Rental Properties – Getting the Best Tax Outcome in 2024

Rental Properties

Getting the Best Tax Outcome in 2024

 

To get the best tax outcome from your rental property, we recommend paying any upcoming expenses before 30 June. 

Any deductible expense that is paid prior to 30 June can be claimed in this financial year.  If you pay the same expense after 30 June, it can’t be claimed as a deduction until next financial year.

With the individual tax rates decreasing after 30 June 2024, you will get an even bigger advantage in paying your rental property expenses prior to 30 June (as a deduction is worth more in the 2024 year than the 2025 year).  For example, a $5,000 expense will get you a $125 greater tax deduction in 2024 than in 2025:

2024 year deduction

$5,000 repairs

Paid before 30 June
Individual earning $120,000

Repair total (deduction) = $5,000
Tax refund (2024 return) = $1,625
Net out of pocket = $3,375

2025 year deduction

$5,000 repairs

Paid before 30 June
Individual earning $120,000

Repair total (deduction) = $5,000
Tax refund (2025 return) = $1,500
Net out of pocket = $3,500

Rental expenses

For rental properties, examples of some of the deductible expenses you might be able to pay before 30 June include:

  • Repairs and maintenance
  • Cleaning
  • Gardening
  • Pest control
  • Smoke alarm review and maintenance
  • Servicing costs – eg. air conditioner, pool

Have a chat with your property manager to see if there are any expenses that can be paid prior to 30 June.

Depreciation

We also recommend getting a depreciation schedule for your property.  Contact a qualified quantity surveyor to prepare a depreciation schedule for your property (for example – BMT Tax Quantity Surveyors or Deppro).  The cost of the report can be claimed as a deduction and the report will also provide you with the details of the depreciation you can claim in your tax return.

What should you do now?

  1. Talk to your property manager about any expenses that you can pay for your property prior to 30 June;
  2. Book in any relevant services now to ensure that they are completed and paid prior to 30 June (keep a valid tax invoice for all services that you want to claim as a tax deduction);
  3. Contact a quantity surveyor to get a depreciation report for your property;
  4. Start compiling records for the expenses already paid for your property during this financial year.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Ensuring Asset Valuations: A Vital Responsibility for SMSF Trustees

Ensuring Asset Valuations:

A Vital Responsibility for SMSF Trustees

 

If you are a trustee of a self-managed superannuation fund (SMSF), you need to ensure that your fund’s assets are reflected at market value in the annual financial statements.

Our SMSF auditor will check that the assets have been valued correctly and that the basis of the valuation is appropriate.  These valuations are also reported to the ATO on an annual basis via the tax return. 

The ATO is using the data reported in the tax returns to identify funds who have recorded the same values for assets in their annual returns for the past several years (which suggests that these assets are not reported at an appropriate market value).

There are approximately 16,500 funds who have reported the same value for certain assets for at least three income years.  This includes residential and commercial property, unlisted companies and unlisted trust investments.  Furthermore, there were no auditor contravention reports listed for these funds for potential breaches of the market valuation rules for the assets.

The ATO will be sending messages to trustees of these particular SMSFs to remind them of the obligation to report assets at market values (and the next tax return will be monitored by the ATO).

If your fund fails to meet the valuation requirements, the fund and members may be required to pay additional tax and could be liable to administrative penalties. 

What do you need to do?

If you are the trustee of an SMSF, you need to review the value of the assets that you hold.  Each year, we will request evidence from you of the market value of these assets.  Often, these values will be readily available (for example, the current price of listed shares).  Other times, the services of an independent valuer may be required to confirm the valuation.  For example, if your fund holds direct real property, you need to factor in the cost of an annual valuation into the ongoing running costs of your fund.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Federal Budget 2023-24

On Tuesday night, 9 May 2023, Federal Treasurer Jim Chalmers handed down his second Federal Budget for the Labor Government.  According to the Budget papers, the Budget has returned “into the black”, delivering a surplus for the first time in 15 years.  Our country’s financial position has benefited from high commodity prices and a stronger than expected jobs market.  Similar to last year, the Treasurer has cast the Budget with aims to provide cost of living relief whilst not placing additional pressure on inflation.

Some wins from the Budget will be for those eligible for the Government’s energy relief package.  High income earners are also winners with no mention of changing or removing the stage 3 income tax cuts legislated to come into effect on 1 July 2024.

Those not so happy with the budget will be middle income earners who lost the low and middle income tax offset (LMITO) in the October 2022 budget and who are ineligible to share in most of the incentive packages announced in this budget.

The Treasurer warned of more “difficult decisions” to come.  Hopefully those difficult decisions are answered from a position of fiscal responsibility and not just a politically motivated standpoint.  Difficult decisions do need to be made around a well-rounded, broad tax revenue base in years to come.

We’ve outlined below some of the measures that were announced in the Budget that will impact on our clients.  As with all budgetary measures, these measures are not final until the relevant legislation has been passed by the Government.  We will keep you updated on the status of any proposed measures.

Income tax measures

The previously legislated stage 3 tax cuts for individuals starting 1 July 2024 remain untouched.

There was no extension announced to the low and middle income tax offset (LMITO) beyond the 2021-22 year.  As such, the LMITO has now ceased.  Consequently, low-to-middle income earnigns (incomes up to $90,000 but phasing out up to $126,000) will see their refunds reduced between $675 and $1,500 from the 2023 year onwards.

The Medicare Levy low-income thresholds will marginally increase from 1 July 2022 (which increases the point from which the Medicare Levy will start to apply). 

Business measures

The Budget contained a few measures to help small businesses:

Instant asset write-off threshold increased to $20,000

From 1 July 2023, the instant asset write-off threshold was due to reduce to $1,000.  This budget measure has increased this threshold to $20,000 for businesses with an aggregated turnover of less than $10 million.  The increased threshold will apply until 30 June 2024.

Assets acquired for more than $20,000 can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first year and 30% thereafter.

Small Business Energy Incentive

Small businesses with a turnover of less than $50 million can deduct an additional 20% of the cost of eligible depreciating assets that promote greater energy efficiency.

A range of depreciating assets will be eligible for the incentive (including energy efficient fridges, heat pumps and electric heating or cooling systems, batteries and thermal energy stores).  The assets will need to be first used (or installed ready for use) between 1 July 2023 and 30 June 2024.

Up to $100,000 of total expenditure will be eligible for the incentive (which will provide a maximum bonus deduction of $20,000).

Energy Price Relief Plan

Small businesses customers of electricity retailers will benefit from $1.5 billion in funding that the Government has committed to provide energy bill relief.

Payday Super

From 1 July 2026 employers will be required to pay their employees’ super guarantee at the same time as their salary and wages.

Help to manage tax instalments

The GDP adjustment factor for PAYG tax instalments and GST instalments will be 6% for the 2023-24 financial year (down from 12% under the statutory formula).

Startup support

$431.9 million is being provided over 4 years to support small and medium businesses and startups to commercialise their ideas and grow their operations.  This funding will be targeted at businesses operating in the priority areas of the National Reconstruction Fund.

Register of beneficial ownership

$1.9 million provided to establish a public register of beneficial ownership of companies and other legal vehicles (including trusts).

Expanded ATO Compliance Programs

Funding is being provided to extend several ATO compliance programs. 

Personal Income Tax Compliance Program

$90.2 million will be provided to the ATO and Treasury to extend the Personal Income Tax Compliance Program for 2 years from 1 July 2025 and to expand the scope from 1 July 2023.  This enables the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, including over-claiming of deductions and incorrect reporting of income. 

GST compliance

$588.8 million will be provided to the ATO from 1 July 2023 for the ATO to continue a range of activities that promote GST compliance. 

Debt collection

Additional funding will be provided to the ATO to facilitate engagement with taxpayers who have high-value debts over $100,000 and aged debt older than 2 years.

Lodgement penalty amnesty

Small businesses with an aggregated turnover of less than $10 million will have failure to lodge penalties remitted for outstanding tax statements lodged between 1 June 2023 and 31 December 2023 (where those statements were originally due between 1 December 2019 and 29 February 2022).  This is designed to encourage small business owners to re-engage with the tax system.

Superannuation guarantee compliance

$40.2 million provided to the ATO in the 2023-24 year to assist with enforcing superannuation guarantee compliance.  The ATO will continue to use data matching to identify superannuation guarantee underpayment.

Superannuation

Tax changes for super account balances above $3 million

The Government confirmed their commitment to increasing the tax rate for earnings on superannuation accounts in excess of $3 million from 1 July 2025.  Earnings that correspond to the proportion of an individual’s superannuation balance over $3 million will be taxed at 30%.  Earnings that relate to assets below the $3 million threshold will continue to be taxed at 15% (or 0% if held in a retirement pension account).

Other measures of interest

Some other measures of interest include:

  • Increase to certain government payments
    • The base rate of the working age and student payments will increase by $40 per fortnight from 20 September 2023 (this applies to JobSeeker, Youth Allowance, Parenting Payment, Austudy, ABSTUDY, Disability support pension, special benefit).
    • The maximum rates of Commonwealth Rent Assistance allowance will increase by 15%.
    • Parenting Payment (single) will be extended to single principal carers with a young child under 14 years of age (currently, the payment only supports single principal carers with a child under 8 years of age).
  • Household Energy Upgrades
    • $1.3 billion in funding is being provided to establish the Household Energy Upgrades Fund which will provide low-cost finance and mortgages (in partnership with private institutions) for home upgrades to save energy.
  • Childcare
    • $72.4 million in funding over 5 years to support the Early Childhood Education and Care sector to build and retain their workforce.
  • Aged Care
    • From 30 June 2023, there will be a 15% increase to the award wages for many aged care workers. 
    • Over $1.1 billion provided to improve the in-home aged care system and the delivery of aged care services.

We will keep you up-to-date with the progress of the implementation of these Budget measures.

If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

When Should I think about End of Year Tax Planning?

End of year tax planning – when should I think about this?

 

There is always a rush at the end of the financial year for businesses to book in to speak to us about their end of year tax planning options.

Rather than rushing around in June to implement strategies to optimise your tax position, you should regularly review the financial performance of your business and plan for upcoming tax liabilities.  Set aside specific time on a regular basis (eg. at the end of each month or each quarter when you are preparing your BAS) and use this time to review how your business is performing.

When you are reviewing your business for tax, think about:

  • What profit has your business made?
  • What is your estimated tax liability on your profit?
  • Are you paying tax instalments to the ATO towards this tax liability?  If not, have you made provisions for this tax liability within your cashflow forecasting?
  • Are there proactive steps you can take throughout the year to optimise your tax position?

While we sit down with business clients in May/June to review their results and plan for year end tax, there are things that you can do throughout the year to get a better tax outcome, for example:

  • If you want to purchase a new vehicle and can claim a deduction for the vehicle – it needs to be ready for business use prior to 30 June (this may mean ordering the vehicle now so it is here in time).
  • If you want to put more money into super, you may need to build this into your cashflow forecasts (or put the money in on a regular basis) so it is not a large cash drain in June.
  • If you want to pay directors an appropriate salary for their services, this should be recorded and paid throughout the year and reported via single touch payroll to the ATO.  If this is left to June, there will be a significant cashflow burden for the withholding tax and super liability.

These are just some of the examples of things you can do throughout the year to help your tax position.

So while we may refer to it as “end of year” tax planning, it is better to think of it as year round tax planning. 

We are happy to sit down with you on a regular basis to help you review your business performance, cashflow and tax planning – just give us a call to discuss.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.