Taxation Treatment of Holiday Homes
A holiday home is a property that a person owns, and they rent out, but this rent is quite often not for the full year, but only for the period of time the person and their friends and family are not staying in that holiday home. The traditional holiday home is often a unit near a beach on the Gold Coast or some other tourist location but can basically be any property that is rented for most of the year, but certain times of the year the owners of the property or their friends, family and children stay in the property and it is no longer available to the public at large.
The Australian Taxation Office is always on the hunt for rental properties that they do not believe are genuine or where the taxpayer is incorrectly or falsely claiming tax deductions that they are not entitled too. This could simply be from the taxpayer not being aware of these rules, to the taxpayer actively making claims for tax deductions when the property is used for personal use with no adjustments being made. The ATO reminds taxpayers of these rules that deductions can only be claimed where the property is genuinely rented out or, if not, on a commercial basis that deductions can only be claimed up to the amount of income received. The problem with holiday homes is that taxpayers purchase these assets and are often unaware of these rules and unless their tax agent specifically states these to them during the yearly return, people may never learn about this. The ATO have concerns about this knowledge gap and the fact that the majority of rental properties are negatively geared, have concerns that people are inappropriately making claims for tax deductions they are not allowed.
Obviously, a taxpayer who holidays in fabulous tourist locations across Australia love the idea of owning a rental property that they can holiday in and claim tax deductions for; the problem lies in is it genuinely available for rent. The ATO actually check these details and upon investigation find that there is little intention of renting by the taxpayer or significant personal use. This can be done by simple searches on the various listings for property websites that are easily accessible by the ATO or contacting the renting agent direct for instructions from the taxpayer about advertising and renting the property out. This is an area of continual surveillance by the ATO and the consequences of not accurately recording these can be as simple as a written warning, to a reduction of expenses claiming in the taxpayer's return, to having the rental property being completely removed from being claimed in the taxpayer's income tax return with interest and penalties being applied.
If you would like to have a discussion about holiday homes, please do not hesitate to contact us.
Note on the Royal Commission
As no doubt many of you have seen, the Australian wealth advice industry has come under increasing scrutiny in recent weeks, with many professionals tarnished by the actions of a small few.
Many of the examples of questionable, or downright fraudulent behaviour to stem from the Royal Commission testimonies arose from the creation of incentive structures within Australia's major financial institutions that saw advice given that was surely in the interests of the advisor and not the client.
As many of you may be aware, Signum Business Advisers has operated a 50:50 financial advice business alongside ASX-listed wealth advisory firm Prime Financial (ASX Code PFG) for 13 years. Prime are a national Financial Advice business who advise on over $1bn in assets, much of which comes by way of their partnership with Accounting and Business advisory firms such as ours. Our relationship with Prime is sound and we feel the integrated offering of Wealth and Accounting services delivers good outcomes for clients. Moreover, the Prime advisory team are salary-based and each of their Wealth Advisers are tertiary educated or more.
The Prime Investment Committee has 70 years of direct investment market experience amongst its 4-members, and two of its members, Mark Johnson and Cameron Morcher also operate as the joint heads of national Wealth Advisory within Prime, which allows them to shed a client perspective over the investment committee's decision making. Prime's Separately Managed Account (SMA) strategies have delivered strong risk-adjusted returns for clients invested.
In a time of industry uncertainty, we are very comfortable with our historic association with Prime.
For those of you who would like to hear more, please call us for a discussion.
As 30 June is quickly approaching, you should be aware of the following limits and thresholds in relation to superannuation.
Concessional Contributions Cap
With effect from 1 July 2017, the concessional contribution cap for all individuals is $25,000.
Prior to 1 July 2017, an individual (mainly those who are self-employed) can only claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This is known as the 10% maximum earnings condition.
From 1 July 2017, the 10% maximum earnings condition will be removed. This means most people under 65 years will be able to claim a tax deduction for personal super contributions (plus those aged 65 to 74 who meet the work test).
Non-Concessional Contribution Cap
From 1 July 2017, the non-concessional contribution cap for individuals with a total superannuation balance less than $1.6 million is $100,000. Individuals are unable to make non-concessional contributions where their total superannuation balance is greater than $1.6 million.
Individuals under the age of 65 at the start of a financial year will continue to be able to 'bring forward' 3 years' worth of non-concessional contributions along similar lines as the current law, but subject to their super balance.
Transitional arrangements apply where an individual triggered their bring forward but not fully utilised it before 1 July 2017.
Large penalties can apply where these limits are exceeded so please seek our advice before contributing.
High Income Earners Contributions Tax (Division 293 tax)
Individuals with income greater than $250,000 have the tax concession on their contributions reduced from 30% to 15%. The definition of 'income' for the purpose of this measure includes concessional superannuation contributions.
Superannuation Guarantee Charge
Employers should ensure that all employee superannuation is paid prior to 30 June to ensure that the deduction for the contribution is received in the 2018 financial year. We suggest making the contribution by 25 June to ensure the payment is processed by 30 June.
Employer Grants Can Be Beneficial
The Australian government offers a number of grants for the benefit of employers, including:
There are a number of initiatives which will assist employers who agree to employ an apprentice, particularly where the apprentice is hired by a business in a trade experiencing a skills shortage which has been identified in the "National Skills Needs' List"
There are different programs for the employment of apprentices, as follows:
- school based apprenticeships
- existing workers who become an apprentice
- apprentices with disabilities
- adult apprentices
- apprenticeships for indigenous AustraliansThese programs are in addition to the standard apprenticeship incentives
Job active helps employers find the right staff for the business, at no cost to the employer. A local job active provider does this by recommending a shortlist of "screened and job ready" candidates while offering professional recruitment services across all industries. Employers need to register with job active.
Restart Wage Subsidy
Businesses that provide employment to people aged 50 years or older could be eligible for a subsidy.
Employer Support Payment
The employer support payment provides financial assistance to eligible employers of reservists when the reservist is absent on eligible periods of defence service. Self-employed reservists can also access the employer support payment.
For full-time employees, employer support payments are made at a set weekly rate equivalent to average weekly full-time adult ordinary times earnings (AWOTE).
Wage Subsidy Scheme – Disability
The wage subsidy scheme provides a financial incentive to eligible employers when considering the employment of jobseekers with a disability or with some other barriers to employment. Wage subsidies payments are made to employers to help cover the costs of wages and training in the first few months of employment of a person with a disability or a person experiencing other barriers to employment.