Interest On Your Home Loan Could Be Tax-Deductible
Posted on 12 April '21 by admin
It’s a simple, step-by-step process used by many Australians to increase their income. Borrow money from a financial institution, invest in a second property and pay off the loan with the profit accrued from the investment property (ie. rent from tenants).
But did you know that the interest on a home loan for the purchase of an investment property can be claimed as tax-deductible?
To clarify – claiming a tax deduction on the interest of a loan can only be used on the loan that was used to purchase the investment property. It also must be used to earn income, because a property that is solely residential isn’t eligible for any tax deductions (except in certain situations where the residence may be used to produce income, like home business or office).
Here are a few examples of when tax deduction claims on your property are not allowed:
- If the secured property is being used for living as a primary residence, and no income is made from it.
- Refinancing your investment loan for some other purpose (like buying another property).
- Using the loan for a private purchase, other than the purchase of a home.
- If the investment property is a holiday home that is not rented out, then deductions cannot be claimed as it doesn’t generate rental income.
As an example, if borrowing against your main residence for the purpose of purchasing an investment property, then the interest on that loan is tax-deductible. Conversely, if the loan was against the investment property to buy a car for your personal use, then the interest from that loan will not be tax-deductible.
The only way that a tax deduction on a home loan’s interest is possible, is if there is a direct, unbroken relationship between the money borrowed and the purpose the money was used for. Any money that resulted from a home loan, for instance, should have been invested into a property.
If you happen to redraw (make extra repayments into your loan that reduce the loan balance) against an investment loan for personal use, the tax-deductible interest is watered down. This is because the new drawdown (transfer of money from a lending institution to a borrower) is deemed to not be for investment purposes.
It is important that any investment loans are quarantined from your personal funds to maximise tax deductions on interest. Though it may be tempting to pull additional funds from the loan for additional finances, it’s also shooting yourself in the foot.
A better strategy (if there is only investment debt that has been incurred, and you wish to pay it off), is to place funds in an offset account (a bank account that is linked to your home loan) and then redraw those funds for your personal use. It’s also important to ensure that the offset account is a proper offset – a redraw that is disguised as an offset account can be a major drawback for investors looking to capitalise on their tax threshold.
If you or someone you know has recently purchased an investment property with a home loan, speak to your accountant or financial advisor to see how your tax return can benefit from it.
What to do with your Lost Super
Posted on 19 March '21 by admin
After COVID 19’s impact on the world, an influx of employees who had lost their jobs fell into the job market. Many of these came from companies that couldn’t afford to continue their employment. As a result, many individuals had to seek alternative employment, or draw from their super. Some individuals took on multiple jobs to pay bills, and others drew from the super that they had accumulated in the government’s early release scheme specifically for coronavirus related income loss.
Super is held by superannuation funds, and accumulates as a result of how much super an employer pays to the employees’ funds. Many Australians may find that they actually possess multiple super accounts as a result of having “lost” their super accounts during changeovers. It can also happen as a result of changing names, moving addresses, living overseas or changing jobs.
Australians can use the ATO’s online tools to:
- View details of all of their super accounts, including lost or unclaimed amounts
- Consolidate eligible multiple accounts (including any super held by the ATO)
- Withdraw your super held by the ATO when certain conditions are met.
As superannuation funds often have fees associated with their upkeep, as well as insurances that may be tied into it (such as life, total and permanent disability and income protection), it’s important to consult with providers before accounts are consolidated.
https://www.ato.gov.au/Individuals/Super/Growing-your-super/Keeping-track-of-your-super/#Lostsuper
Easy ways for your Small Business to Stay ahead at Tax Time.
Posted on 19 March '21 by admin
As an employee in a business, often there are perks that can come with the job. A company car, fuel money, perhaps some technology to help make things easier. Small business owners however have to be a lot more mindful of how they use the money from their business.
Any money or assets that a business has earned or possesses, is solely the property of that business. That means that there are numerous issues that can arise from dipping into these company funds.
As a business owner, it’s important to keep records and correctly report transactions if using company money or assets (e.g, company car). These can include instances such as
- taking money out of your company for yourself or your family
- receiving money from it (for example, as a director, shareholder or an associate)
- using your company’s assets for private purposes.
For small businesses, this can be easily done through:
- Salary, wages or director’s fees
- Repayments of a loan you have previously made to the company
- A fringe benefit, such as an employee using a company car
- Dividends (formal distribution of the profits)
- A loan from the company
If a business does not report correctly or keep appropriate records for transactions, an unfranked deemed dividend could be included in their assessable income (this is a bad thing) during tax time.
Here are some easy ways to avoid being put into this situation:
- Always ensure that any company money issued is accounted for as per the previous categories.
- Have a separate bank account for the company to pay for company expenses (not private ones!)
- Keep proper records of all company transactions
- Repay any loans from the company before the tax return date to avoid unwanted income tax
https://iorder.com.au/publication/Download.aspx?ProdID=75273-07.2020
Pros and cons of home reversion
Posted on 25 February '21 by admin
Super (AU): Pros and cons of home reversion
Home reversion is when you sell a share of the future value of your home whilst still living there. You receive a lump sum payment and continue to own the remaining share of your home equity.
Pros
- You are able to continue living in your home after you sell the share
- You can conduct renovations or maintenance that your home may need with the lump sum payment you receive
- You can use the lump sum for any urgent needs such as medical treatments
- The lump sum could help you secure accommodation till your home sells
Cons
- You will own the lower share of the equity in your home
- Transactions and costs can get complicated and it may be hard to navigate that
- Your eligibility for Age Pension might also be influenced
- Your ability to afford aged care could be affected
- You might end up eating into money that you need for the future – such as for medicare
- You might be locked into fewer options if your circumstances change
- If you are the sole owner and someone else lives with you, they may no longer be able to live in the house if you move out or pass away
What you need to know about luxury car tax
Posted on 25 February '21 by admin
Luxury car tax or LCT is a 33% tax on cars that have a value (including GST) above the set threshold. However, the tax is only on the value which is above the threshold.
Businesses and individuals that sell or import luxury cars are required to pay LCT.
You can make LCT payments in instalments or annually. If you choose to report your payments in instalments, they will be included in your GST instalments. If you choose to pay GST annually, then you don’t need to worry about reporting monthly or your quarterly BAS.
You may be able to defer paying LCT by quoting your ABN. You are able to do this if you are only going to be using your car to:
- Hold it for trading stock (doesn’t include holding it for hire or lease)
- Carry out research and development for the car’s manufacturer
- Export it GST-free
If and once you stop using your car for the above purposes, then you will need to start paying LCT.
What is the transfer balance cap?
Posted on 18 February '21 by admin
The transfer cap refers to the amount of money that can be transferred from your superannuation account to your tax-free ‘retirement phase’ account.
At the moment, the transfer balance cap is $1.6 million and all individuals have a personal transfer balance cap of $1.6 million.
Exceeding the personal transfer balance cap means that you have to:
- Commute the excess from one or more retirement phase income streams.
- Pay tax on the notional earnings related to that excess
The amount in your retirement phase account may grow over time, due to investment earnings. Although this may grow beyond the personal transfer cap, you will not exceed the cap. However, if you have already used all your personal cap, and then your retirement phase account goes down, you cannot ‘top it up’.
The rules applied to capped defined benefit income streams are different from other income streams – this is because you can’t usually transfer or commute excess amounts from other streams.
Records you need to keep on rental properties
Posted on 18 February '21 by admin
When you own a rental property, keeping records is important. These will help you meet tax obligations. Generally, only individuals with their name on the title deed declare income and claim expenses.
Remember that the records must be kept in English or should be easily translatable into English, and kept for a minimum period of 5 years.
The records you need to keep include:
- Dates and costs of buying the property: These will help work out any capital gain or loss when the property is disposed of – the date entered into the contact is the purchase date, not the settlement date.
- Any rent and rent-related income: This will be required to report tax return.
- Expenses associated with the property: These are important to claim deductions you may be entitled to. These records should include the name of the supplier, the amount of the expense, nature of the goods or services, the date the expense was incurred, date of the document
- Significant changes: These include repairs or improvements or partial or all sale of the property – the cost of repairs and improvements should be kept separate from depreciation costs so that deductions and capital gains and losses can be calculated correctly.
- Costs of selling or disposing of property: To be able to work out any capital gain or loss
Choosing investment options in your super
Posted on 15 February '21 by admin
Many Australians ignore the decision of choosing investments for their super and often end up in the ‘default’ option as they make no effort to choose otherwise.
Default options that aim for ‘balanced’ or ‘growth’ investments tend to have 60-80% of funds invested in shares and property. This approach for investment is based on the best-suited strategy for a large number of members across the years they will be investing.
However, the default options may not be the best for your financial circumstances and risk profile. Understanding different investment options and how risk assessments work will help you choose better investment options.
Further, aim to change investment options over time rather than sticking to the same one. For example, you could consider changing options once you begin receiving a pension.
The amounts you don’t need to include as income
Posted on 15 February '21 by admin
Amounts which are not classified as income are split into 3 categories.
Exempt income
This is income that you do not pay tax on, although, some exempt income may be taken into account when determining:
- Tax losses of earlier income years that you can deduct
- Adjusted taxable income of dependants
Some examples include certain Government pensions, certain Government allowances, certain overseas pay, some scholarships, etc.
Non-assessable, non-exempt income
This is also income that you don’t pay tax on – it does not affect your tax losses.
Some examples include the tax-free component of an employment termination payment (ETP), genuine redundancy payments, super co-contributions, etc.
Other amounts
There are also other amounts that are not taxable.
Some examples include: Rewards or gifts received on special occasions, prizes won in ordinary lotteries, child support and spouse maintenance payments, etc.
SMSF Pensions
Posted on 4 February '21 by admin
SMSF funds can provide pension or lump sum benefits during retirement. Retirement is a condition of super release if you have reached your preservation age. Depending on your date of birth, your preservation age will be between 55 and 60. The benefits from your super are tax-free once you are over the age of 60.
If you plan to start a super pension income stream, then the funds from your accumulation account need to be transferred to your retirement account to fund your pension. Your retirement account has a cap of $1.6 million, so you can transfer that amount as a lump sum but no more. The earnings on these funds are tax-free.
Each year, you need to withdraw a minimum percentage of your account balance from the retirement fund. This minimum percentage will depend on your age.
Alternatively, you can start your Transition-to-retirement pension if you have reached your preservation age but you are still working. However, unlike the funds that support your super pension once you begin retirement, these are taxed at 15%.
« Older Entries