Expenditure incurred on Henry Kaye property seminars not deductible: AAT Case [2005] AATA 416, Re Petrovic and FCT
The AAT has confirmed the decision of the Commissioner to disallow a taxpayer’s claims for deductions of over $36,000 incurred over a 2-year period in connection with his attendance at property seminars arranged by entities associated with Mr Henry Kaye. The AAT found that the taxpayer was not entitled to the deduction as he was not carrying on a business of dealing in, or renting property – notwithstanding that, at the time, he owned a part share in a rental property, that he sold a vacant block of land at a profit and that he had purchased a commercial office suite.
from:
http://www.austaxprac.com.au/home.asp#4Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hahahahahah – people will be quaking in their boots all over the place at the loss of deductibility of the expensive seminar fees they have paid. Luckily for me, anything I attend is paid through the company.
Robert Bou-Hamdan
Mortgage AdviserIf property seminars aren’t tax deductible, then does that mean we don’t have to pay tax on property bought/sold/rented?
Sounds like a case I’d be taking to court – if the ATO are happy to profit from the fruits, then they can hardly ignore the planting costs.
Unless in that particular case the guy didn’t actually make any money? Invested poorly?
Thanks for the info, Terry
To my mind, there needs to be some sort of regulation around these “educational” courses to temper the addictions of seminar junkies. I’m not sure why the taxpayer should subsidise the whims and fantasies to the tune of some many thousands in tax returns to individuals who waste such vast amounts of money. Maybe that taxpaer wouyld have been better off spending the 36k on a university course that would have actually made him money and had credibility in the world, rather than being a graduate of some henry kaye “Masters” course or whatever.
kay henry
Hi Terry,
Are you saying that the cost of attending a seminar (eg, one day property seminar for $500 like Steve’s if you own IP’s for arguments sake)
cannot be claimed as a tax deduction?
Kind regards,
Gatsby.Every industry has seminars, and if other industries are allowed to deduct theirs then I don’t see how the ATO can target property investors to not be eligible.
If you use said knowledge to earn money that is then taxed by the ATO, how can this not be considered a valid expense? 36k does sound pricey to me, but there are many people who would claim this kind of money who work in other industries. (Just look at Kerry Packer. After deductions he apparently only has a taxable income of $25,000!)
As for uni degrees – mostly taught by Academics with limited real world experience. Pretty pricey way to learn pure theory – better off getting hold of a textbook list and working your way through it. Only need a degree for accreditation purposes – which you may need if you want to be a doctor, but not if you’re a property investor.
Imagine being ripped off for $36,000 and then consoling yourself saying, well at least I will get $18,000 back on tax. And then this!
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry,
Unless the HK seminar attendees were forced into attending, then they can hardly cry poor when the spruiker goes down. Wouldn’t one know that if one paid 36k for seminars, then it would be a waste of money? C’mon.
kay henry
Yes Kay, that’s a fair point!
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Originally posted by Luci:(Just look at Kerry Packer. After deductions he apparently only has a taxable income of $25,000!)
Maybe because he only pays himself a small wage and does not collect dividends from his company share ownership and most of his assets and toys (cars, etc) are owned by the company.
Why don’t you find out how much tax his companies pay? He probably pays the equivalent of the Australian Current Account Deficit annualy!
Robert Bou-Hamdan
Mortgage AdviserOriginally posted by kay henry:Terry,
Unless the HK seminar attendees were forced into attending, then they can hardly cry poor when the spruiker goes down. Wouldn’t one know that if one paid 36k for seminars, then it would be a waste of money? C’mon.
kay henry
Have you attended a HK seminar? Then how do you know it was a waste of money?
The guy in question spent 38k over several years – so it was more than one seminar – and a university degree costs much the same for an equivelent period of time. Should university students also not be allowed to deduct learning expenses because, for that type of expense, it must be “a waste of money”?
The guy in question obviously didn’t think it was a waste of money, as he applied the knowledge he gained from the seminars to invest in multiple properties in a short period of time. Most people take longer to put together a portfolio of property (something like 90% of ‘property investors’ never buy more than one or two properties full stop), so it sounds like he was doing more than most with the knowldege he acquired.
Someone else going to the exact same seminars may well believe it to be a waste of time/money. Just like Steve McKnight has mentioned in this forum that sometimes he gets letters from people requesting a refund on his book because they don’t think it’s possible to get cf+ properties in this day and age.
Certainly some of HK’s practices are ethically dubious – but let’s not throw the baby out with the bath water. You’re never going to 100% agree with any one property ‘guru’ (or ‘spruiker’ if you prefer), much less agree with all of them. They provide different strategies, and it’s up to each individual to decide which strategies best suit them and their situation.
If the guy in question thought that his money was wasted, he would be suing HK (who I believe had a money-back gaurentee of some sort) rather than claiming a tax deduction.
And to reiterate the point – if the ATO is happy to take tax on the property earnings, then it is hypocritcial for them not to allow tax deductions for expenses incurred in the business of earning that money.
Originally posted by Luci:If the guy in question thought that his money was wasted, he would be suing HK (who I believe had a money-back gaurentee of some sort) rather than claiming a tax deduction.
A guarantee is only as good as the person or company giving it. You can’t get blood out of a stone and there is no point suing a bankrupt.
And to reiterate the point – if the ATO is happy to take tax on the property earnings, then it is hypocritcial for them not to allow tax deductions for expenses incurred in the business of earning that money.I admire the ATOs decision. I do not know what, if any, qualifications HK has, but for most spruikers in the market, they do not have any at all. I personally consider those paying these individuals to be giving non-deductible donations to an individual or organisation that is NOT a not-for-profit entity.
If people looked to education instead of trying to find ‘THE ANSWER’ in a single seminar, they would be much better served.
Robert Bou-Hamdan
Mortgage AdviserOriginally posted by The Mortgage Adviser:Originally posted by Luci:(Just look at Kerry Packer. After deductions he apparently only has a taxable income of $25,000!)
Maybe because he only pays himself a small wage and does not collect dividends from his company share ownership and most of his assets and toys (cars, etc) are owned by the company.
Why don’t you find out how much tax his companies pay? He probably pays the equivalent of the Australian Current Account Deficit annualy!
Robert Bou-Hamdan
Mortgage AdviserOf course his company pays for everything… but everything his company pays for is *tax deductible*.
While officially companies are meant to pay 30% tax, after tax deductions the smarter ones pay very little tax. They are great at shuffling money. How they can declare so many ‘toys’ as a business expense is beyond me. And hell, if they do have a big tax bill they just come to an agreement with the government to pay only 20cents to the dollar.
It’s individual taxpayers who cop the full load and have no negotiation power.
***Not that I have any problem paying my taxes. Taxes are essential for the running of this country – I don’t encourage anyone to avoid paying them. But I am aware that there are a number of benefits granted to big business (and their super-wealthy owners) while this one guy is being jumped on over seminar costs, when he seems to have applied the knowledge to make money from which the ATO has benefitted.
Just like the government spends a lot more time and money investigating people on welfare benefits – people who are only just scraping by – while they turn a blind eye to the wealthier end of town who regularly claim $10,000 dinners as a business expense (and therefore get a tax deduction).
Originally posted by The Mortgage Adviser:If people looked to education instead of trying to find ‘THE ANSWER’ in a single seminar, they would be much better served.
[/b]
I agree – they should get educated. But – if seminars are such a no-no in your book, then where are you suggesting that they gain the knowledge from?
Personally, I learn well from reading books. But not everyone learns best this way. Some people need a more interactive environment, and seminars can help them.
We all have different needs, and just because you or I may not *need* seminars, to write them off as a waste of money is to ignore that many people learn from them.
And this guy does seem to have learned enough to have then invested profitably in multiple properties. To my mind, that equals successful education. Tonnes of people have read Steve McKnight’s first book – but I bet you anything that only a tiny proportion of those readers have gone on to apply the knowledge. Does that mean it’s a waste? Of course not! It’s all individual as to who you are and how you learn best.
Regarding Steve’s books, I have never known him to provide formal advice or sell property. He just tells his stories and people like listening regardless what they think of the methods – myself included. Steve is a fully qualified accountant and is more than entitled to provide advice though.
The likes of HK and The Investors Club (who hold no apparent qualifications) put together clever marketing campaigns to hard sell the less sophisticated investors looking to get rich quick without doing any work themselves. There is a huge difference between the different seminars.
Regarding large companies and comparing them to ‘battlers’, I think this is comparing apples and oranges. Those ‘battlers’ get paid from these companies and pay tax from their income. The company pays that tax as well as tax on their earnings. If you want companies to pay more tax, you will have more people on welfar.
Also, the way companies reduce their tax bills is a great advertisement for education. Do you think they go to a seminar to learn how to reduce their tax or employ properly educated professionals or pay huge dollars to achieve their desired results? It is not like the entity uses our roads, medicare or other services! Good on them for reducing their taxes. They can employ more ‘battlers’!!!
Robert Bou-Hamdan
Mortgage AdviserLuci- don’t get me wrong- i am really big on education. One has to constantly update knowledge in this world as it’s so competitive and ever-changing.
A few points… not all university courses are tax-deductible- and certainly not forfull-time students. The govt stipulates that the course must be related to one’s employment. I can’t do any old course and claim it- i had to choose my course vgery carefully, and I did this one because I felt it would make me a better worker in my current position. It was not speculative.
Another thing- I do absolutely believe a 35k “course” is a waste of money, and I don’t believe most of those currently involved in RE did te HK courses- I think most people looked at the deregulated prices and wondered when it would all end – more and more “education” until you “graduated” with a PhD from HK’s courses haviung handed over another 100k?
I think books are wonderful- I love RE books, but how can you compare a $30 book that is a bestseller with a 36k course where so many people saw HK go down and wanted their money back? Talk about comparing apples with an ardmona factory.
kay henry
Property seminars are still tax deductible BUT as always very strict criteria apply. In this case the AAT ruled that the taxpayer was not conducting a substantial BUSINESS of property investing. It did not dipute that he was a property investor.
It is difficult for ordinary taxpayers to claim deductions for education expenses, unless they are already generating income in that area. The ATO has not changed its position on this.
Also just because you pay for something through your company does not make it automatically tax deductible.
In reality, because our tax system is honesty based, you can claim everything and anything you like – but on review your claims will be disallowed and penalties applied.
Cheers,
Greg.I have been audited three times without a problem. My company pays because the seminars I attend are in my chosen field – property and finance. They never even question any ‘education’ deductions.
Personally, I only attend seminars to check out what is out there.
Robert Bou-Hamdan
Mortgage AdviserRob
I have never known anyone to be audited. What was the experience like?
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It is really nothing. The reason I copped it three times is because I had three different businesses operating at the same time and they would not audit all three at once. I ended up with three different auditors on three different days over a period of a couple of weeks.
I asked them why I was being audited and two said routine checks and the third said you should watch out who you annoy. It was probably my ‘best mate’ from this forum just trying to cause some trouble for me!!!
Anyway, regarding the actual audit, each assessor contacted me by phone and made an appointment suitable to me. They suggested I have my Accountant present if I was concerned by the audit and also told me to have any receipts, computer records and other related documents handy.
They were very punctual, professional and extremely courteous when they attended the appointment. They show up with a mobile office (large case) containing their computer and lots of additional info.
They asked to see how I record everything which I showed on my laptop. They looked through the information for a few minutes and then singled out an entry and asked for the corresponding receipt. I provided it promptly and they did this process again 1 or 2 more times.
It seems that because I promptly showed the receipts for each enquiry, the audit was over. It seemed very simple. I asked “Is that it?” at the first appointment and the assessor said if you couldn’t show the receipts, we keep looking deeper and deeper. They also said they were happy with how I recorded things which made it easier for me.
They then asked if they could help me with anything so we dicussed a few different aspects of the accounting process. They provided me with a lot of great booklets and guides and gave me their card if I ever needed to contact them for further assistance.
I guess if you are fairly organised and operate honestly (mistakes are not a major concern), an ATO audit is a breeze!
Robert Bou-Hamdan
Mortgage Adviser
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