show that the expenses were incurred in gaining or producing income, even if no income was actually produced in that income year.   

The ATO used electricity and telephone records to argue that the taxpayer had been living in the property and that it was not genuinely available for rent. 


What's interesting in this case is how far the ATO will go.  The ATO used electricity and telephone records to argue that the taxpayer had been living in the property and that it was not genuinely available for rent. Fortunately for the taxpayer, the AAT accepted that she had only lived in the property while carrying out repairs and maintenance work.  So, even if a property is not deriving rental income during the relevant income year, taxpayers may still be entitled to deductions for interest expenses, council and water rates and other holding costs. The key issue is whether the property is genuinely available for rent and whether continuing efforts are being made to improve the property to attract renters.

She had evidence of some limited newspaper advertising but stated that the most effective way to find tenants for this particular property was through word of mouth. 

 The case did not go all the taxpayer's way.  The AAT upheld the Commissioner's decision to disallow a number of deductions because of a lack of supporting documentation. 

 Broadly, there are two types of rental property expenses you can claim:

 ·     Expenses you can claim in the year that you paid for them  – for example, council rates, repairs, preparation of lease agreements, insurance and loan interest; and

 ·     Expenses that are deductible over a number of years  - these are either:

 ·     Depreciating assets - where deductions are claimed against income over the life of that asset.  For example, if you replaced an electric hot water system in your rental property, you can claim a deduction for the hot water system over its life, in this case 12 years.

 ·     Capital works – where deductions are claimed for building construction and structural improvements.  For example, remodelling a bathroom or building a pergola are considered to be capital works and written off at the rate of 2.5% per year.

 If it's new, bigger and brighter than what was already there, it's likely to be capital expenditure and depreciated. But, to claim a deduction, the property must be genuinely available for rent. 

 If we can assist you with any additional information about your rental property and how to manage it effectively, please contact us.

 

Did you know?

 ·     36,270 new Self Managed Superannuation Funds (SMSF) were established between 1 July 2011 and 30 June 2012.

 ·     As at 30 June 2012, there were 478,263 SMSFs holding $438,995 million in assets.

 ·     The median assets per SMSF as at 30 June 2011 was $539,486 (the average was $963,002).

           

Is 'management speak' undermining you?

 I have an admission.  I eavesdropped on a conversation. Here is what I heard:

 "What I am looking for is someone who can make a core value contribution to the company."

 Huh? This snippet of half a mobile phone conversation got me thinking.  How many of us actually say what we mean to customers, clients or team members?  I think I know what the gentleman in the phone conversation meant but what he actually said leaves room for misinterpretation.  Surely he is simply after someone who has the right attitude and whose ethics match what the company is after. Why then do we insist on sounding like Sir Humphrey Appleby from Yes Minister?  

 If you are in management or responsible for key customers or clients, surely clarity should dominant over jingoism? 

 This is not a new issue; there are multiple websites and books dedicated to eradicating illegible words and phrases from the corporate world (see author and Paul Keating's former speech writer Don Watson's website weaselwords).

 News Ltd has some great examples of management speak leaked from an internal strategy document:

 "…visual language for employee engagement initiatives"

 "Research revealed some misalignment with espoused and enacted values." "connectivity of niche."

Padding sentences with extra words that marginally manipulate meaning is common in corporate Australia.  For example, the company is not firing people; it's simply downsizing.  It makes the process sound like losing weight rather than putting real human beings out of work. Losing weight is positive and often necessary. The implication is that the company had been binging and is now back on a healthy diet. 

There used to be a philosophy in communications that said that if you baffle your audience with terminology that they don't understand then they will accept you as an expert (like the Emperor's new clothes).  That thinking was pre-Google.  Now everyone can be informed in a couple of keystrokes. Strangely though this philosophy of baffle is still thriving.  Take the example of UPS, the "official logistics and express delivery supporter" for the London Olympics.  And, when did we start "dialoguing" rather than talking?

If you want to build rapport with your customers you have to speak their language, not ask them to learn yours.  We all need to pre-empt what our audience needs and address those needs.  In a Google driven world, your audience needs to feel that you understand them. They have little interest or spare time to spend better understanding you.

 

Quote of the month

 "It is not in the stars to hold our destiny but in ourselves."

 William Shakespeare

 

 

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