Classifying Repairs and Renovation in Rental Properties

How do we determine whether the work done is a repair or an improvement?

If you own a rental property this is very important in terms of the tax consequences.  It is the difference between claiming the cost as a deduction or having to depreciate the cost.

So how do we identify a repair as opposed to an improvement?

Some guidelines are as follows:-

  • A repair would normally mean the replacement of a worn-out part of something and not the replacement in its entirety.
  • The repair must be to something that is physically in need of repair – prevention is not repair;
  • Repairs means restoring parts of an entire thing not replacing the thing in its entirety;
  • If your repair is done to restore the function even if different materials are used then that is OK but it cannot go past restoring it to its former level. Therefore, replacing with like materials is very different to replacing wood with concrete for example.

If you have any questions as to whether what you are proposing to do is either a repair or improvement give Balanix a call on 3264 4783 before undertaking the work.  Once the work is done it is too late and could mean the difference between claiming the work as a deduction against current years income and having to depreciate it over the life of the asset.

David Balwin Tax Accounting CFO Business Advice

How can you tell if a TFN is a real TFN?

So why is a TFN rejected when you enter it in the Australian Taxation Office portal?  Simple you have entered a wrong number so you double check the number and you simply then re-enter the correct number.

But hang on – you did enter it correctly first time and it was rejected.  How can you tell if the TFN is a real TFN?

Embedded in each TFN is a TFN algorithm (also known as a check algorithm).  In the case of TFN’s one of the digits is dependent on the other digits and this digit just happens to be the last digit.

For the algorithm to work each number starting from the left has to have a weighting and the weightings are 1 4 3 7 5 8 6 9 10.  Perhaps it is easier to explain by example.

Let’s use a TFN 185 931 361 and see if it is in fact a true TFN.  Using the weightings mentioned above we have:

1×1, 8×4, 5×3, 9×7, 3×5, 1×8, 3×6, 6×9, 1×10.

When you add these together we come up with 216.

The last key to the puzzle is to divide by 11 and if the number is divisible 11 then what you are looking at is a real TFN.

Don’t ask me why I not a mathematician – I am an accountant – I just know it works!!!

David Balwin Tax Accounting CFO Business Advice

Work related claims are on the ATO’s radar

The Australian Taxation Office (ATO) has created industry average amounts for work related claims.  If you are claiming above the average (by around 10% or more) then you risk facing some sort of ATO review.

As a guide, here are ten occupations/industries and the respective average amounts for work related claims, according to ATO data and Etax:

  1. Real estate agents – $8,634
  2. Lawyers – $7,156
  3. Truck drivers – $5,059
  4. Tradies – $4,871
  5. Farmers – $4,428
  6. Engineers – $4,415
  7. Accountants – $3,224
  8. Teachers – $,3164
  9. Nurses – $2,622
  10. Bankers – $2,223

If you are in one of these industries and If you are unsure as to whether your claims are reasonable and therefore less likely to attract the ATO’s attention call me today on 07 3264 4783.

David Balwin Tax Accounting CFO Business Advice

Think Before You Apportion Your Income to Your Child

The ATO and other government agencies determine a “minor” to be those under the age of 18, however some people are surprised to find out that the tax rates that can be applied to the “unearned” income of such young taxpayers can seem punitive.

Did you know, for minors, the tax free threshold is a mere $416. Between $417 and $1,307 the rate is set at 68% (66% after June 30, 2017, when the Temporary Budget Repair levy expires). After $1,308, the top (adult) marginal rate applies.

But the reason for the seemingly harsh rates has little to do with punishing the kids and more to do with the behaviour of the older generation. These rates were introduced to stop or discourage adults from channelling a portion of their income through their child’s bank account, thus taking advantage of lower marginal and effective tax rates for themselves.

David Balwin Tax Accounting CFO Business Advice

Who is Assessable on the Interest Income from a Child’s Investment

We know that extended family can be very generous particularly when the new pitter patter of tiny feet join the clan.  On many occasions aunts and uncles, grandparents and parents start a savings account for a new addition.   However, in the euphoria and excitement of a newly arrived family member, the taxation obligations that may eventually come along due to this generosity doesn’t really get a look in.

A young child may not have a clue about the financial generosity its family is showering them with; they may not be able to navigate a Bank or read the Financial Review; however, they can have a bank account and there are ways for them to have investments. This means, by way of example, a love one or guardian may say operate a savings account on behalf of a child.

For taxation purposes, while the account may be in the child’s name and the funds in that account are the property of that child, the underlying legal principle that prevails is that investment income (in this case, the bank account’s interest) is assessable to the person who beneficially owns the money (and not necessarily who legally owns it).

The tax rules in operation here are not limited to children’s saving accounts, but it is an example that is useful in describing the principles at work. In fact, the Taxation Commissioner has recently issued a Tax Determination (TD 2017/11, read it here) that consolidates previous rulings and determinations in relation to not just children’s savings accounts but also monetary gifts to a child, joint bank accounts, and joint signatories to a bank account.

In each situation, it has been determined that interest income on a bank account is assessable to the person or persons who beneficially own the money in the account.

We don’t want to take the gloss off the joy of a new arrival nor rain on a very generous parade.  However, it is cautioned that anyone who wants to set up a new member of the clan with financial support seek professional advice about their intent before doing it so you can get on enjoying what matters.  Call Balanix Solutions today on (07) 3264 4783 for our expert advice.

David Balwin Tax Accounting CFO Business Advice