Rental Properties

If you are considering purchasing a residential investment property or renting out your main residence, it is important to understand the tax implications of doing so. Some important things to consider include income that must be declared, the 6 year CGT rule, deductible expenses versus capital works and repairs and maintenance expenses.

Income generated from rental related activities which must be declared, include rental bond money that you become entitled to, insurance payouts, letting and booking fees received by you, reimbursement or recoupment for deductible expenditure and any other associated payments you receive including payments in the form of goods and services.

The 6 year CGT rule relates to renting out your main residence. It is now fairly common for people to move out of their main residence on a temporary basis. Whilst your main residence is being rented out you can claim deductions and still be eligible for the Capital Gains Tax exemption when it comes time to sell, as long as your main residence has not been rented out for more than 6 years at any one time. If the 6 years is exceeded you need to apportion the time that the property was classified as a rental property and a main residence and possibly pay tax on any capital gain made.

Expenses are only deductible for the period your property was rented out or available for rent although there is an exception on the following expenditure associated with land on which you have purchased to build a rental property or incurred during renovations to a property you intend to rent out:

• interest on loans,
• local council rates,
• water and sewage rates,
• land taxes, and
• emergency services levy.

It is important to remember that once you intention changes, these expenses are no longer deductible.

Confusing capital works expenses as repairs and maintenance is a common mistake. The general rule is that, if repairs or maintenance are carried out on the property in order to restore the fixture or fitting to it’s original state, then this is an outright deductible expense. If the items are completely replaced or restored to a condition beyond its original state, then this is capital works and must be depreciated at a general rate of 2.5% per annum.

If you have any concerns or questions about how to treat potential rental income in expenditure, please do not hesitate to contact our office.

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Deceased Estates

When someone close to you passes away it is an emotional time. At a time when you are grieving for a loved one, the last thing you want to consider is financial and taxation issues. Unfortunately, this is a reality, but please know that we are here to help make this part of the process easier for you.

Deceased estates are taxed differently from individuals and other Trusts. It is the executor’s responsibility for managing the deceased estate and ensuring all taxation requirements are fulfilled.

When a person passes away there is generally a requirement to lodge two income tax returns.

Firstly, there will be a final personal tax return for the deceased for any income earned from the start of the financial year until the date of death.

Secondly, there may also be a tax return for the deceased estate for any income from the date of death to the end of the financial year. An estate return may need to be lodged for each income year until the deceased estate is fully administered.

A deceased estate will be taxed at individual rates with the benefit of the full tax-free threshold for the first three tax returns while the deceased estate is being administrated. If the administration goes beyond the three years then special tax rates apply which are significantly higher than individual tax rates.

Deceased estates have specific rules surrounding lodgement and taxation of estate income and assets. We recommend you contact our office should your required any assistance in administering the tax affairs for an estate.

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