October 2017

Are you?
– Renting out part or all of your home

At a glance:
– Renting out your home now can have many different tax implications in the future.

You should: 

– Only claim expenses for when the room was rented to a client.
– Contact us if you require any clarification or advice.
If you rent out part or all of your home, the rent money you receive is generally regarded as assessable income. This means:

• You must declare your rental income in your income tax return, and you can claim deductions for the associated expenses, such as part or all of the interest on your home loan; and
• You may not be entitled to the full main residence exemption from capital gains tax (CGT), which means you will have to pay CGT on part of any capital gain made when you sell your home.

Good and services tax (GST) does not apply to residential rents, so you are not liable for GST on the rent you charge, and cannot claim GST credits for associated costs.

If you are only renting part of your home, for example a single room, you can only claim expenses related to renting out that part of the house. This means you cannot claim the total amount of the expenses, you need to apportion the expenses.

You should apportion expenses on a floor-area basis based on the area solely occupied by the renter and add that to a reasonable amount based on their access to common areas.

If you rent out part or all of your home at less than normal commercial rates for example, to a relative, this may limit the deductions you can claim.

To find out more, click here.

Remember:
– If you have used any part of your home to produce income for example, by renting out part or all of it, you may not be entitled to the full main residence exemption on the sale of the property.

This article was published on 30/9/2017 and is current as at that date

Are you?
– A trustee or director of a corporate trustee of a trust?

At a glance:
– Certain trusts may decide to make a family trust election (FTE) in order to access a wider range of potential tax benefits.

You should: 
– Consider whether making a FTE would be beneficial for your trust.
– Contact us if you require any clarification or advice.

A family trust election (‘FTE’) is a choice made by a trustee to specify a particular individual (the test individual) around whom a family group is formed.  This family group then sets the maximum range of beneficiaries amongst whom the trustee can distribute to without triggering significant adverse tax outcomes, such as family trust distributions tax.

Where a trust makes an FTE, distributions may only be made to eligible beneficiaries who are within the family group. Any distributions outside the family group will be subject to Family Trust Distributions Tax calculated at the highest marginal rate applying to individuals plus the Medicare levy.

Choosing who will be the test individual is important, so as to include the more appropriate family members within the family group.

Generally the family group includes:

• the specified individual and their spouse;
• any parent, grandparent, brother or sister of the specified individual or their spouse;
• any nephew, niece or child of the specified individual or their spouse, including any lineal descendents; and
• the spouse of any individual mentioned above.

Companies, partnerships and trusts may also be members of the family group, provided that the family members listed above are entitled to all the capital and income of the relevant entity.

Although a FTE can effectively decrease the range of beneficiaries the trustee can distribute profit to, it does provide increased taxation benefits, when:

• The trust receives franked dividends;
• The trust has losses;
• The trust owns shares in a company with losses; and
• To bring the trust within the family group of another trust.

Although a person may be a beneficiary of the trust because of a FTE, the trustee will still need to refer to the trust deed to ensure distributions can be made to this family member.
For more information, click here.

Remember:
– Ensure that the trust deed as well as the FTE allow a distribution to a particular individual or entity.

This article was published on 30/9/2017 and is current as at that date

Are you?
– A taxpayer who has shares or units?

At a glance:
– You may have to pay tax on any capital gain you make on shares or units when a capital gains tax (CGT) event happens even if the event is involuntary.

You should: 
– Know what records you should keep for shares and units.
– Contact us if you require any clarification or advice

A CGT event can happen to shares even if a change in their ownership is involuntary for example, if the company in which you hold shares is taken over by or merges with another company. This may result in a capital gain or capital loss for you.

A CGT event may also occur where you:

• Redeem units in a managed fund by switching them from one fund to another;
• Receive a distribution other than a dividend from a unit trust or managed fund;
• Receive non-assessable payments from a company or trust; or
• Own shares in a company that has been placed in liquidation or administration and the liquidator or administrator has declared the shares or other financial instruments worthless.

When there is a corporate restructure involving a specific corporate group, the Tax Office often publish a class ruling or fact sheet detailing the tax consequences of the restructure.

You may be entitled to an income tax deduction if a listed investment company (LIC) pays you a dividend that includes an LIC capital gain amount.

Special CGT rules apply if you:

• Receive, from a company or trust, bonus shares, bonus units, or rights or options to acquire shares or units; or
• Buy convertible notes or participate in an employee share scheme or a dividend reinvestment plan.

For more information, click here.

Remember:This article was published on 30/11/2017 and is current as at that date

Are you?
– Buying or selling residential property.

At a glance:
– Selling or renting existing residential premises are input-taxed sales and do not include GST however, if the residential premise is considered new, it is a taxable sale and GST is applicable.

You should: 
– Keep documentary evidence showing your intentions and change of intentions when dealing with new residential property.
– Contact us if you require any clarification or advice.

If you buy property, old or new, with the intention of selling it at a profit or developing it to sell, you may be considered to be carrying on a business and may be required to register for GST.

Generally, you are not considered to be carrying on a business if your property transactions are for private purposes such as when you are constructing or selling your family home.

If you sell existing residential premises, your sale is input-taxed. You cannot claim GST credits for anything you purchase for the sale and you are not liable for GST on the sale.

If you sell a new residential premises you are generally making a taxable sale, which means you:

• Can claim GST credits for any related purchases you make subject to the normal rules on GST credits; and
• Are liable for GST on the sale.

A residential premises is new when any of the following apply:

• It has not previously been sold as residential premises;
• It has been created through substantial renovations; or
• A new building replaces a demolished building on the same land.

A residential premises is no longer new if it has been 5 years since:

• It first became a residential premises;
• It was last substantially renovated; or
• It was built to replace demolished premises.

For more information, click here.

Remember:
– If you purchase land with the intention of development and immediate resale, you are likely to be considered to be carrying on an enterprise.

This article was published on 30/11/2017 and is current as at that date