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There can often be a fine line between whethera person is carrying on property development activities or is “merely realising an asset”. 

For example, it may not be clear whether the extent of a person’s development activity in respect of, say, subdividing his or her backyard and building one or more units of accommodation and selling them either amounts to property development or merely realizing an asset – and one that has been used mainly for domestic purposes. 

And a person may be considered to be carrying on property development activities if they are not in the business of property development and it is a one-off activity. 

Suffice to say, the tax consequences between property development and “merely realising an asset” are entirely different. 

In the case of carrying out property development activity, the gains are assessable as ordinary income (or as business income) – and, importantly, without the benefit of the capital gains tax (CGT) 50% discount which would otherwise reduce the assessable amount. 

However, relevant expenditure incurred is generally deductible as it is incurred, ie, in the income year that it is incurred. And this may be of great benefit to the developer. 

On the other hand, if a person is “merely realising an asset” then any gain is only accounted for under the concessionally taxed CGT regime (and with the benefit of the 50% CGT discount, if generally the land has been owned for more than 12 months). 

Furthermore, in this case, if the property in question was acquired before 20 September 1985 then there will be no consequences (either CGT or ordinary income). And there are still quite a few pre-CGT properties around that are ripe for realisation. 

So, how does the Tax Office tell the difference between the two when it is not abundantly clear from the nature of the activity itself? 

Well, several factors are particularly important (among the many that can be taken into account). 

These include the intention with which the person originally acquired the land. To develop it and on-sell it for a profit? Or merely for some other non-profit purpose? For example, to live in it as their home (although this distinction is getting harder to tell in the current property market!). 

Another key factor is the extent to which the person gets involved in the activity. As a broad principle, where a person is less involved in the activity and merely acts passively it is generally considered to be “merely realising an asset”. But this is not a hard and fast rule. 

There are also important GST consequences depending on the nature of the activity and the property involved. 

Finally, it should be stressed that just because the nature of the activity is a one-off transaction it does not mean that the person is immune from being taxed on the profits as ordinary or business  income. 

If you are contemplating carrying out any such activity, come and have a chat to us first so we can help you do things with the best possible tax outcomes.

If you’re a high income earner, you may soon be asked to pay an extra 15% tax on the amount of concessional contributions that exceed the $250,000 threshold.

What is Division 293 tax?

Division 293 tax is an additional 15% tax that is payable when your income and concessional contributions exceed $250,000 in 2023/24. To recap, concessional contributions are before tax contributions and are generally taxed at 15% within your fund. This is the most common type of contribution individuals receive as it includes superannuation guarantee payments your employer makes into your fund on your behalf.

Other types of concessional contributions include salary sacrifice contributions and tax-deductible personal contributions.

It’s worth noting that the extra 15% Division 293 tax is payable in addition to the standard 15% tax that is paid on concessional contributions.

How does Division 293 tax work?

You will be liable for Division 293 tax on either your concessional contributions, or the amount of income that is over the $250,000 threshold – whichever amount is lower. 

Income for the purposes of Division 293 includes taxable income from a range of sources, such as:

• Employment and business income
• Reportable fringe benefits
• Investment income
• Net financial investment losses, such as negative gearing losses where deductions attributable to an investment property exceed rental income
  Income you may receive due to a one-off event, such as making a capital gain, receiving a work bonus, or a redundancy or termination payment.

Purpose of Division 293 tax

The purpose of this extra tax is to reduce the tax benefits that high income earners receive from the superannuation system and to level the tax playing field for average income earners.  

Even though high income earners may pay tax on their concessional contributions at 30%, this is still less than the top marginal tax rate of 47% (including Medicare levy) that generally applies to high income earners who are liable for Division 293 tax. As such, making and receiving concessional contributions are still tax effective.

Liability to pay Division 293 tax

The ATO will determine if you need to pay Division 293 tax based on information in your tax return and data they receive from your superannuation fund(s). As a result, there is usually a delay between when the contribution is made and when Division 293 tax is Payable.

The ATO will issue you with a notice of assessment stating the amount of tax payable and provide an authority to enable your superannuation fund to release the money. You also have the choice to pay the tax personally. Note that the tax is due within 21 days of the assessment being issued to you, and certain timeframes also apply if you elect to pay the amount from your superannuation fund.

Need more information?

Contact us today if you think you might be liable to pay Division 293 tax and want more information about your options.

When hiring new staff, there are certain steps you should follow to cover off on your tax, workplace, and superannuation obligations.

CONFIRM THEY ARE LEGALLY PERMITTED TO WORK IN AUSTRALIA 

Australian citizens, permanent residents and New Zealand citizens are legally permitted to work in Australia. If the worker does not fall into these categories you must, before employing them, confirm they have a visa granting them permission to work here. For more information, visit the Department of Home Affairs website https://immi.homeaffairs.gov.au/visas 

EMPLOYEE OR CONTRACTOR? 

Establish the nature of the engagement – is the worker an employee or contractor? This matters from a tax perspective because employers will have PAYG withholding obligations to employees. By contrast, no PAYG withholding obligations are owed to contractors unless there is a PAYG voluntary withholding agreement in place. You and a contract worker (payee) can enter into a voluntary agreement to withhold an amount of tax from each payment you make to them. This is a good way to help independent contractors meet their tax obligations. 

A voluntary agreement can cover a specific task or apply to successive arrangements between you and the worker. Either you or the contractor can end a voluntary agreement at any time by notifying the other in writing. 

The employee/contractor distinction also matters for superannuation purposes. Employees are generally entitled to superannuation. From 1 July 2022, this also includes employees who earn less than $450 per month. On the other hand, contractors are not entitled to superannuation unless they work under a contract that is wholly or principally for their labour. 

While in many cases, the status of a worker may be clear cut, if as an employer you are in any doubt about the character of the relationship, then you are encouraged by the ATO to use their Employee Contractor Decision Tool. The tool asks the user a series of questions, and then reaches a result depending on the answers provided. Print out the result and keep it on file. If you need further guidance or disagree with the result, speak to us.

PAPERWORK 

Before commencing employment, employees should complete the following forms: 

• TFN declaration – this is so employers can work out how much tax to withhold from employees. 
• Standard super choice form – to offer eligible employees their choice of superannuation fund. 

Employers must fill in the details of their nominated super fund, also known as a default fund, before providing the form to an employee. Employees can access and complete pre-filled commencement forms through ATO online services via myGov. 

REQUEST STAPLED SUPER FUND 

If you take on a new employee and they don’t choose a super fund, employers will have an extra step to take to comply with the choice of fund rules. Employers may need to request an employee’s “stapled super fund” details from the ATO. A stapled super fund is an existing super account linked, or “stapled”, to an individual employee so it follows them as they change jobs. This aims to reduce account fees. Employers can request stapled super fund details from the ATO using ATO online services. 

CONFIRM PAY RATES 

An employee’s minimum wages, including penalty rates, overtime rates, and allowances will in most cases be set out in the relevant workplace Award. Additionally, some employees have special minimum wages rates in their Award, for instance juniors, apprentices, and trainees. On the Fair Work front, employers are also generally required to provide new employees with a Fair Work Information Statement. Contact Fair Work Australia on 13 13 94 for information about applicable rates. 

STATE AND TERRITORY OBLIGATIONS 

Other issues may be in play when you take on a new employee, such a workers’ compensation coverage. 

Don’t be another victim – be on the lookout for scammers who call you about your superannuation! 

ASIC on the lookout 

The number of cold callers is on the rise. The Australian Securities and Investments Commission (ASIC) are urging people to hang up on cold callers and scroll past social media click bait that may be offering to help you compare and switch superannuation funds. 

How cold callers operate 

In many cases, cold callers will convince you to buy a product or sign up to a service. This could relate to any financial investment, product or service, but there has been a focus on scammers approaching people about their superannuation. A typical superannuation cold calling experience includes: 

• A call from someone you don’t know to see if you “qualify” for a free review of your superannuation. 
• Contact from a cold caller who convinces you that your existing superannuation fund is not performing. 
• A statement of advice (SOA) prepared by a financial advice firm the cold caller has an existing arrangement with. 
• ‘Cookie cutter’ advice that is expensive, often unnecessary, doesn’t consider your individual needs, and may leave you in a worse position. 

The cold caller may benefit by getting a cut of the financial advice fees, which are deducted from your superannuation balance. In the end, you could end up paying for advice that may not even be right for you. 

What to do 

If you receive a call from a number you don’t know, ignore it. Otherwise, if you are contacted by a cold caller and answer the call, just hang up. Similarly if you receive a SMS message from a number you don’t know, ignore it and do not click on any links.

If you have given personal information about your superannuation or banking details to a cold caller, contact your existing superannuation fund or bank immediately and ask them to not allow any withdrawals. 

You can also block a cold caller’s number and limit the calls you receive by joining the Do Not Call register. 

Avoid social media click bait 

You may have also come across some posts on your social media feed which question whether your superannuation is performing or encouraging you to compare your superannuation fund. If so, take care as some businesses try to grab your attention on social media before they try to sell you their services. 

Beware of other sophisticated scammers 

There are also reports that many Australians have fallen victim to sophisticated scammers who use technologies that use your bank’s legitimate phone number and texts on the same thread as genuine messages. Often, people are losing their money through no fault of their own as scammers either hack or manipulate a bank or other institution’s systems which will often see victims inadvertently providing information, such as a passcode, to the scammer. Be vigilant and never provide personal information, passwords or pass codes to anyone over the phone. 

Beware of scammers 

As the saying goes, if it sounds too good to be true it probably is. Avoid pushy sales tactics such as cold calling or social media click bait that rushes your decision-making. If you’re thinking about making changes to your superannuation, you can always start by doing your own research, contact your existing superannuation fund, and consider using a licenced financial adviser to obtain quality financial advice about your superannuation.

It is possible to receive amounts that are not expected by the ATO to be included as income in your tax return. However some of these amounts may be used in other calculations and may therefore need to be included elsewhere in your tax return.

The ATO classifies the amounts that it doesn’t count as assessable into three different categories: exempt income; non-assessable non-exempt income; and other amounts that are not taxable. 

Exempt income 

As the name may suggest, exempt income doesn’t have tax levied on it. The thing to remember here however is that certain exempt income may be taken into account for other adjustments or calculations — for example, when calculating the tax losses of earlier income years that you can deduct, and perhaps “adjusted taxable income” of your dependants. 

Exempt income includes: 

• certain government pensions, including the disability support pension paid by Centrelink to a person who is younger than age-pension age 
• certain government allowances and payments, including the carer allowance and the child care subsidy 
• certain overseas pay and allowances for Australian Defence Force and Federal Police personnel 
• government education payments, such as allowances for students under 16 years old 
• some scholarships, bursaries, grants and awards 
• a lump sum payment you received on surrender of an insurance policy where you are the original beneficial owner of the policy – generally these payments are not earned, expected, relied upon or occur regularly (examples include payments for mortgage protection, terminal illness, and permanent injury occurring at work). 

Non-assessable, non-exempt income 

Non-assessable, non-exempt income is income you don’t pay tax on and that also does not count towards other tax adjustments or calculations such as tax losses. 

Non-assessable, non-exempt income includes: 

• the tax-free component of an employment termination payment (ETP) 
• genuine redundancy payments and early retirement scheme payments 
• super co-contributions 
• various disaster recovery assistance packages (although these need to assessed on a case-by-case basis). 

Other amounts that are not taxable 

Generally, you don’t have to declare: 

• rewards or gifts received on special occasions, such as cash birthday presents and gifts from relatives given out of love (however, gifts may be taxable if you receive them as part of a businesslike activity or in relation to your income-earning activities as an employee or contractor) 
• prizes you won in ordinary lotteries, such as lotto draws and raffles 
• prizes you won in game shows, unless you regularly receive appearance fees or game-show winnings 
• child support and spouse maintenance payments you receive.

Contact us if you’d like more information on this topic.

The personal services income (PSI) rules apply to income that is earned mainly from the personal efforts or skills of a person. 

It does not matter whether the income is earned by the individual in their own name or through an entity such as a business. The rules do not apply to income earned from being an employee. 

A business structure 

This can be a confusing concept. It does not mean that you conduct a business through an entity such as a company or a trust. 

The term “business structure” is used to define a business (operated through any structure) that is large enough for it to be concluded that the income of the business is not being earned from the individuals in the business. Rather, the income is being earned by the “business structure”. This can still apply to quite small businesses. 

The tests

The results test

This is an important test. If you pass the test, the PSI rules do not apply to you. An individual passes the results test if in relation to at least 75% of the individual’s PSI:

1. it is for producing a result, and
2. the individual is required to supply the equipment or tools of trade needed to perform the work, and
3. the individual is liable for rectifying any defect in the work.

Unrelated clients test

This test is passed if:

1. the PSI is gained from providing services to two or more entities that are not associates, and
2. the work has been gained by making invitations to the public or a section of the public. 

Employment test 

Broadly, this test is passed if: 

1. one or more entities (other than associates) are engaged to perform work, and 
2. those entities perform at least 20% by market value of the principal work. The test is also passed if an apprentice is engaged for at least half the income year.

Business premises test 

Broadly, this test is passed if business premises are maintained: 

1. at which the PSI is mainly gained, and 
2. of which there is exclusive use, and 
3. that are physically separate from premises the individual or associate uses for private purposes, and 
4. are physically separate from premises of customers or associates of customers. 

Personal services determination 

The ATO can give you a ruling that the PSI rules don’t apply to you in certain circumstances. For example, there could be “one-off” changes in your circumstances that cause you to fail the PSI tests. You can apply to the ATO to have the PSI rules ignored by the ATO. If the ATO rules in your favour, this is called a “personal services determination”.

Superannuation is often a key source of income when you retire so it’s important to ensure your investment strategy makes your retirement savings last for as long as possible.

Shifting investment strategy objectives 

As you approach retirement, your investment strategy objectives may start to shift. In your younger years, the main aim of superannuation is generally accumulation-focussed, which is all about growing as big a balance as possible, making regular contributions and investing for growth over the longterm. 

If you’re approaching retirement and need help with your retirement investment strategy, it may be worthwhile obtaining advice from a financial adviser.

As you enter retirement, investing for growth is still important however you will likely need to start drawing a pension or taking regular benefit payments to meet your living expenses. As you will have cashflows coming out of your fund and you will be drawing down on your assets, you’ll need to ensure you have enough liquidity in your fund to make those payments. 

You also need to ensure you’re protected against drawing down on your assets at times of poor investment markets where you could end up locking in those losses. This timing impact is also known as ‘sequencing risk’. As such, the liquidity and sequencing risk impact on your fund’s investment strategy must be considered. 

What investment strategy should I consider? 

It is important that your superannuation portfolio has adequate exposure to growth assets. By the time most individuals reach 65 years of age, they are now expected to live for another two decades. This means a person retiring at say age 60 must stretch their finances for, on average, another 30+ years. It’s important to note this is merely an average; many will live far longer than two decades from their 65th birthday. 

But assuming you aren’t drawing down excessive amounts and you will retain your funds in superannuation throughout your retirement, then taking a slightly more aggressive approach should result in you obtaining higher long-term returns and an increase in your portfolio value overtime. 

That said, it does come down to your risk profile. The key message here is leaving all your retirement savings in a 100% conservative strategy (ie, cash and term deposits only) may mean that your nes egg may not last you very long. 

How long will my super last? 

Although investment market returns and inflation are uncertain and we don’t know how long we are going to live, retirement modelling can factor in these future uncertainties to help you determine the likelihood of achieving your objectives, which will also test whether your investment strategy is likely to be successful. 

A financial adviser has access to such sophisticated financial modelling systems, however other simpler retirement calculators which can be found online (such as from the Moneysmart.gov.au website) can also give you an idea of how long your savings may last and how investment returns may affect your superannuation and/or pension balance. 

The last word 

There will be periods where the markets will be volatile which will see your retirement savings increase and decrease in value. During these times if you panic and switch back to a more conservative option, such as cash, you may do more harm to your superannuation balance. So if you’re approaching retirement and need help with your retirement investment strategy, it may be worthwhile obtaining advice from a financial adviser who can help you stress test your risk profile and help choose appropriate investments for your superannuation to make your savings last in retirement. 

Keeping track of your superannuation balance is key as it impacts how much you can contribute to superannuation and whether you are entitled to other superannuation concessions and measures.

Your total superannuation balance (TSB) is an important concept as it impacts your eligibility for up to six favourable superannuation-related measures, including the:

• Bring forward non-concessional contribution (NCC) cap
• Carry forward concessional contributions
• Superannuation spouse tax offset
• Government co-contribution, and more.

In a nutshell, your TSB includes:

• Your superannuation accumulation account balance(s)
• Your superannuation pension account(s), and
• The outstanding limited recourse borrowing arrangement amount in your SMSF that you entered into from 1 July 2018 (in certain circumstances).

Your TSB for the current year is measured on 30 June of the previous financial year (ie, 30 June 2023) when determining your eligibility to make or receive certain types of superannuation contributions.

HOW TO CHECK YOUR TSB

There are two main ways you can track your TSB.

Firstly, you can either contact your superannuation fund or refer to your fund’s statements and records for your TSB. When reviewing your annual statement, the TSB figure your fund reports to the ATO is generally referred to as ‘exit value’ or ‘withdrawal benefit’. This may be different to the 30 June ‘closing balance’.

The second way to check your TSB is by logging into your myGov account which will show your TSB for the previous 30 June as well as other helpful information, such as your:

• • Eligibility to use the NCC (after-tax contribution) bring forward arrangement
  • Concessional contribution cap
  • Unused carry forward concessional contribution cap amounts that have accrued since 1 July 2018
  • Employer contributions, and more.

Checking this information can be beneficial before you make any further contributions prior to 30 June 2024 as it can help you avoid exceeding your contribution caps.

The following steps should be taken to track your TSB (and other related superannuation information):

1. Log into your myGov account by visiting my.gov.au. If you don’t have a myGov account you can create an account.
   Alternatively, if you have a myGov account but have not linked the ATO service to it, you can also link it here too.
2. Select the super tab, then click on the information option and then click on ‘total superannuation balance’ (as shown in the image below). Here you will be able to see your current TSB as recorded by the ATO.
3. You will be able to see your current TSB for each superannuation interest you hold, including your prior year’s 30 June TSB under the ‘History’ button.

CHECK THE INFORMATION PROVIDED

You should take care when checking your TSB and other amounts displayed in myGov, as depending on the type of superannuation fund you have, your 30 June balance and contribution details may not have been reported to the ATO yet. For example, SMSFs are not required to report their superannuation information to the ATO as regularly as large APRA regulated funds so your contributions and your account balance may not be up to date in myGov. This is because the ATO obtains information about SMSFs from the annual return each year. This means any SMSF members will need to check their SMSF records to track their TSB and contribution caps if this information is not up to date in their myGov account.

NEED HELP?

Please contact us if you need more information on how to check your TSB or if you require further information about your superannuation account.

For most family businesses as well as private groups, succession planning (sometimes known as transition planning) involves considerations around the eventual sale of your business, or the passing of control of it to other family members when you retire. Depending on your circumstances, this may include realising assets and making other changes to ownership, but is certainly tied up with retirement planning and estate planning.

Adopting a sound tax governance framework can help you manage tax issues around succession planning before they present a problem. Though succession planning may not have an immediate tax impact, it’s important to include tax considerations in your plan. This will avoid unexpected tax issues arising down the track when you implement your plan.

Transferring control of your business to family members may involve restructuring your business operations – changes to share structure, changes to the trustee and appointor of a trust, changes to partnership structures – or transferring assets to family members via the creation of trusts or other entities. Remember that these sorts of events can have legal and tax implications that need to be carefully considered.

A common assumption with business owners is that the transaction being considered is a single “sale” — that of the business — whereas it is actually many sales of individual assets that need to be accounted for, possibly with different tax outcomes.

For example, when you dispose of or transfer your business assets there will likely be capital gains tax (CGT) consequences. The sale of a business can also trigger liabilities in relation to GST and, where applicable, wine equalisation tax, fuel tax credits and excise duty.

Where pre-CGT assets are involved, you should also understand and document the tax consequences for you and your beneficiaries. Issues for consideration include whether changes in the business operations may affect the pre-CGT status of the assets or shares and the availability of carried-forward losses.

Any significant changes to your business structures or operations (including any asset disposals) should be fully documented, along with their tax impact. Ensure information on your assets (such as acquisition dates and cost base) is properly documented. This will also ensure that any subsequent disposals of the assets can be treated correctly for tax purposes. Different strategies will have different tax consequences for the owner and beneficiaries.

Consider each strategy and identify (and keep records of) significant transactions.

For example, say, as the owner of a successful family business, you prepared a basic succession plan many years ago, but since then your business has expanded and your children have grown up. One of them may work with you in the business and you would like to see them take over when you retire.

The discussion you could have with this office would be how best to transfer the business and make the transition to retirement.

One option could be to restructure your business as a family trust, so you can still have some control of the business while reducing your involvement in the day-to-day operations. We can explain the tax consequences of this strategy, while also alerting you to other options and tax considerations. Once you decide on your strategy, you update your succession plan, which now includes a section detailing the tax treatment and tax payable on transfer.

Whatever strategies you use to transfer your business onto the next generation, make sure your plans are documented and you seek advice from professional advisers where needed. This will reduce the risk of incorrect tax treatment and outcomes, and possibly consequent penalties. 

Following the ATO’s claims that nine out of ten residential rental property investors who have been audited have been getting their returns wrong, it might be worth touching on some of the tax traps and pitfalls to be wary of. In no particular order, these include:

Apportionment of rental income and deductions

Where a rental property is jointly owned by two or more people, the income and deductions are split according to the owners’ respective shares of the legal ownership of the property. Joint tenancy between spouses is the most common situation, meaning a 50:50 split. In those situations there is no legal basis for the spouse with the higher marginal tax rate claiming a disproportionate share of the deductions for mortgage interest, rates, land tax, insurances, repairs and maintenance in their own return – even where they fund the payments from their own bank account.

Private use

Interest and other outgoings are not deductible to the extent the property was used for private purposes – eg, while you or a relative or friend lived in it for no or nominal consideration.

Interest deductions

Where the acquisition of a rental property has been funded by way of debt, the associated interest costs will be deductible. However, where a loan (or part of a loan) that is secured over a rental property is used for private purposes, such as buying a car or renovating the house you live in, interest can only be claimed on a pro rata basis.

Care needs to be taken when refinancing debt to ensure the tax deductibility of interest attributable to the rental property is not jeopardised.

Repairs vs improvements

The cost of genuine repairs to fix something that is broken or worn down due to wear and tear that happened while the property was tenanted is immediately deductible. Work that involves replacing the entirety of an asset would be a capital improvement and is deductible at 2½%

For example, your rental property might have an original 1960s bathroom, with leaky pipes and tiles that are broken or coming away. Fixing the leaks and replacing the tiles (even with something a little more modern) would fall on the repairs side of the line and be deductible outright. On the other hand, gutting the whole bathroom and replacing all the fittings with something out of Home Beautiful would be a capital upgrade and deductible at 2½ % per annum.

Initial repairs

Any deductions for repairs to your rental property have to be attributable to the time you were earning rental income from the property. If you buy a property that requires initial repairs before you can put tenants in, the cost of those repairs will not be deductible. You should still keep track of the amount you’ve spent on initial repairs as it will trigger off a capital loss when you sell the property down the track.

Certain initial repair works may be unavoidable, but defer non-urgent work if possible. So if your newly acquired rental property is in need of a coat of paint, maybe wait two or three years before contacting a painter.

Travel costs

The cost of traveling to visit your rental property to attend to things is no longer deductible. This matters especially to investors who have bought property interstate. There is an exception where an investor is in the business of letting rental properties – but very few are.

Depreciation

Second-hand depreciating assets acquired as part of the rental property can’t be written off against rental income, again unless you are in the business of letting rental properties. But the unclaimed depreciation can trigger off a capital loss on the eventual sale of the property. It’s important to keep track of these amounts in the meantime.

Cash jobs

It’s not unheard of for the tradesperson offering the best quote for a repair or maintenance job on your rental property to ask for payment in cash.

Before rushing in to accept such a quote, just make sure they’re not keeping the job completely off the books and that you’ll still be getting an invoice that satisfies the substantiation rules. Otherwise you could end up blowing your cost savings (and maybe more) because you won’t be entitled to a tax deduction for the cash you’ve handed over.

What your tradie does in relation to his tax affairs is a matter between them and the Commissioner, but it shouldn’t cost you a tax deduction. Always insist on getting an invoice.

Holiday homes

Own a holiday home? Great for family holidays, but if the property is also offered for short-term rentals there are a few wrinkles you need to be aware of.

The main one is that the property needs to be genuinely available for rent, and not just at times when demand is seasonally low. So if you book the place out for yourself or family and friends for all or most of the school holidays and other peak times, the ATO will take the view that you’re not seriously trying to make a profit from any rental income you receive and will limit your deductions for mortgage interest, rates and land taxes, repairs and maintenance, insurance etc to the amount of your rental income. Likewise if you only charge mates’ rates when family and friends come to stay.

Some holiday house owners have even pretended to market their property by demanding excessive rents or imposing unrealistic conditions for shortterm stays (eg, references, no pets, no kids). That is not likely to pass muster either.

Some limited personal use of the property is acceptable to the ATO, as long as you’re genuinely trying to turn a profit. Where this is the case, the deductions claimed need to be pro-rated to reflect the time the property was let or was genuinely available for rent.

Any disallowed deductions won’t be wasted entirely as they will create a capital loss on the sale of the property.

Please contact us if any of these issues raise concerns for you.