Tax & Family Home (Residential Property)

Australians love property and for the property owners among us, it’s an exciting phase in the real estate market of Australia values has risen more than 40% in last 3 years in Sydney and Melbourne market. It’s worth remembering though our beloved tax man could want a share if you sell.

Unless the property is your primary residence, you could find capital gains tax (CGT) taking a cut of your profits.

CGT applies to investment properties, holiday homes and even vacant land.

What is CGT?

CGT is added to your tax bill in the financial year in which you sell an asset. It’s not a separate tax, but is part of normal income tax and is applied at your marginal rate in that particular tax year.

The tax applies to any increase in the value of an asset between the time you buy and sell it. Although most personal assets are exempt from CGT, many property assets are liable.

Calculating the cost

If a property is liable for CGT, the capital gain is determined by subtracting its ‘cost base’ from the sale price. The cost base is calculated as follows:

In addition, you must exclude from the cost base the amount of capital works deduction.

If you own the property for over 12 months, you receive a 50 per cent discount on the capital gain.

An important consideration is when the property was purchased, as assets bought before 20 September 1985 are usually exempt from CGT when they are sold.

CGT and the family home

When it comes to your ‘main residence’, CGT is generally not payable providing the home has not been used to produce assessable income (such as running a business or renting it out) and if the land is two hectares or less.

If you live in the residence but then choose to rent it out, you may be required to pay CGT on the periods when you were not the occupant. CGT is also payable if a family home is owned by a company or trust, or if the owner ceases being an Australian resident.

The ATO does not clearly define ‘main residence’, but it bases its assessment on a number of factors. For example, it looks at whether you and your family live in the dwelling and have your personal belongings there, if your mail is delivered there, whether you are registered to vote at the property’s address, or if you have phone, gas and electricity connected.

For your family home to remain exempt from CGT, you can only have one main residence at any time, unless you are in the process of selling your old home and buying a new one.

When this happens you are permitted a six-month period where you can own two homes, but the second property must become your new main residence. You must also have lived in your original home for at least three continuous months in the year before you sell, and it must not have been used to produce assessable income during that period.

If you purchased your home after 20 August 1996, to be entitled to a full exemption you must have lived in the house when it was first bought and not have rented it out prior to moving in. Otherwise, the ATO will consider you bought it purely as an investment to produce income.

The 6-year rule

Even if you do move out of your family home and choose to rent it, you could still be exempt from CGT under the Temporary Absence Rule. Under this rule you can leave for up to six years, rent it out and not be liable for CGT.

If you leave your home but do not rent it out, you can claim a CGT exemption for an indefinite period.

When you buy another property and move in, you can elect to keep your original home as your main residence, but your new dwelling will be subject to CGT.

Inheritance and tax

Generally, CGT does not apply if you inherit a main residence and the property is sold less than two years after the owner dies. In some case, it’s possible to apply to the ATO for an extension to this two-year period.

Take the example of Penny. As an only child, Penny inherited sole ownership of her mother, Shirley’s home when she died.

Shirley had lived in the house with her husband for the entire period since they first bought it in 1950.

Although she loves the home, Penny plans to sell the vacant property as she already owns a house closer to her work. If she sells within two years of Shirley’s death, any profit from the sale will be exempt from CGT. If she fails to sell within two years, Penny could be liable for CGT on the increase in the property’s value from the time of her mother’s death.

CGT is a complex area of taxation law and is dependent on your individual circumstances. If you have any questions about how CGT applies to your family home or assets, please call our office, Accounting Direct  to discuss your situation with one of our Accountants – 03 8502 2878.

Introduction:
GST which is a broad-based consumption tax was introduced on 1 July 2000 and reinstated a wholesale sales tax. Goods and services tax (GST) is a tax of 10% on most goods, services and extra items sold or consumed in Australia.

GST refers to either the “value” of a taxable supply or the “price”: The value of a taxable supply is the GST-exclusive consideration payable for the supply. The price is the GST-inclusive consideration payable for the supply.

However, GST is applied differently for certain products or for certain entities.

Applying GST rules correctly is essential for any businesses registered for GST. If your bookkeeper has not recorded GST correctly, you may be subject to future interest charges and penalties from the ATO. The following lists the most common areas where mistakes are made with GST.

Bank Fees

No GST involved on Bank charges. However, 10% GST applies on merchant fees.

Donations

All donations are GST free.

Exporting

No GST on overseas sales, however, 10% GST can be claimed back on any domestic purchases.

Financial Payments

All types of financial payments, like Hire Purchase payments, Loan repayments, Interest Charges, etc are all GST free.

Fine & Penalties

No GST involved.

Government Charges

Most government charges, like land tax, council rates, water rates, stamp duties, ASIC Fees are all GST free

Government Grants

Most grants and incentives include 10% GST.

Insurance Expenses

GST component is not 10% of the invoice total due to the stamp duty.

Loans

The proceeds of a business loan do not include GST.

Motor Vehicle Cost

The maximum GST credit that can be claimed on Motor Vehicle purchase for 2016-17 financial year is limited to $5,234 due to the luxury car limit of $57,581.

Personal Expenses

All personal expenses should be marked ‘not reportable’ due to the private nature.

Residential Properties

No GST is payable on any income generated from residential properties, and no GST can be claimed back either from any expenses spent on residential properties.

Wages, PAYG Withholding and superannuation expenses

No GST involved & should be marked ‘not reportable’.

We can assist with:

• Lodgement of Annual GST returns and reconciliations.
• Preparation and Lodgement of Business Activity Statements.
• Preparation and Lodgement of Installment Activity Statements.
• Registration/De-registration – GST, ABN, PAYG.

If you require assistance managing compliance of GST such as when to apply it, payments, and credits and completing Activity statements, Accounting Direct has the expertise to ensure this aspect of your business activity is managed and controlled.

If you are looking for efficient and prompt accounting services, you can call us 03 8502 2878 or email info@accountingdirect.com.au

Just when you thought the tax man couldn’t get any busier, the ATO has recently announced that it has embarked on the assignment of matching up income declared on business tax returns against credit and debit cards records that specific banks and institutions have generated through the 2016-15 year.

This is an entirely new operation for the ATO, where the regulator will request major Australian institutions provide the online records of around 90,000 taxpayers who own businesses. The information will then be used to match up nearly a million transactions with merchant accounts, which will allow them to reconcile the actual amount with the value of transactions. The ATO says that the aim of this taskforce is to “ensure that merchants are correctly meeting their tax obligations in relation to business income. These obligations including registration,lodgement, reporting and payment responsibilities”.

The ATO is pushing for businesses to make ‘voluntary disclosures’ of any mistakes before they start the project.

The banks that will be targeted are:

American Express

ANZ

Bank of Queensland

Bendigo & Adelaide Bank

BWA Merchant services

CBA

Diners Club

NAB

St George

Tyro Payments

Westpac.

If you have any questions or concerns regarding this, please feel free to contact us on (03) 8502 2878, or you can get in touch online

Tax & Family Home (Residential Property)

Australians love property and for the property owners among us, it’s an exciting phase in the real estate market of Australia values have risen more than 40% in last 3 years in Sydney and Melbourne alone. It’s worth remembering though our beloved tax man could want a share if you sell.

Unless the property is your primary residence, you could find capital gains tax (CGT) taking a cut of your profits.

CGT applies to investment properties, holiday homes and even vacant land.

What is CGT?

CGT is added to your tax bill in the financial year in which you sell an asset. It’s not a separate tax, but is part of normal income tax and is applied at your marginal rate in that particular tax year.

The tax applies to any increase in the value of an asset between the time you buy and sell it. Although most personal assets are exempt from CGT, many property assets are liable.

Calculating the cost

If a property is liable for CGT, the capital gain is determined by subtracting its ‘cost base’ from the sale price. The cost base is calculated as follows:

In addition, you must exclude from the cost base the amount of capital works deduction.

If you own the property for over 12 months, you receive a 50 per cent discount on the capital gain.

An important consideration is when the property was purchased, as assets bought before 20 September 1985 are usually exempt from CGT when they are sold.

CGT and the family home

When it comes to your ‘main residence’, CGT is generally not payable providing the home has not been used to produce assessable income (such as running a business or renting it out) and if the land is two hectares or less.

If you live in the residence but then choose to rent it out, you may be required to pay CGT on the periods when you were not the occupant. CGT is also payable if a family home is owned by a company or trust, or if the owner ceases being an Australian resident.

The ATO does not clearly define ‘main residence’, but it bases its assessment on a number of factors. For example, it looks at whether you and your family live in the dwelling and have your personal belongings there, if your mail is delivered there, whether you are registered to vote at the property’s address, or if you have phone, gas and electricity connected.

For your family home to remain exempt from CGT, you can only have one main residence at any time, unless you are in the process of selling your old home and buying a new one.

When this happens you are permitted a six-month period where you can own two homes, but the second property must become your new main residence. You must also have lived in your original home for at least three continuous months in the year before you sell, and it must not have been used to produce assessable income during that period.

If you purchased your home after 20 August 1996, to be entitled to a full exemption you must have lived in the house when it was first bought and not have rented it out prior to moving in. Otherwise, the ATO will consider you bought it purely as an investment to produce income.

The 6-year rule

Even if you do move out of your family home and choose to rent it, you could still be exempt from CGT under the Temporary Absence Rule. Under this rule you can leave for up to six years, rent it out and not be liable for CGT.

If you leave your home but do not rent it out, you can claim a CGT exemption for an indefinite period.

When you buy another property and move in, you can elect to keep your original home as your main residence, but your new dwelling will be subject to CGT.

Inheritance and tax

Generally, CGT does not apply if you inherit a main residence and the property is sold less than two years after the owner dies. In some case, it’s possible to apply to the ATO for an extension to this two-year period.

Take the example of Penny. As an only child, Penny inherited sole ownership of her mother, Shirley’s home when she died.

Shirley had lived in the house with her husband for the entire period since they first bought it in 1950.

Although she loves the home, Penny plans to sell the vacant property as she already owns a house closer to her work. If she sells within two years of Shirley’s death, any profit from the sale will be exempt from CGT. If she fails to sell within two years, Penny could be liable for CGT on the increase in the property’s value from the time of her mother’s death.

CGT is a complex area of taxation law and is dependent on your individual circumstances. If you have any questions about how CGT applies to your family home or assets, please call our office, Accounting Direct to discuss your situation with one of our Accountants – 03 8502 2878.