December 2017 NewsletterDecember 2017 NewsletterDecember 2017 Newsletter

Investment Property InsightsInvestment Property InsightsInvestment Property Insights

Questions or comments? Email us at admin@rawaccountants.com.au or call 02 6188 6900

The last 12 months have seen many changes in the tax landscape, reductions in the company tax rates for small businesses, super pension caps and reductions in the contributions that can be made not to mention a wide variety of changes regarding investment properties.

In this edition of our newsletter we focus on the changes that will affect many of our clients’ investment properties.

These changes are part of the Government’s agenda to facilitate affordable housing and are a clear indication that the Government has commenced a program of reducing the benefits many investors receive through negative gearing investment properties—a tinkering at the edges approach.

Many of the changes are in effect this financial year, being the 2017-18 financial year. We explore these in more detail in the following pages. The key changes are:

1. The removal of deduction for travel expenses for residential rental properties—commences 1/7/17

2. Limiting “plant & equipment” depreciation deductions to those actually incurred by the investor and denying future deductions if the property is used privately or unavailable—starts 1/7/17

3. For Non-Residents, a levy will be imposed for properties in Australia left unoccupied

4. For Foreign Residents, proposed loss of CGT Main Residence Exemption

We’ve also sought an external expert to provide some advise to our property investors. Braedan Kidd from Ashby Partners considers how you can get more out of your investment with his article ”Can I justify a rent increase?” on page 3.

Lastly, should you have any questions regarding the implications of any of the content of this edition to your circumstance, please contact one of our senior advisors. We’ve included a little bio and photo of each of them on the last page.

Happy reading!

Xmas & New Year Greetings

During the Holiday Season more than ever, our thoughts turn

to those who have made our year so wonderful.

In this spirit we say simply but sincerely:-

Thank You and Best Wishes

to you all for the Christmas season and a very happy New

Year

Our office is closed from 1pm on Friday 22 December 2017

and reopens 8.30am 2 January 2018.

Overview of This Edition

In this Issue:

Overview

Travel Expenses

Depreciation Limits

Foreign Owners Vacancy Fee

Foreign Residents lose CGT

Main Residence Exemption

Can I justify a rent increase?

Braedan Kidd of Ashby Part-

ners advice.

Dec 2017

Travel Expenses— No deduction from 1/7/17

Travel to inspect, to carry out maintenance, to meet with contractors property agents and tenants are necessary activities when you own an investment property.

These costs have historically been deductible as they are necessarily incurred in earning assessable income (rental income).

The Government considers that some investors have exploited these deductions and used travel to visit their property to also take holidays. Their approach—remove the deduction.

What does this mean? From 1 July 2017 travel incurred by the property owner to the property is no longer deductible. They’ve taken it one step further and also ruled that these expenses are also not available as capital expenses.

Are any travel expenses claimable? Yes, if your property manager travels to inspect the property these costs are claimable. Ordinarily these are already taken into account when the agent charges commissions and fees.

Depreciation Changes—Limits from 1/7/17

A common feature of negative gearing is claiming depreciation of the construction costs and plant & equipment in an investment property.

Until now the amounts available to be claimed by the current owner have been based on the estimated written down value of the original costs of improvements at acquisition, at appropriate depreciation rates. These were claimed by the present owner even it the works were carried out by the original builder or subsequent owners before the present owner. A Quantity Surveyor is often engaged to prepare such a report.

There has been talk over the last few years of the Government reducing the benefits of negative gearing. A common view to the non-investors is that the negative gearing benefits to property investors contributes to the lack of affordable housing for the lower income owner-occupier.

The Government’s view is that integrity measures are needed to address concerns that some plant & equipment items are being depreciated by successive investors in excess of their actual value. In our opinion this measure penalises the entire residential property investor population for the inappropri-ate conduct of a few, and is clearly not sufficient justification for such a change.

To explain the change it is best to outline the depreciation that is available on an investment property. There are two categories being:

Capital works—depreciation on the construction costs incurred by the builder—labour and materials costs of the building—items which have a degree of permanence (eg: bricks, windows, sheds, decks, fixed cabinetry such as kitchens and wardrobes)

Capital allowances—depreciation on the plant & equipment—items that are separately identifiable and can easily be replaced (eg appliances, carpet, blinds, garage doors, ducted heating and cooling, lifts and hot water systems)

The Change: If you bought your investment property after 9 May 2017 you are unable to claim depreciation on assets which were in the house when you purchased it. You are limited to deductions for plant and equipment that you have acquired yourself that is new.

The one exception to this is where you have acquired New Residential Premises (ie, purchased the property directly from the builder or developer).

You can continue to claim depreciation on plant & equipment on an investment property acquired prior to 9 May 2017.

Note that capital works (depreciation on the building itself) is still available on all investment properties. This deduction is unchanged.

Planning Tips: Consider the type of investment you are making, the deductions available and how the tax benefit will contribute to your cash flow. It can be useful to create scenarios on a few investment property options so the tax position can form part of the overall investment choice decision.

Creating scenarios and comparing these can be very beneficial and this is one of our specialty services. If you would like to find out more please contact one of our senior advisors.

This newsletter is intended to keep you abreast of developments of a general nature and is not intended to be comprehensive.

No two clients are the same and therefore it is difficult to be more specific in this regard.

Before acting on any matter raised we recommend seeking advice.

Liability limited by a scheme approved under Professional Standards Legislation

Investment Property Tax Changes

Dec 2017

Can I justify a rent increase?

By Braedan Kidd— Director at Ashby Partners www.ashbypartners.com.au

The cost of outgoings associated with property investment have been on the rise, so naturally you want to make sure you’re getting a fair market return on your property.

In Greater Canberra over the last 12 months average lease prices have risen by 14.4% for houses and 4.4% for apartments, so does that mean you should be returning more?

There are a lot of items to consider when pricing your rental property. We look at the data on a macro and a micro level to determine a fair and reasonable price. Recent lease results, anticipated future demand and stock levels, likely demographic and their income, versatility of the floor plan and the general condition of the property are all items that need to be taken into consideration to arrive at a fair market price.

Vacancy rates act as an excellent insight into tenant demand. At the moment in Greater Canberra, these vacancy rates are at a historic low (0.8%) and we’re coming into a competitive time of year for tenants fueled by school holidays, work contract change-over and the new university year.

The goal should always be to attract a great tenant at a fair and reasonable price. If your property is in good repair and you have a proactive agent working for you, this is an excellent time to warrant an increase.

The following is an example of the difference a rental agent can make to your rental return- just by reading the data.

- 4 Bedroom House; Duffy. The former property manager had the property leased at $650 per week for the last 18 months and advised the owner the tenants were vacating and they could not warrant a rental increase. The owner engaged my company, Ashby Partners Property Management, for a second opinion. After looking at the area and the freely availably property data, I determined we could achieve a $50 per week rental increase. A result was achieved within 48 hours of engagement – that’s an increase of 7.7%!

Liability limited by a scheme approved under Professional Standards Legislation

Vacancy Fee—Legislation not yet passed

Capital growth in Australian property continues to provide strong returns resulting in the continued investment by foreign owners in Australian

property. The Foreign Investment Review Board reports that many foreign investors leave their Australian property vacant and unoccupied

rather than rent it out or live in it, this contributes to a shortage of housing stock for the rental market.

The Government intends to introduce a vacancy fee on foreign owners who have Australian property that is unoccupied or not genuinely

available for rent for more than 6 months in a 12 month period. The annual levy will be $5,500 and charged by the ATO.

CGT Main Residence Exemption Denial —Legislation not yet passed

The Government plans to deny the CGT Main Residence Exemption to foreign and temporary tax

residents from 9 May 2017.

It is proposed there would be a grandfathering provision such that if you currently hold a main

residence in Australia you can still access the CGT main residence exemption until 30 June 2019.

If sold after that date you will pay CGT on the whole gain—there is no pro-rata if you were a

resident of Australia and held the property as your main residence for part of the ownership

period.

This measure means that the timing of any sale can be crucial and some expats may be better

off selling property with large capital gains prior to 30 June 2019, particularly if they have no intention of returning to Australia. Alternatively it

may be best to postpone any disposals until they are again a resident under Australian Taxation Law.

This measure is intended to incentivise whose who are no longer residents to dispose of their home to provide more housing stock to

Australian residents.

Importantly note that these changes have not yet been legislated, they are at Exposure Draft stage presently.

Changes impacting Foreign Owners

This newsletter is intended to keep you abreast of developments of a general nature and is not intended to be comprehensive.

No two clients are the same and therefore it is difficult to be more specific in this regard.

Before acting on any matter raised we recommend seeking advice.

Questions or comments? Email us at admin@rawaccountants.com.au or call 02 6188 6900

Raw Chartered Accountants provides a range of advisory, taxation and accounting services to business, individuals and investors. We would be happy to discuss any additional needs with you.

Self Managed Super Funds

Individual Tax Returns

Investment Property Scenarios (including cash flow and estimated tax position)

Negative Gearing Investment Properties

Salary Packaging

Jeanette Rawlings—

Director

Jeanette is a born and bred

Canberran with over 20 years

experience in the industry.

Jeanette takes great personal

pride in working alongside her

clients to realise their personal

and business goals. She actively

seeks out ways to help her

clients realise success through creative business and

investment strategies.

Interesting facts: Jeanette has 6 daughters & a husband who

loves his man-cave; she loves gardening & a good wine.

Priti Narayan—Senior

Manager

Priti has been a Chartered

Accountant since 2007 and has

been with such firms as Maxim and

PWC as well as Government.

Priti's expertise includes delivering

leading edge tax management

solutions to assist businesses and

organisations with tax strategy, planning and compliance. Priti

also has international tax experience.

Interesting facts: Priti is a great cook & has two young kids

Priti specialises in IT contracting and professional advisory

businesses and loves the variety of clients in other industries. Yan Khan— Senior

Manager

Yan is a Certified Practising

Accountant and has experience

that spans more than 15 years in

both public practice and

commerce. Yan has worked for

one of the ‘Big Four’ accounting

firms and other national mid-tier

accounting firms such as Deloitte, PKF and PERKS.

Over her career, Yan has developed her skills by providing tax

consulting advice to a wide range of clients. Yan provides

clients with commercially focused strategic taxation advice.

Yan specialises in small businesses of all types, SMSF’s , NFP’s

and investors.

Interesting facts: Yan loves reading, travelling, cooking and

gardening & has 1 son.

Bob Jankovic—Senior

Client Advisor

Bob’s background is in the

construction sector as a project

co-ordinator and project manager

After a career change a few years

ago he decided to follow his dream

and become an accountant. His

strengths are in building

relationships and without a doubt he has developed a flair for

getting things in order.

Bob specialises in the construction industry and investment

properties.

Interesting facts: Bob loves current affairs, history, soccer & has

2 beautiful daughters.

Our Senior Advisors

Some of our key services include:

Business Accounting, Tax & Advice

Business Structures

Starting a Business

Due Diligence of Business Acquisition

Preparing a Business for Sale

Bookkeeping Setup & Support