Tax time 02 08 2017

Tax Time Homing in on holiday rentals The ATO is reminding taxpayers that it’s paying close attention to rental properties located in popular holiday destinations around Australia.

Assistant Commissioner Kath Anderson said that last year the ATO identified a large number of mistakes with deductions for rental properties, particularly with regards to holiday homes.

“We’ve noticed some people are claiming deductions for holiday homes even where the property is not genuinely being rented out, or genuinely available for rent,” Ms Anderson said.

“There’s no problem with people using their rental property for their holiday, but holiday home owners need to remember they can only claim tax deductions for expenses made during a period when

the home is rented out or genuinely available for rent.”

Property owners also need to understand that if they rent their property at a discounted rate, or ‘mates’ rates’ they can only claim deductions equal to the amount of rent charged.

“One taxpayer had to pay the ATO back over $45,000 in tax from deduction claims made for a holiday home they were renting out to friends and family below the market rate.”

Ms Anderson said the ATO is focused on using data to identify errors.

“Property owners should be aware that incorrect rental property claims will not go unnoticed.

Technology enhancements and extensive use of

data is allowing us to identify incorrect or suspicious claims. We also have a good idea of the locations likely to be used for holiday homes.”

Ms Anderson said that all rental property owners, particular those who rent out holiday homes, should always double-check their claims before lodging their tax return, and follow a couple of simple rules.

“Firstly, make sure that you declare all rental income and only claim deductions for periods that the property is rented or was genuinely available for rent, and make sure you have accurate records of expenses, and strong evidence of the property being rented or genuinely available for rent at market rates."

For more information on holiday homes, visit ato. gov.au/holidayhomes.

Low interest rates set to continue – a challenge for retirees

Low inflation and economic growth in Australia means that rates will remain lower for longer. While low rates may be good for homebuyers, this is a real challenge to retirees who rely on interest as the main part of their income.

Things were easy when interest rates were 7% or higher, giving you more than enough income to live on.

At current rates of less than 2%, the interest earned on most term deposits doesn’t even cover the rising cost of living (which is around 3% pa). To simply protect your standard of living, you need to earn more than this.

Diversifying your retirement income away from cash and term deposits is the only way to receive more income, but this strategy comes with risks.

All investment products carry some type of investment risk and generally speaking, the higher the return, the higher the risk that comes with it.

Choosing the right investments as well as the best mix of investments is crucial to improving your income and reducing the overall risk, protecting your capital.

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For nearly 20 years Darren Eising has specialised in helping clients retire free from financial worries.

He is a Certified Financial Planner and an accredited SMSF Specialist Adviser with experience in managing investment portfolios and complex financial planning arrangements.

Darren co-owned a large stockbroking and financial planning business in Central Queensland, selling his interest in the business at the end of 2013 before establishing Elemental Wealth Management in Beerwah.

Low interest rates don’t have to mean low income We specialise in tailoring investment portfolios to suit retirees.

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Tax Time Pull your socks up, but don’t claim them The Australian Taxation Office (ATO) is increasing attention, scrutiny and education on work-related expenses this tax time. Assistant Commissioner Kath Anderson said that last year over 6.3 million people made a work-related expense claim for clothing and laundry expenses, totalling almost $1.8 billion.

“We have seen claims for clothing and laundry expenses increase around 20% over the last five years. While this increase isn’t a sign that all of these taxpayers are doing the wrong thing, it is giving us a reason to pay extra attention,” she said.

Ms Anderson said common mistakes the ATO has seen include people claiming ineligible clothing, claiming for something without having spent the

money, and not being able to explain the basis for how the claim was calculated.

“I heard a story recently about a taxpayer purchasing everyday clothes who was told by the sales assistant that they could claim a deduction for the clothing if they also wore them to work,” Ms Anderson said.

“This is not the case. You can’t claim a deduction for everyday clothing you bought to wear to work, even if your employer tells you to wear a certain colour or you have a dress code,” she said.

“For your clothing to be eligible for a deduction, it needs to be occupation-specific clothing, protective clothing or a uniform that is unique to the organisation you work for.”

Ms Anderson said it is a myth that you can claim a standard deduction of $150 without spending money on appropriate clothing or laundry. She said that while record keeping requirements for laundry expenses are relaxed for claims up to this threshold, taxpayers do need to be able to show how they calculated their deduction.

“Over 1.6 million taxpayers claim a deduction of exactly $150. We expect many of these claims to be legitimate but the results of our random audits show that people are making mistakes.”

For more information about work-related expenses, visit ato.gov.au/deductions and to find out about myDeductions, visit ato.gov.au/mydeductions.

Mortgage myth buster: things you need to know about mortgages Taking out a mortgage to buy a home is a big step. There are a number of mortgage myths in circulation. Here, we bust some of those preconceptions, to help you make the right decision.

Mortgage myth #1: The lowest rate is always preferable. Some lenders advertise lower interest rates than others but the lowest rate might not be the most competitive.

Sometimes, a low rate incurs other fees, which a slightly higher rate may not.

The lowest rate might not be the most flexible, and may not have other interest saving features that a slightly higher rate loan product might, e.g. an offset account.

Mortgage myth #2: You need a 20 per cent deposit to secure a mortgage. Housing affordability reports such as those compiled

by CoreLogic assume buyers have a 20 per cent lump sum deposit. Because of this,

some buyers believe they cannot secure a mortgage without the 20 per cent lump sum.

But this is not the case.

The Reserve Bank of Australia states that some lenders accept a deposit as low as 5-10 per cent. Lender’s Mortgage Insurance (LMI) can reduce the deposit required. The cost may be rolled into the mortgage or can be paid as a lump sum. Getting into the market now rather than waiting until you have the full 20 per cent deposit might be advantageous, an option worth considering.

If you don’t have the 20 per cent deposit, ensure you are not overextending, as a lower downpayment will mean larger repayments and interest costs over time.

Mortgage myth #3: You need to pay mortgage broker fees. The lender pays the mortgage broker, not you. A mortgage broker helps you get a competitive loan that is right

for you, and weigh up complex decisions, such as low interest rates versus higher fees.

Mortgage myth #4: The Reserve Bank of Australia controls the rate, so rates aren’t competitive. While the Reserve Bank of Australia (RBA) changes their rate depending on economic growth, lenders are able to adjust their rates independently. The lender’s rates will likely reflect the RBA rate, but lenders are also concerned about being competitive. Reviewing your loan regularly to ensures it is the most competitive option for you.

Mortgage myth #5: Pre-qualification secures your loan. The purpose of prequalification is to let you know how much you are eligible to borrow. This does not mean your loan is approved. You will need to provide further documentation, and receive approval to secure the loan.

Mortgage myth #6: There is no difference between paying your loan weekly, fortnightly or monthly. This is not true.

Paying your loan fortnightly will mean you pay less interest over the life of your loan.

You will pay even less interest if you pay it weekly.

Contact Smartline's Teresa Harrison today for more smart advice.

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