It’s a kind of a “how much will it cost to fix my car?” question. It really depends on your records.

Most accountants will charge an hourly rate for a rental schedule. The schedules really aren’t that complicated, and if you keep a spreadsheet of your costs it really shouldn’t take your accountant more than half an hour for a single property.

That said, some client’s with large portfolios ( > 10 properties) are extremely well organised and it only takes a few hours to prepare their ITR’s. Other’s organisation (record keeping) skills are particularly average. When you have to chase down costs (phoning agents, body corporates, etc) and ‘extrapolate’ for clients with large portfolios the job can easily take a couple of days.

My advice is to keep good records (a spreadsheet is best) and make sure your accountant charges you an hourly rate.

Sorry stasani, I dont really understand your question?

What do you mean by “apparently my provider charges differently?”

and, whats stopping you including a flat charge for weekly rent and power / bills ??

Hi Glenn,

Luke is right about the offset account – dont use a redraw.

Re your wife’s lower taxable income, you can not claim her costs in your tax return, even though you’ve paid for them.

The best way to explain this situation is by example. Say for three consecutive years her salary is $50k, $0k, $50k, and in each of those years her rental loss is $10k. Her taxable income would then be $40k, -$10k, $30k. The taxable income in the final year is only $30k, because you can claim a negative taxable income from the prior year.

So the idea is that you get the benefit in the long run. However, it never works out quite so neatly… say for example her taxable income for three years is $50k, $15k, $50k, and rental losses of $10k for each year. Her taxable income for each year would be $40k, $5k, $40k. For the middle year there’s no tax payable on $15k, so she must claim the loss in that year but will get no taxable advantage.

I wouldn’t advise you to transfer the title in your own name, it would probably cost you as much as the tax advantage you would gain, and it might cause problems in the future.

In my humble opinion… The federal government has encouraged negative gearing because it’s cheaper to give out the tax breaks than it is to fund public housing projects. That said, there isn’t any doubt amongst economists that the tax breaks are fueling value growth, to the point where property values over recent decades have far outstripped growth in the average wage. If the trend continues over the next few decades, the disparity between housing costs and the average wage will cause a housing crisis. The federal govt cannot continue with the tax breaks, only to face a shortage of funding for govt housing projects in 20 years. It really has to be one or the other.

It’s exceedingly unlikely that negative gearing will exist in anything like it’s current form in 2020.

The ATO isn’t going to make an announcement like “as of 1.7.2011 we’re abolishing negative gearing deductions”. The “backlash” would be inconsequential compared to the crash that would inevitably follow.

That said, the tax office has learned some lessons over the last 20 years and they are not without their wiles. Take for example, their approach in recent years to work related expenses. First they give you an automatic deduction of $1000, then a few years later they bump that up to $1500, and then finally they’ll say “we’re simplifying the tax system by removing WRE’s, and adjusting the income tax rates so everyone get’s the equivalent of a $2000 deduction for WRE’s”. The end result is that WRE’s are abolished, and in return we’ve really been given nothing – the steady reductions in income tax were planned since the introduction of GST.

So I think we’ll see small changes over time. Initially reductions in the effectiveness of negative gearing for taxpayers with high income, or a large portfolio. Followed by more aggressive reductions complimented by more targeted tax breaks (similar to the NRAS). Think of the NRAS as a pilot scheme – tax breaks for investors in affordable property.

It’s easy for a bunch of us investors to stand around saying “oh they can’t possibly abolish negative gearing”. But I think it’s pretty much already happened, it’s just that we haven’t noticed yet. You might even say “it’s all over bar the shouting”.

As I said, just my unqualified, skewed, misinformed opinion.. probably wrong.

Hi ALSK,

Sounds like a tough situation.

The agent can’t really do anything for you, because your not on the lease. Your best bet is to convince (read coerce) your ex into breaking the lease and recommending you as the new tenant. If you play the game right the agent is very likely to let you sign a new lease in your own name.

You’ll be able to force your ex-flatmate’s hand because as you currently stand, your paying his rent.. and he can’t afford to pay it himself. Just say you want your own place, and if he doesn’t want to give you the lease on your flat then you’ll move out. If you did – he’d have to break his lease anyway, so he’ll just say yes.

If he does agree, your not really out of the woods. Legally he’s breaking his lease, and you have to apply for a new lease. That said, in a break lease the agent really has to take on the first available tenant, provided there’s no good reason not to. But there’s still a chance your application may be rejected. That said, most agents I know of a pretty lazy, they’ll just sign you up with a new agreement, and charge the owner an inspection fee, letting fee and advertising for doing nothing at all.

Good luck.

Hi Daniel,

Whilst ‘prima facie’ it appears to be just a ‘percentage change’ – from a tax perspective your selling the property to yourselves. So whilst some states will give you a concession on stamp duty, the transfer is still a capital gains tax event.

Because no cash will change hands the cgt up to the day the property is transferred cgt would be calculated based on the market value of the property on the day of transfer. That would be payable in the tax return for the year in which the property is transferred.

Later, when you sell the property the market value used in the above calculation would be the ‘cost base’ for cgt rather than the original purchase value.

Is the property positive geared? If it’s negative geared and your transferring the 90% to your name to claim the loss against your salary, then it will catch up with you because you’ll pay the majority of cgt when you sell.

It’s a common misconception amongst accountants that property investing can not be considered a business activity. It can. It’s just that it’s unusual in the current climate, for an investor to meet the criteria.

I’d claim it, but expect the ATO to question the deduction, when they do… write to them (an accountants letterhead wouldn’t hurt) and describe your activity in the context of the following 8 questions:
does the activity have a significant commercial purpose or character?
* does the taxpayer have more than a mere intention to engage in business?
* is there an intention to make a profit or a genuine belief that a profit will be made? Will the activity be profitable?
* is there repetition and regularity in the activity? i.e., how often is the activity engaged in? How much time does the taxpayer spend on the activity?
* is the activity of the same kind and carried on in a similar way to that of the ordinary trade?
* is the activity organised in a businesslike manner?
* what is the size or scale of the activity?
* is the activity better described as a hobby, a form of recreation or a sporting activity?

Unfortunately this is the sort of question for which there is no black and white answer, if you ring the ATO they’ll just say ‘no’. But in a self-compliance tax system, it’s up to you to understand the legislation, interpret it, and apply it to your own situation. So in these situations you simply lodge your tax return, and be prepared to explain your application of australian tax law.

Some interesting reading:
law.ato.gov.au/atolaw/view.htm?docid=SAV/00237831/00002
law.ato.gov.au/atolaw/view.htm?locid=’TXR/TR9711/NAT/ATO’&PiT=99991231235958#P23
law.ato.gov.au/atolaw/view.htm?locid=’ITR/IT2423/NAT/ATO’&PiT=99991231235958

Hi Terry,

Question 1:
In brief.. it’s complicated. Usually where you have a depreciation schedule prepared, to get the maximum advantage in the short term you would use a diminishing value method. In the case of your property, that time has passed. However you can still claim 2.5% of the cost of the capital works every year, for the first 40 years of the life of the building. You don’t need a depreciation schedule prepared to in order to claim it, provided you can accurately substantiate the construction cost yourself. Doing so would allow you to claim a tax deduction of $75000 x 2.5% = $1875 every year.

Your accountant is correct in that claiming the capital works depreciation means you pay more in CGT, but many accountants don’t realise that the total benefit (nearly) always works to your advantage, because of the interaction of the 50% discount.

For example, if you sold today, then your net capital gain would be worked out as:
( Sale Value – Cost ) x discount = (320000 – 115000) x 50% = 102,500
For the sake of simplicity.. lets just calculate the tax at a flat 30%.. so you’d be looking at $30,750 in tax on that gain.

Now, if you had claimed 1 years worth of depreciation along the way, your gain would be calculated as:
( Sale Value – (Cost – Dereciation)) x discount = (320000 – (115000 – 1875)) x 50% = $103,437
So.. @ 30% tax that would be $31,031 in tax on that gain. But… in the year you claimed the depreciation you would’ve gotten a tax advantage of $562. So all things considered your in front by $281 because you claimed that 1 years depreciation.

Finally.. to really complicate things, as you know you pay a higher rate where your taxable income is higher (like when you sell a property). So if you did the above calculation where your Taxable income from year to year is, say, $20,000 and then you sell the property and declare a ~$100k net gain, you may not end up with an advantage. So like I said.. there’s “nearly” always an advantage – It needs to be considered every year.

Admittedly after all that $281 a year doesn’t sound like much does it. heheh.

Question 2:
I’d have to read up to give you a really good answer. But the basic idea is that where you’ve claimed GST credits during construction, you adjust your BAS by one fifth of the GST you claimed, for every year the property is rented.

So if you claimed $20k during construction, then every three months the property is rented you have to pay back $1000. The idea being that after 5 years, you would have paid back all the gst you claimed, and the property would be ‘input taxed’.

There’s a special ‘adjustments’ section on the BAS for doing exactly that. (I think?!)

Question 3:
Personal choice but I wouldn’t bother. Investors know it’s a fairly simple thing to organise, and an owner-occupier wont care.

I'm not sure I really understand. I dont think it will make any difference at all when you draw the funds, because taxdeductibility of the interest is based on the purpose you borrowed the money for, not the asset the borrowings are secured against.

The $10k your drawing is for repairs for another rental right? So the costs you pay with that $10k will be tax deductible, as will the interest you pay on it, regardless of whether it's secured against your PPOR or a rental, or whether it happens before or after the refinance.

It's a bit of a headache for your accountant.. but I'm sure you already know all about that.

Also.. I'm not sure what you mean by "work my deductions from the date it turned into an IP" ?

I agree with scott..

remember that cash doesn't need to be distributed but profit does, so if the trust makes a profit of $100k, the cash it's earned can sit in the trust's bank account, but that $100k profit is distributed in the tax form to the beneficiaries.