Property Tax

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					                   PROPERTY TAX




The information in this newsletter is of a general nature
only and is not intended to be relied upon as, or as a
substitute for, specific professional advice.
Income and Expenses

Rental properties owners are allowed a range of tax claims for expenses related
to the production of rental income.

Deductible expenses in whole or in part include:

      Advertising Bank charges Borrowing expenses Cleaning Commission
      Council and Water Rates
      Depreciation Gardening Insurance Interest
      Land tax
      Lease expenses
      Legal expenses for
              collection of rent, arrears;
              ejectment;
              investigating credit worthiness;
              lease preparation.
      Power supplied (gas/electricity) Preparation, registration, stamping of
       lease documents
      Repairs
      Replacement of crockery, linen etc. Safe deposit box fees
      Secretarial, bookkeeping fees
      Services expenses
      Tax advice cost
      Telephone, postage and stationery
      Travel
      Interest on loan

Interest paid on a loan used to purchase the rental property or for repairs is
deductible and is claimed in the year in which it is incurred.

An investment is negatively-geared where the interest paid on the loan used to
purchase the property exceeds the net income from the property.



1|Page      The information in this newsletter is of a general nature only and is not intended
           to be relied upon as, or as a substitute for, specific professional advice.
PAYG Tax Office Withholding Variation.

Where the overall taxpayer's tax- able income is reduced due to a net rent loss,
the Tax Office may approve an application for the variation of tax installment
deductions from salary or wages for a taxpayer. It does not follow that the
investment or related deductions have Tax Office approval.

Repairs versus improvements

A deduction is allowed for repairs to the rented property, e.g. repainting, fixing
leaks, mending broken parts, electrical repairs, replacing broken fences or
windows. Repairs carried out soon after purchase may be disallowed as they are
"initial repairs". You need to ensure that repairs are carried out when the
property is still income- producing, otherwise the deduction may be lost. Capital
improvements to the property are not deductible.

Lease documentation

The cost of preparing, registering and stamping the lease is deductible as are
costs associated with the assignment or surrender of the lease.

Insurance

Deductions are allowable for premiums on policies covering damage to
premises or contents, fire burglary, storm damage, plate glass, public risk, etc.

Commissions, management fees

A deduction is allowable for com- missions and management fees paid to estate
agents for the col- lection of rent. Letting fees may also be deductible. However,
no deduction is allowable for an initial letting because it is considered a capital
expense except for the letting of holiday flats on short-term leases.

Rates, land tax

Deductions are allowed for council and water rates (including excess water
rates) and Land tax. Payments made on the purchase of the property as an

2|Page       The information in this newsletter is of a general nature only and is not intended
            to be relied upon as, or as a substitute for, specific professional advice.
adjustment of rates and taxes paid by the vendor are also deductible. Stamp duty
on the purchase is not deductible, but may be taken into account in calculating
the property's cost base for capital gains tax purposes.

Ejectment, legal costs

Legal expenses incurred by a lessor in ejecting a rent-defaulting tenant are
usually deductible. Costs relating to fair rent hearings would be deductible as
would legal costs of investigating the credit-worthiness of a prospective tenant.

Travel

Deductions are available for the cost of travel expenses for:

      collecting rents;
      repairs of the property;
      preparing the property for incoming tenants;
      Inspecting the property.

Travel costs to inspect a rent producing property prior to purchase would not be
deductible.

Other incidentals

Deductions are also allowed for other expenses such as advertising for tenants,
bank charges, cleaning, gardening, postage, stationery, telephone, secretarial
fees, safe deposit box fees.

Vacancy

The absence of rental income does not automatically prevent the tax- payer
from deducting expenditure incurred during that period.

However it would be necessary to show that every effort was made to obtain
tenants during that time. Temporary work transfer

Renting out a private residence during the period of a temporary transfer in the
place of his employment, relevant losses and outgoings on the property are
deductible for that period.
3|Page      The information in this newsletter is of a general nature only and is not intended
           to be relied upon as, or as a substitute for, specific professional advice.
Apportionment

Expenses need to be apportioned if only part of the property is let, the property
is let for only part of the year, or the property is let for a mixture of commercial
and non- commercial purposes.

In the absence of a true partnership agreement between joint tenants, they each
remain assessable on half the income and entitled to claim half the losses.

Non-commercial transactions

It is normally necessary to show that a lease has a commercial flavour the rental
is considered assessable and outgoings deductible. It would appear that a
transaction is more likely to be accepted if:

   (1) formal lease prepared;
   (2) the rent is not nominal;
   (3) rent is physically paid over;
   (4) the lessor has had experience with other rental properties; and
   (5) there is no moral or social obligation to subsidise the tenant.

If transaction has both a business and private elements, apportionment of the
outgoings may be appropriate, or even the limitation of the deduction to the
amount of income from the property.

Borrowing Expenses

Expenditure incurred in borrowing money or in the discharge of a mort- gage is
normally capital expenditure. However, sec. 67 specifically allows a deduction
for borrowing expenses and sec. 67A for certain mortgage discharge expenses.

Expenses are deductible over the period of the loan or 5 years, whichever is the
shorter period, be- ginning with the year in which they were incurred. If
borrowing expenses incurred in any year are $100 or less, they are wholly
deductible in that year.

Expenses in connection with the dis- charge of a mortgage are deductible to the
extent that the loan money or the property was used for assessable income
production. This includes expenses incurred to discharge the mortgage.
4|Page      The information in this newsletter is of a general nature only and is not intended
           to be relied upon as, or as a substitute for, specific professional advice.
Capital Works Building Allowance (DIV 10) Residential:

Where construction of a rental property was commenced after 21 August 1984,
a capital works deduction may be available. Deductions are based on the
original cost of the construction. Where the construction commenced between
22 August 1984 and 15 September 1987 the deduction is 4% per annum. Where
construction commenced after 15 September 1987 the deduction is 2.5% per
annum. Note from 13 May 1997 the amount claimed under this section reduces
the Capital Gains Tax cost base.

DEPRECIATION

For Property let furnished, you may claim depreciation of plant, equipment and
articles installed; for example, depreciation may be claimed on furniture and fit
tings, blinds, floor coverings, refrigerators, washing machines and stoves,
television and radio sets, etc. An allowance for replacements is given for small
depreciable items where it is difficult to estimate their effective life, for
example, crockery, cutlery, bedding, linen etc.

Low-cost assets are depreciating assets that cost less than $1,000. Low-value
assets are depreciating assets that are not low-cost assets but which, on 1 July
2011, had been written off to less than $1,000 under the diminishing value
method. You can have only one low-value pool. Once you choose to allocate a
low-cost asset to a low-value pool, you must allocate to the pool all other low-
cost assets you hold in that year and in future years.

An immediate 100% depreciation deduction is available for units of depreciable
property acquired on or after 1 July 1991 where the effective life is less than
three years or the cost of the unit is no more than $300. It is not necessary to pro
rate for part of a year. However, the deduction is reduced where the unit is used
only partly to produce assessable income.

The Commissioner accepts that even where a group of identical items is
purchased at one time, each individual item which meets the above criteria may
be written off in the year of purchase provided the item is regarded as a whole,
can be separately identified and has a separate function.

5|Page      The information in this newsletter is of a general nature only and is not intended
           to be relied upon as, or as a substitute for, specific professional advice.
See last pages for detailed Depreciation schedule.

NSW Land Tax

Land tax is a tax levied on the owners of land in NSW as at midnight on 31
December of each year. In general, your principal place of residence or land
used for primary production (a farm) is exempt from land tax. You may be
liable for land tax if you own or part-own:

   •      vacant land, including vacant rural land
   •      land where a house, residential unit or flat has been built
   •      a holiday home
   •      investment properties
   •      company title units
   •      residential, commercial or industrial units, including car spaces
   •      commercial properties, including factories, shops and warehouses
   •      land leased from state or local government

Rates and thresholds

The Valuer General has determined the following land tax threshold

   •      2012 land tax is $396,000. Premium land tax threshold $2,421,000.
   •      2011 land tax is $387,000. Premium land tax threshold $2,366,000.
   •      2010 land tax is $376,000. Premium land tax threshold $2,299,000.

Rates and thresholds

Land tax is calculated on the combined value of all the taxable land you own
above the land tax threshold. The rate of tax is $100 plus 1.6 per cent of the land
value between the threshold and the premium rate threshold and 2% thereafter.

If land is owned by a trustee of a special trust the land tax threshold does not
apply and land tax will be charged at a flat rate of 1.6% of the taxable land
value up to the premium threshold of $2,299,000 and then 2% thereafter.

If the combined value of your land does not exceed the threshold, no land tax is
payable.

6|Page      The information in this newsletter is of a general nature only and is not intended
           to be relied upon as, or as a substitute for, specific professional advice.
Capital gain from a CGT event in respect of the property

When a CGT event occurs in respect of rental property acquired after 19
September 1985 and the capital proceeds exceed its cost base, a capital gain will
arise. Capital losses may be offset against the gain and, where the asset has been
owned by a person for at least 12 months; a CGT discount may be available.
The net amount of capital gain is included in the assessable income.

   •     Keep records of every circumstance or event that may be relevant to
         working out capital gains or losses. Records must be kept for at least
         five years. If the CGT event relates to a disposal of property, then the
         records must be kept from the date of acquisition up to the date of sale
         and then for five years after the relevant.
   •     Consider delaying CGT events until the next income year in order to
         delay the derivation of assessable income.
   •     Keep records of other matters which may be relevant to calculating
         capital gains and losses, such as capital allowance deductions.
   •     If a capital gain has been crystallised, consider realising capital losses
         in the same year to offset the capital gains.
   •     Where CGT assets are owned by an individual, trust or complying
         superannuation fund, consider holding them for at least 12 months to
         qualify for the CGT discount.
   •     Depreciating assets sold with the property, as they are subject to
         separate balancing adjustment calculations on revenue account.

Principal Place of Residence CGT Exemption

Basically if you make a capital gain when selling your home it is exempt from
capital gains tax. PPR stands for principal place of residence.

CGT does not apply to your home if purchased before 20 September, 1985.

The PPR exemption can apply to a forfeited deposit or damages received from a
defaulting purchaser providing the house is put back on the market and
eventually sold.


7|Page      The information in this newsletter is of a general nature only and is not intended
           to be relied upon as, or as a substitute for, specific professional advice.
A “Spec” builder who lives in the “spec” home technically qualifies for the PPR
exemption but is taxable on the profit as normal business income anyway and
this overrides the CGT exemption.

If the home is owned by a trust or company the PPR exemption cannot apply. If
you move into a house as soon as practical after you purchase it the house is
deemed to be your PPR from the time you purchased it. Further, if at the time of
purchasing your new house you have not yet sold your old house they can both
be your PPR for up to 6 months. Providing during the last 12 months you have
lived in your old residence for at least 3 continuous months and it was not used
to produce income during the period in that 12 months that it was not your PPR.

If you sub divide the land your home is on and sell the new block separately
from your home the PPR exemption does not apply. If you build another house
on the block the PPR exemption can apply for up to 6 months if you sell off the
old home in that time.

You can only have one PPR at a time. Providing you have at some time lived in
the place you can choose which house you want to be considered your PPR but
only from the time you first lived there and only up to six years after you move
out if it becomes income producing during your absence. The time frame is
unlimited if it is not income producing while you are not living there. Note if
you move back in and then out again you are entitled to another 6 years PPR
exemption even if it is income producing.

For PPR the ATO considers the following:

   -   Electricity and Phone connected in your name.
   -   Registered on the electoral role to that address.
   -   The presence of personal effects in the house.
   -   The address given for mail deliveries.
   -   Where your family lives.
   -   The length of time you have lived there.
   -   Your reasons for occupying the dwelling.

If you earn income from your PPR while you are living there than your PPR
exemption only applies to the percentage of the Capital Gain that represents the
8|Page      The information in this newsletter is of a general nature only and is not intended
           to be relied upon as, or as a substitute for, specific professional advice.
percentage of the house used for private use. If the home was partly used to
produce income while you were living in it then the same percentage PPR
exemption applies during the 6 year period as the percentage the house was
used for private while you were living there.

You can elect to have vacant land or a property you are renovating classed as
your PPR for a period of up to 4 years before you move into it providing you do
not have another PPR. You must move in as soon as practical after the building
is finished and live there for at least 3 months before selling or have died.

If your house is accidentally destroyed and you sell the land rather than rebuild,
your PPR exemption can continue to apply to the land until sold providing you
do not claim any other place as your PPR.

Families are discriminated against in those spouses and their children under 18
can only have one PPR between them no matter where they live. Spouses can
elect to claim their spouse’s PPR as theirs even if they never lived there and
even if their name is not on the deed. If both spouses want their separate homes
to be their PPR they only get half the exemption on each place.

If you acquired your PPR after 20th September, 1985 and used it as your PPR
until sometime after 20th August, 1996, when it became income producing you
must use the market value of the property at the time it becomes income
producing, as your cost base. Therefore any assessable capital gain will only
arise on an increase in the value of the property after it ceased to be your PPR. It
is not optional.

GST and rental properties
Transaction                                     GST treatment
Sale of residential premises:
Newly built                                     Taxable if sold by entity required to be registered
Substantially renovated/built to replace        Taxable if sold by entity required to be registered
Not new                                         Input taxed regardless of whether or not entity registered
Sale of residential land                        Taxable if sold by an entity required to be registered
Rental of residential premises                  Input taxed regardless of GST registration status
Rental of display home                          Input taxed regardless of GST registration status
Expenses connected with rental of residential   No input tax entitlement regardless of GST registration
property (insurance, repairs, agency,           status
commission)



9|Page           The information in this newsletter is of a general nature only and is not intended
                to be relied upon as, or as a substitute for, specific professional advice.
Negative Gearing

This is effectively running the property at a loss ie the rental expenses are
greater than the rent received. Note that the interest portion only of your loan
repayment qualifies as a tax deduction. This loss is then included in your tax
return along with your other income, which reduces your total taxable income.

You hope to profit is then made when you sell the house. Capital gains tax may
be payable but this may only be payable on half the gain made. The costs
associated with buying and selling property are high (i.e. stamp duty) so the
investment would probably have to be long term to make a real profit. As time
goes on you will pay more off the house or the rent will increase so the negative
gearing may not be there anymore. If you are be in a high tax bracket you
benefit more. Example of a negatively geared property:

     Rental Income $300 p.w.                   $15,600
     Less Cash Flow Expenses Including Interest 16,600
     Cash flow loss                               1,000
     Less Building Depreciation                   2,200
                                                 $3,200 Loss @ 46.5% tax
     Refund of                                  $1,488

Note the refund has only cost you $1000 in real cash as the building
depreciation is a non cash outlay. Building depreciation reduces your cost base
for CGT purposes, if the property was purchased after 13th May, 1997.

See below for tax impact of negative gearing.

TAX RATES FOR 2013

Income                                              Tax Rates
0 - $18,200                                         Nil
$18,201 - $37,000                                   19c for each $1 over $18,200
$37,001 - $80,000                                   $3,572 plus 32.5c for each $1 over $37,000
$80,001 - $180,000                                  $17,547 plus 37c for each $1 over $80,000
$180,001 and over                                   $54,547 plus 45c for each $1 over $180,000

Plus Medicare full Basic Levy at 1.5%
10 | P a g e      The information in this newsletter is of a general nature only and is not intended
               to be relied upon as, or as a substitute for, specific professional advice.
Property Depreciation Schedule                             YEARS   ASSET                                                   YEARS
ASSET


Air conditioning assets                                            Fire control assets:
(excluding ducting, pipes and vents):                              Alarms:
Air handling units                                            20   Heat                                                        6
Chillers:                                                          Smoke                                                       6
Absorption                                                    25   Detection and alarm systems:
Centrifugal                                                   20   Alarm bells                                                12
Volumetrics (incl reciprocating, rotary, screw, scroll):           Detectors (incl addressable manual call points, heat,
Air cooled                                                    15   multi type and smoke)                                      20
Water cooled                                                  20   Fire indicator panels                                      12
Condensing sets                                               15   Emergency warning and intercommunication systems
Cooling towers                                                15   (EWIS):
Damper motors (incl variable air volume box controller)       10   Master emergency control panels                            12
Fan coil units (connected to condensing set)                  15   Speakers                                                   12
Mini split systems up to 20KW (incl ceiling, floor                 Strobe lights                                              12
and high wall split system)                                   10   Warden intercom phone                                      12
Packaged air conditioning units                               15   Extinguishers                                              15
Pumps                                                         20   Hoses and nozzles                                          10
Room units                                                    10   Pumps (incl diesel and electric)                           25
Ceiling fans                                                   5   Stair pressurisation assets:
Clocks, electric                                              10   A C variable speed drives                                  10
Digital video display (DVD) players                            5   Pressurisation and extraction fans                         25
Door closers                                                  10   Sensors                                                    10
Door stops, freestanding                                      10   Kitchen assets:
Escalators (machinery and moving parts)                       20   Cook tops                                                  12
Evaporative coolers:                                               Crockery                                                    5
Fixed (excluding ducting and vents)                           20   Cutlery                                                     5
Portable                                                      10   Dishwashers                                                10
Floor coverings (removable without damage):                        Freezers                                                   12
Carpet                                                        10   Garbage disposal units                                     10
Floating timber                                               15   Microwave ovens                                            10
Linoleum                                                      10   Ovens                                                      12
Vinyl                                                         10   Range hoods                                                12
Furniture, freestanding                                       13   Refrigerators                                              12
                                                             1/3
Garbage bins                                                  10   Stoves                                                     12
Garbage compacting systems (excluding chutes)              6 2/3   Water filters, electrical                                  15
Generators                                                    20   Laundry assets:


11 | P a g e            The information in this newsletter is of a general nature only and is not intended
                     to be relied upon as, or as a substitute for, specific professional advice.
Gym assets:                                                Clothes dryers                                        10
Cardiovascular                                         5   Ironing boards, freestanding                           7
Resistance                                            10   Irons                                                  5
Hand dryers, electrical                               10   Washing machines                                      10
Heaters:                                                   Outdoor assets:
Fixed:                                                     Automatic garage doors:
Electric                                              15   Controls                                               5
Gas:                                                       Motors                                                10
Ducted central heating unit                           20   Barbecue assets:
Other                                                 15   Fixed barbecue assets:
Freestanding                                          15   Sliding trays and cookers                             10
Hot water systems (excluding piping):                      Freestanding barbecues                                 5
Electric                                              12   Floor carpet (incl artificial grass and matting)       5
Gas                                                   12   Furniture, freestanding                                5
Solar                                                 15   Gardening watering installations:
Intercom system assets                                10   Control panels                                         5
Lifts (incl hydraulic and traction lifts)             30   Pumps                                                  5
Lights:                                                    Timing devices                                         5
Fittings (excluding hardwired)                         5   Garden lights, solar                                   8
Freestanding                                           5   Garden sheds, freestanding                            15
Shades, removable                                      5   Gates, electrical:
Linen                                                  5   Controls                                               5
Master antenna television (MATV) assets:                   Motors                                                10
Amplifiers                                            10   Operable pergola louvres:
Modulators                                            10   Controls                                              15
Power sources                                         10   Motors                                                15
Mirrors, freestanding                                 15   Sauna heating assets                                  15
Radios                                                10   Sewage treatment assets:
Rugs                                                   7   Controls                                               8
Solar power generating system assets                  20   Motors                                                 8
Stereo systems (incorporating amplifiers, cassette         Spas:
players, compact disc players, radios and speakers)    7   Fixed spa assets:
Surround sound systems (incorporating audio video          Chlorinators                                          12
receivers and speakers)                               10   Filtration assets (incl pumps)                        12
Telecommunications assets:                                 Heaters (electric or gas)                             15
Cordless phones                                        4   Freestanding spas (incorporating blowers, controls,
PABX computerised assets                              10   filters, heaters and pumps)                           17
Telephone hand sets                                   10
Television antennas, freestanding                      5   Swimming pool assets:
Television sets                                       10   Chlorinators                                          12



12 | P a g e            The information in this newsletter is of a general nature only and is not intended
                     to be relied upon as, or as a substitute for, specific professional advice.
Vacuum cleaners:                                            Cleaning assets                           7
Ducted:                                                     Filtration assets (incl pumps)           12
Hoses                                                  10   Heaters:
Motors                                                 10   Electric                                 15
Wands                                                  10   Gas                                      15
Portable                                               10   Solar                                    20
Ventilation fans                                       20   Tennis court assets:
Video cassette recorder systems (VCR)                   5   Cleaners                                  3
Water pumps                                            20   Drag brooms                               3
Window blinds, internal                                10   Nets                                      5
Window curtains                                         6   Rollers                                   3
Window shutters, automatic:                                 Umpire chairs                            15
Controls                                               10   Security and monitoring assets:
Motors                                                 10   Access control systems:
Bathroom assets:                                            Code pads                                 5
Accessories, freestanding (incl shower caddies,             Door controllers                          5
soap holders, toilet brushes)                           5
Exhaust fans (incl light/heating)                      10   Readers:
Heated towel rails, electric                           10   Proximity                                 7
Shower curtains (excluding curtain rods and screens)    2   Swipe card                                3
Spa bath pumps                                         20   Closed circuit television systems:
Security systems:                                           Cameras                                   4
Code pads                                               5   Monitors                                  4
Control panels                                          5
Detectors (incl passive infra red, photo sensors            Recorders:
and vibration)                                          5   Digital                                   4
Global System for Mobiles (GSM) Units                   5   Time lapse                                2
Noise makers (incl bells and sirens)                    5   Switching units (incl multiplexes)        5




13 | P a g e           The information in this newsletter is of a general nature only and is not intended
                    to be relied upon as, or as a substitute for, specific professional advice.

				
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