Advanced tax tips & update for rental property owners
BUILDING WRITE-OFF NOT CLAIMED
Despite being entitled to, many taxpayers' have chosen not to claim the building write-off on properties acquired after 7.30 pm on 13th May 1997. This is on the basis that they will not be required to reduce the cost base of the property by the amount claimed on the building write-off when the property is untimely sold. Now I know this should not affect you because you never never sell, however, the ATO has indicated that as the law stands, taxpayers must reduce the cost base of any property acquired after 7.30pm on 13th May 1997 by any Division 43 deduction, whether or not the claim has been made.
And just remember a taxpayer will obtain a greater benefit by claiming the Division 43 deduction than by obtaining a higher cost base and thus a smaller capital gain as a result of the Capital Gains General Discount.
One area which I find most clients and their Accountants tend to forget is to look at your depreciation schedules and for any assets that have a written down value under $1,000 to transfer it to the Low-Value pool. This then increases the depreciation rate to 37.5% therefore giving you a higher claim for depreciation each year.
RENTAL PROPERTIES AND CAPITAL GAINS TAX - SMALL BUSINESS CONCESSIONS.
I am always asked by clients - if we have 4, 8, 12 or more rental properties is it considered a business by the ATO? There was a recent case where a taxpayer owned 19 rental properties and they were involved in the active management of them. The couple sought to take advantage of the small business CGT concession which would have given them further discounts. The ATO deemed that this concession can never apply where the asset being disposed of is a rental property.
The ATO is on the warpath again. This week we have received a list of clients who will receive a letter from the ATO asking them to review their interest claims and rental expenses to ensure that they are correct.
I tell all my rental property owners to expect a tax office audit. It's not a matter of if it will happen, just a matter of when. I see so many clients who don't keep good records. Keep a Lever Arch File for each property. Put dividers in it to keep the purchase documents, loan, contracts, repairs, etc., etc. separate. The ATO auditors have a field day with clients and untidy records. If your records are really organised, they move on.
Just remember there's one great reason to have your accountant located on the Sunshine Coast. It's a tax deduction when you come and see us. Look forward to seeing you all soon.
Kevin P Scambler & Associates