ATO's tips for correctly claiming deductions
for rental properties
Taxpayers who have work done on their rental property should consider
the following factors in determining claims for expenses.
Repairs and general maintenance are expenses for work done to remedy or prevent defects, damage or
deterioration from using the property to earn income. These expenses can be claimed in the year the
expense occurred.
Initial repairs include
any work done to fix defects, damage or deterioration existing at the time of
purchase. These are capital repair
expenses and cannot be claimed as a deduction.
Capital works are
structural improvements, alterations and extensions to the property, claimed at
2.5% over 40 years (with some exceptions).
Deductions for capital works can only be claimed after the work
has been completed.
Improvements or renovations
that are structural are also capital works.
Work going beyond remedying defects, damage or deterioration which
improves the function of the property are improvements.
Repairs to an 'entirety' are
also capital and cannot be claimed as repairs.
Repairs to an entirety generally involve the replacement or
reconstruction of something separately identifiable as a capital item (for
example, a depreciating asset).
Depreciating assets must be
claimed over time (as 'capital allowances') according to their 'effective
life'.
Notice of online selling data-matching program
The ATO estimates the total number of account records to be obtained
will be between 20,000 and 30,000 each income year, with approximately 10,000
to 20,000 of these records relating to individuals.
The objectives of this program are to (among other things) promote
voluntary compliance and increase community confidence in the integrity of the
tax and superannuation systems.
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Small business energy incentive
available for the 2024 income year
Businesses with an aggregated annual turnover of less than $50 million
that had upgraded or purchased a new asset that helps improve energy efficiency
during the 2024 income year should consider the small business energy
incentive.
This new measure gives them the opportunity to claim a bonus deduction
equal to 20% of the cost of eligible assets or improvements to existing assets
that support more efficient use of energy.
This incentive applies to eligible assets that were first used or
installed ready for use for a taxable purpose between 1 July 2023 and 30 June
2024.
Eligible improvement costs must have been incurred during this period to
be eligible for the bonus deduction.
Up to $100,000 of total expenditure is eligible under this incentive,
with the maximum bonus deduction being $20,000 per business.
This 20% bonus deduction is on top of other existing ones. Businesses can claim both the ordinary deduction for the expense as well as the bonus deduction.
Editor: Please make sure to let us know if you made any purchases that may be eligible for this bonus.
Importance of good record keeping
when claiming work-related expenses
The ATO is advising taxpayers that having records to substantiate claims
is essential to prove deductions can be claimed, having regard to the following
in particular:
- A bank
or credit card statement on its own will generally not be enough evidence to
support a work-related expense claim.
Taxpayers instead need detailed written evidence such as a receipt.
- If
a taxpayer's total claim for deductible work expenses is $300 or less, they can
claim a deduction without written evidence, but they must still be able to show
that they spent the money and how they calculated the amount being claimed.
- While
some deduction types do not require receipts (e.g., laundry expenses), some
kind of record may still be necessary.
Taxpayers may also need a record that shows their private and
work-related use (e.g., a diary), and how the amount claimed as a deduction was
calculated.
SMSFs acquiring assets from related parties
SMSFs cannot acquire an asset from a 'related party' (such as a
member or their spouse or relative) unless
it is acquired at market value and is:
- a listed security (e.g., shares, units or
bonds listed on an approved stock exchange);
- 'business real property' (broadly, land
and buildings used wholly and exclusively in a business);
- an 'in-house asset' as defined, provided
the market value of the SMSF's in-house assets does not exceed 5% of the total
market value of the SMSF's assets; and/or
- an asset specifically excluded from being
an in-house asset.
If the asset is acquired at less than market value, the difference
between the market value and the amount actually paid is not considered to be a
contribution. Instead, income generated
by the asset will be considered 'non-arm's length income' and will be taxed at
the highest marginal rate.
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Federal Court overturns
AAT's tax resident decision
The Federal Court has recently overturned an Administrative Appeals
Tribunal ('AAT') decision that a taxpayer was a resident of Australia for tax
purposes (even though he was mostly living and working overseas during the
relevant period).
The taxpayer was a mechanical engineer who became an Australian citizen
in 1978.
He lived and worked in Dubai, United Arab Emirates, from September 2015
until 2020, and he spent less than two months in Australia for each of the 2017
to 2020 income years visiting his family.
The AAT nevertheless held that he was a tax resident of Australia for each of the 2016 to 2020 income years, as he "maintained an intention to return to Australia and an attitude that Australia remained his home."
On appeal to the Federal Court, the taxpayer succeeded in having the AAT's decision overturned.
The Federal Court held, in considering whether the taxpayer was a
resident of Australia according to 'ordinary concepts', that the AAT applied
the wrong test, confusing it with the 'domicile test'.
Also, in relation to the 'domicile test', the Federal Court noted that
the AAT further misunderstood how to establish that a person had a 'permanent
place of abode' outside of Australia.
The Federal Court
accordingly held that the taxpayer's appeal be allowed, and the matter be
remitted to the AAT for determination according to law (i.e., the AAT needs to
reconsider the matter).
Please note: Many of the comments in this publication are general in
nature and anyone intending to apply the information to practical circumstances
should seek professional advice to independently verify their interpretation
and the information's applicability to their particular circumstances.