Written by Hudson Adviser Ivan Fletcher
Below is a timely reminder on tax matters for preparation and inclusion in your 2019 tax return.
1 . Depreciation on Investment property
Make sure you have a depreciation(s) schedule for your accountant including Building Write-Down as well as fixtures and fittings (white goods, heating/cooling systems, carpets, etc). If your investment property is under 40 years old (or had a major renovations in the last 40 years), there will be deductions available. Seek advice from your accountant if you are uncertain. If you have recently purchased a property, you may need to engage the services of a Quantity Surveyor to prepare the appropriate schedules for your investment property.
2. Investment loan deductions
Mortgage broker and loan establishment fees, stamp duty charged on the mortgage, title search fees charged by the lender, valuation fees for loan approval, costs for preparing and filing documents on the loan, and lender's mortgage insurance – are all tax deductible items. If your total borrowing expenses are more than $100, the deduction may be spread over five years or the term of the loan, whichever is less. These expenses are often overlooked when doing tax returns.
3. Income Protection Insurance Premiums
Where the policy is held outside of Superannuation, premiums are tax deductible. If your policy is held within super or funded by your superannuation, it is NOT deductible in your personal tax return.
4. Distribution and Dividend Income
This is easy to miss. In the case of managed funds you will receive tax statements for using in your tax return.
5. Check Your contribution Classifications
Are correctly classified for the last financial year?
6. Did you make any personal Contributions to Super for the Year ?
If Yes – then you have the scope to decide whether you want that contribution to be classified as concessional or non-concessional.
The Case for non-concessional
If your income is between $37,697 and $52,697 then you may qualify for the government co-contribution up to $500 (if below the lower threshold). TO achieve the maximum entitlement (assuming you are under $37,697 income) you need to have $1,000 as non-concessional.
A $500 return on a $1,000 investment is a 50% return and still the best tax break for those who qualify.
Caution – if you claim a deduction on all your personal contributions, then you will not qualify for the government co-contribution payment.
The Case for Concessional
Under relatively New Legislation as of 1 July 2017 personal contributions (funded from personal accounts) may also be classified as concessional allowing for a tax deduction in the personal tax return, regardless of whether you are self employed, a wage earner or retired and under age 65.
If you have income in a higher tax bracket (eg 34.5% inclusive of Medicare levy) a personal tax deduction reduces your tax payable at your marginal tax rate. A 15% contributions tax will however apply to your super fund. In this case the net return (tax benefit) is still 19.5% (34.5% - 15%).
Caution – There is a maximum of $25,000 allowable as concessional contributions
which is inclusive of employers superannuation guarantee, and salary sacrifice contributions and in some cases insurance premiums as well as your personal contribuitons (in the event you claim the deduction).
The Process To Claiming the Deduction
All personal contributions are classified as non-concessional in the first instance.
If you lodge a “notice of Intent” to Claim a tax deduction with your super fund the classification is then changed to concessional and the 15% contributions tax will be charged to your super fund. You will receive a confirmation from your super fund as evidence to include the deduction in your tax return.
With most super funds this is a decision you can make after 30 June. The Notice of Intent form must be lodged before you lode your tax return or before the next 30 June (ie 12 months) – whichever comes first.