Door is closing for financial year 2014/2015. Let me share expert views on this, winner of – 2014 Property Tax adviser of the year – Shukri Barbara – property tax specialists describe as below.
Increase in Penalty Units
Note ATO’s increased penalty units now $170. A maximum of 5 units can be applied. They are usually applied one unit for each month a return or BAS is late. An increase from $550 to $850 is hefty when applied as a ‘Failure to Lodge on Time’ penalty for several years .. for several breaches. Unlike ‘General Interest Charge’ levied on late payment, penalties are NOT tax deductible, making them very expensive.
Tax Tip – Historically, ATO has not levied this penalty where the assessment of a late return is a refund.
Data Matching & Audit
With increased IT capability ATO collects data from other government agencies, third parties including local government councils, financial institutions including banks. Legislation allows them access to data others can not reach due to Privacy legislation. They then match this against information and claims made on the tax returns
Tax Tip – Make sure all transactions are declared. ATO is chasing people who have not declared CG on sale of property. Difficulties tend to arise in distinguishing when a sold property was exempt due to it being a Main Residence and protected under the six year rule’ if it was subsequently rented. They are not to be messed with in 2015/16
Tax agent Lodgement program – ATO demands
For people who have not lodged returns over a long time we have seen demands for lodgement from ATO with threats that if lodgement is not met within due dates matters will be handed over to contracted collection agencies. Yes agencies collecting the documents .. not the money .. that follows if any is owing.
To be fair they do provide extension of time to pay .. but at interest rates 4% above market rates to discourage people using them as a bank. However this interest is tax deductible.
Caution – Forcing the issue of lodgement on time from the other side, ATO has set new benchmarks for tax agents. If benchmarks are not met extensions of time generally available to agents are withdrawn. The impacts of this means agents must remove clients from their lists to meet the targets. This leaves clients exposed to stricter requirements and deadlines and to potential penalties.
Capital Gains/Losses & Timing
Where you are in the process of selling rental/investment property note that the relevant date for CGT purposes is the contract date and not the settlement date.
Where you are carrying capital losses and the potential sale will realise a capital gain then ..
Tax Tip – signing the contract before 30th June, means any gain can be offset against the capital loss incurred this year or carried forward from a previous year, before the balance can be assessed as taxable.
If there is an excess of taxable amount – 50% discount may be applicable if the property was held for longer than 12 months
Where there is no Capital Losses available and the sale is likely to produce a capital gain
Tax Tip – signing the contract on or after July 1st means the CG will only be reported in 2015 tax return. The tax money can then be invested and generate additional interest or used for another investment.
CAPITAL GAIN
Capital gains generated during the year can be minimised by offsetting it against capital losses or trading losses incurred during the same year.
Tax Tip – what you do not want to do is generate a CG this year, pay tax and then sell a loss property next year when there are no CG to offset against.
Tax Tip – the 50% discount on capital gains is available where an asset is held for longer than 12 months. As this is a considerable saving consider the timing of any sale.
CAPITAL LOSSES
Capital losses incurred in any year are available to be carried forward to future years if there are insufficient gains to absorb it in the same year. It can be carried forward for an indefinite period.
Capital losses can not be offset against other income such as business trading income.
Refinancing –
Refinancing could be the best option for you with interest rates at below 5% for fixed term loans, refinancing may result in a savings for some of you. Financing new projects with these lower rates may make some projects feasible.
So let us help to analyse your situation and determine whether there is a benefit for you to move or not. We are able to deliver these low fixed rates and competitive interest rate on market. Let us explore your opportunity. Call us on 0431 843 090 for details.
Discloser: – None of the information contained within this article constitutes, or is intended to constitute, a recommendation by the writer that any particular security, investment or tax strategy is suitable for any specific person. None of the information contained in the article is, or is intended to be, personalised tax advice. Investments or tax strategies mentioned in the article may not be suitable for all individuals. All readers of the article should make their own independent decision regarding investment & tax. The material contained in the article does not take into account each reader’s particular investment objectives, financial situation or needs. This is general advice only from the writer own experience and research. All readers should strongly consider seeking advice from their own personal tax adviser based on their specific circumstances.