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How to legally save tax on property investment with Adrian Raftery · The Money Puzzle

0:00
Speaker 1: James Kirby here, and just to say that today's show
0:03
Speaker 1: was recorded before the recent federal budget. So as you
0:07
Speaker 1: would know now, from July one, twenty twenty seven, negative
0:10
Speaker 1: gearing is to be largely restricted to new properties. That's
0:14
Speaker 1: not to say there won't be investment opportunities in this area.
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Speaker 1: And similarly, from the same days, it will no longer
0:21
Speaker 1: be a fifty percent capital gains tax discount on the
0:24
Speaker 1: property after you hold it for a year. Rather, there
0:29
Speaker 1: will be a return to the original once a year
0:32
Speaker 1: inflation indexing system, which will not be as generous by
0:37
Speaker 1: any means. Okay, here's the show. Hello and welcome to
0:52
Speaker 1: the Australians Money Puzzle Podcast. I'm James Kirby. Welcome aboard everybody.
0:57
Speaker 2: Now.
0:57
Speaker 1: Earlier this year I had on the show doctor Adrian
1:01
Speaker 1: Raftree and he had been talking about ways to save
1:06
Speaker 1: on your tax bill, your personal tax bill for the year.
1:09
Speaker 1: He is the author, of course, of the book with
1:12
Speaker 1: a Bible on tax in these here parts it's called
1:14
Speaker 1: one hundred and one Ways to Save Money on your
1:17
Speaker 1: Tax Legally. I've asked him to come back on the
1:20
Speaker 1: show and this time we'll do a special edition and
1:23
Speaker 1: just talk about property for property investors. Hi, Adrian, how
1:27
Speaker 1: are you very well? Don't say going good good, Thank
1:30
Speaker 1: you very much for coming back on the show. What
1:33
Speaker 1: we're going to do, folks, is we're going to talk
1:34
Speaker 1: about ways that you might know, but we'll just make
1:37
Speaker 1: sure you do on tax issues if you have an
1:40
Speaker 1: investment property, and then we're going to tell you a
1:42
Speaker 1: few things that you may not know, which I think
1:44
Speaker 1: will be particularly useful to you. But we'll start at
1:47
Speaker 1: the start. I mean, the very obvious issue, unique I
1:51
Speaker 1: think in some ways to Australia is on property and
1:54
Speaker 1: negative gearing and how it works. So just to cut
1:58
Speaker 1: to the chase, if you have a property, you are allowed,
2:02
Speaker 1: of course to make deductions against it. That is, if
2:05
Speaker 1: you make less from that property, then it costs you
2:08
Speaker 1: to run then that gap. If you like that loss,
2:13
Speaker 1: that you can deduct that. And that is the essential
2:16
Speaker 1: feature which not everybody but many people use when they
2:20
Speaker 1: invest in property, especially to get started. So that's negative
2:24
Speaker 1: gearing and it can be the sort of very chunky
2:26
Speaker 1: tax deduction, Candidadrian, from most people is this something of
2:30
Speaker 1: the order of over a million people? Negative gearing in property.
2:35
Speaker 3: Two point two million people claim deductions on tax returns,
2:39
Speaker 3: and it's about fifty four billion dollars the previous financial year,
2:44
Speaker 3: but that's going to be rapidly increasing because interest rates,
2:47
Speaker 3: as you know, have been rising. Yeah, so it jumps
2:51
Speaker 3: in one year line and jumped from forty four billion
2:53
Speaker 3: to fifty four billion purely because of interest And so
2:57
Speaker 3: I'm expecting stemny sixty or seventy four billion. So it's
3:00
Speaker 3: going to be more and more people are going to
3:01
Speaker 3: be negatively gearing, just truly because of the market dynamics
3:05
Speaker 3: and anything else.
3:06
Speaker 1: So it's a more effective, you might argue, look at
3:09
Speaker 1: the tax structure than it has been for the simple
3:13
Speaker 1: reason that you can deduct the costs of your interest
3:17
Speaker 1: and your interest well, I mean, in a way, your
3:19
Speaker 1: interest has gone from you know, zilchh back in COVID
3:23
Speaker 1: periods where people had fixed rates of two and three percent,
3:27
Speaker 1: to today's levels which are multiples of that. Okay, So
3:30
Speaker 1: negative gearing is obviously the first part of a major
3:34
Speaker 1: tax deduction for most people and property. But you want
3:37
Speaker 1: to tell us about something that I didn't know about,
3:40
Speaker 1: which is really interesting for most people. When you do this,
3:43
Speaker 1: what you do is you do your numbers at the
3:44
Speaker 1: end of the year, and you say, okay, let's just
3:47
Speaker 1: presume it's an average property in the order of I've
3:49
Speaker 1: got to just pick numbers out of the air. Here
3:51
Speaker 1: eight hundred thousand dollars apartment of which you had a
3:54
Speaker 1: tax deduction of twenty five thousand dollars. Okay, something like
3:57
Speaker 1: that are thirty thousand dollars, and you tend to do
3:59
Speaker 1: it in one and you send it into the tax office,
4:01
Speaker 1: and hey, you get a big tax deduction, one of
4:04
Speaker 1: the biggest a person can get. An average every day
4:07
Speaker 1: investor on a salary can get. That's for sure if
4:09
Speaker 1: they don't have a business. But you were telling me
4:11
Speaker 1: that you can do this episodically if you like, you
4:14
Speaker 1: can get your tax deduction in a different way.
4:18
Speaker 3: Yeah, So you know, using your example, there's a negative
4:21
Speaker 3: gearing loss twenty five thousand. Let's just say forty seven
4:25
Speaker 3: percent tax rate, So it's twelve thousand dollars tax refund
4:27
Speaker 3: you will get.
4:28
Speaker 2: Now, a lot of.
4:29
Speaker 3: People they wait until August September before they largely return
4:33
Speaker 3: to get that twelve thousand dollars. Now it's the ABC
4:37
Speaker 3: accounting I call absolute bloom in cash. It's all about
4:40
Speaker 3: cash flow. When it comes to properties. You've got to
4:41
Speaker 3: make the mortgage repayments every month and everything else. You
4:45
Speaker 3: can't build up and wait for twelve month for twelve
4:48
Speaker 3: thousand dollars to come in, you know, way down the track.
4:50
Speaker 3: So instead you do a mini tax return. It's a
4:53
Speaker 3: pay as you go with old invariation. It's a fairly
4:56
Speaker 3: simple form to fill out. You can be able to
4:58
Speaker 3: fill out yourself, and instead of waiting for that twelve
5:01
Speaker 3: thousand dollars, you can get one thousand dollars less tax
5:04
Speaker 3: taken out of your pay each month, So you have
5:08
Speaker 3: an extra thousand dollars in your bank accounts to make
5:11
Speaker 3: your repayments, to make the principal and interest repayments, to
5:14
Speaker 3: pay for the rates, to pay for Australa leave, is
5:17
Speaker 3: whatever the case may be. So it's really really crucial
5:19
Speaker 3: because in this particular cost of living crisis that we're in,
5:22
Speaker 3: every dollars counts and really important. Now, the downside to this,
5:27
Speaker 3: and I've seen that happen a lot over the years.
5:29
Speaker 3: The downside is some people get comfortable and they think, oh,
5:32
Speaker 3: always get one thousand dollars extra each paypacket and all
5:35
Speaker 3: and all of a sudden, another expense comes in and
5:38
Speaker 3: they seem to pay for that, whereas waiting until the
5:41
Speaker 3: end of the tax return period, getting that lump sum
5:44
Speaker 3: is a force form of saving, and to some people
5:47
Speaker 3: it's really good if they're not disciplined. So the key
5:50
Speaker 3: is you've put allocated a one thousand dollars tax saving
5:54
Speaker 3: each month, in each a packet life into your your
5:57
Speaker 3: rental property expenses.
6:00
Speaker 1: It for the property. Don't use it for you know,
6:03
Speaker 1: whatever you want. Don't use it for non property related items. Yes,
6:09
Speaker 1: very sage advice there, And it's never advice on the show,
6:11
Speaker 1: of course, folks. It's information only. Okay, what's that called again?
6:15
Speaker 1: At pay?
6:15
Speaker 2: What is it called that pays? You go with holding variation?
6:20
Speaker 1: As you go withholding variation. Keep that in line, folks.
6:23
Speaker 1: Isn't that nice to know there is some justice in
6:24
Speaker 1: the world for all those PAYG bills you get from
6:27
Speaker 1: the tax office where you say, oh, for God's sake,
6:29
Speaker 1: here's another one. I can't believe it. You can actually
6:32
Speaker 1: invert the process. That is a very interesting part. Have
6:35
Speaker 1: you any sense of how many people do that?
6:37
Speaker 3: Adrian very low percentage, so Dorely, I would say they
6:44
Speaker 3: maybe fifteen percent.
6:45
Speaker 2: Of rental property owners. We'll do it.
6:47
Speaker 3: Obviously, those that cash flow positive won't be bothering in
6:50
Speaker 3: some of the little model losses, but I'll say about
6:53
Speaker 3: fifteen percent, particularly those who have new properties, and we'll
6:56
Speaker 3: talk about later on with depreciation benefits as well, some
7:00
Speaker 3: sizeable negative gearing losses that occur as well that do
7:04
Speaker 3: add up. And so but I'm expecting it's going to
7:07
Speaker 3: rise as well with interest rates rising and cost living crisis,
7:11
Speaker 3: and some people are you know, are really struggling as well,
7:14
Speaker 3: so because they've bought that verse property or that second
7:17
Speaker 3: property or beyond, you know that the rents time rising
7:20
Speaker 3: at the same rates exactly receiving as well, so and
7:24
Speaker 3: even their own circumstances. They may have bought some properties
7:27
Speaker 3: based on that had bonuses in the past, and they
7:30
Speaker 3: may have lost their job, maybe made redundance as well.
7:32
Speaker 2: So there's a lot of things that factors come into
7:35
Speaker 2: play as well.
7:35
Speaker 3: So it's one size for all, but it's an outlet
7:38
Speaker 3: there to help make it easier for you as well.
7:40
Speaker 1: I love how you don't hear these things advertised by
7:43
Speaker 1: the tax office not exactly promoting the ability to do
7:46
Speaker 1: this and we never stop hearing about their warnings and
7:49
Speaker 1: they're sweeping sort of moves on this and that. I
7:52
Speaker 1: think it would make a lot of sense for them
7:54
Speaker 1: every now and again to come up and do an
7:55
Speaker 1: advertising campaign about what you can do as opposed to
7:58
Speaker 1: what you can do. But that's what this show is for.
8:01
Speaker 1: All Right, we'll be back in a moment. Hello, Welcome
8:11
Speaker 1: back to the Australians Money Puzzle podcast. I'm James Kirby.
8:14
Speaker 1: I'm talking to doctor Adrian Rafturi. He is the author
8:17
Speaker 1: of one hundred and one Ways to Save Money on
8:19
Speaker 1: your tax Legally. I've brought him back on the show.
8:22
Speaker 1: We're going to talk strictly today about the ability your
8:26
Speaker 1: ability in investment as an investor in property or a
8:29
Speaker 1: potential investor in property to do your tax in an
8:33
Speaker 1: optimal way. Okay, let's talk about the basics of running
8:38
Speaker 1: and investment property and we might take a look at
8:41
Speaker 1: one of the first things, which is depreciation. Now, some
8:46
Speaker 1: people who have never been in business wouldn't know much
8:48
Speaker 1: about appreciation, but how does that work and what can
8:52
Speaker 1: you do?
8:53
Speaker 3: So basically, if you've got a nasset, so you've got
8:55
Speaker 3: a hot water system or new carpets or curtains, light feelings,
9:00
Speaker 3: and then coasts over three hundred dollars. As a rough
9:02
Speaker 3: ruler done, it depreciated over the useful life. Now roughly
9:06
Speaker 3: it's roughly it's five to ten years. That depends, and
9:09
Speaker 3: there's particular rates of depreciation that the atl have. It's
9:13
Speaker 3: a very complicated process, but roughly, you know, five years
9:17
Speaker 3: to ten years you should be able to claim most
9:19
Speaker 3: things in the house. You know, if you really probably
9:21
Speaker 3: need an account to help you with this. So what
9:24
Speaker 3: it means is if you spend ten thousand dollars on
9:27
Speaker 3: a new asset for your rental.
9:28
Speaker 2: Property, well you get that benefit over let's.
9:31
Speaker 3: Say ten years one thousand dollars a year, So ultimately
9:34
Speaker 3: you expense it claim at all, so.
9:36
Speaker 2: To help reduce your TAXI not outlaying that.
9:39
Speaker 3: And it's not just purely as a lost capital base
9:41
Speaker 3: if you like. Now, if you buy a brand new
9:44
Speaker 3: property that was just freshly minted, there's some huge depreciation
9:49
Speaker 3: benefits with it.
9:50
Speaker 2: Normally a quantity surveyor.
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Speaker 3: Will actually prepare a depreciation reports and they'll go through
9:56
Speaker 3: the whole house and claim absolutely everything separately available and
10:01
Speaker 3: whatever they can't they'll do it as and they catch
10:04
Speaker 3: all in terms of the building depreciation allowance, which is
10:07
Speaker 3: basically the rest is over forty years. Now, we know
10:11
Speaker 3: the cost of building out properties these days that went
10:14
Speaker 3: through the roof post COVID, so it probably costs double
10:18
Speaker 3: to build a house now with materials and what they're
10:20
Speaker 3: used to. So you're looking at that, let's just say
10:23
Speaker 3: it would not be unreasonable for the building costs me
10:26
Speaker 3: five hundred thousand dollars.
10:27
Speaker 2: Yeah.
10:28
Speaker 3: Yeah, effectively, buy a new property from the builder, you
10:33
Speaker 3: can clear out five hundred thousand dollars over forty years.
10:38
Speaker 1: And it's best to new with the property.
10:40
Speaker 2: Is that?
10:40
Speaker 1: Will that be how it works?
10:42
Speaker 2: Yeah? There must be brand new property.
10:44
Speaker 3: So you can't buy a rundown shack across the road
10:47
Speaker 3: or down the coast, so you can't claim that. Since
10:50
Speaker 3: twenty seventeen they stopped that. But if it's a brand
10:53
Speaker 3: new one, you can claim the building that the building
10:55
Speaker 3: allowance most definitely so.
10:58
Speaker 1: But even if you don't buy a new one, you're
11:00
Speaker 1: you can claim depreciation. But the depreciation is sort of
11:04
Speaker 1: on steroids if the property is new.
11:06
Speaker 3: If you buy an old property, only new assets that
11:09
Speaker 3: you put in there, So you can't.
11:11
Speaker 1: You put in a new heater, then you can depreciate
11:13
Speaker 1: the new here, but you can't appreciate the one that's
11:15
Speaker 1: been sitting there for forty years. Yeah, yeah, Okay, that's appreciation, folks.
11:20
Speaker 1: I hope that's clear. And obviously any question you have
11:23
Speaker 1: on any of this feature right into us at the
11:25
Speaker 1: money parts of at the Australian dot com dot au.
11:28
Speaker 1: All right, insurance is something you can also claim. Now
11:32
Speaker 1: let's just clarify for listeners. You can. If you own
11:36
Speaker 1: a house, you can ensure it and claim everything. If
11:39
Speaker 1: you own an apartment, it's different. Could you explain how
11:42
Speaker 1: that works, Adrian.
11:44
Speaker 3: So, generally with insurance on a house, in claim the
11:47
Speaker 3: actual building insurance and also you can climb the building
11:50
Speaker 3: contents and you can also type out landlord insurance for
11:53
Speaker 3: the purposes of if you've got an investment unit, that
11:56
Speaker 3: building costs is effectively child cove it boy, or should
11:59
Speaker 3: be based dardal leving your body corporates.
12:03
Speaker 1: That is, that is, the the ensuring of the building
12:05
Speaker 1: in which your apartment is in is covered exactly so
12:08
Speaker 1: Body corporate.
12:09
Speaker 3: So probably I would say only maybe twenty percent of
12:13
Speaker 3: investments units owners would actually take out landlord insurance for
12:19
Speaker 3: the internals of the actual property. So yeah, so there's
12:22
Speaker 3: a pretty small percentage and it doesn't cost up much,
12:25
Speaker 3: I don't you know.
12:26
Speaker 2: From what I can see, it doesn't cost that much
12:28
Speaker 2: at all.
12:28
Speaker 3: There are specific insurers and broken brokers can organize it
12:31
Speaker 3: for you, but it does give you that peace of
12:34
Speaker 3: mind knowing well, if someone has damaged inside the property.
12:38
Speaker 1: Let me tell you I had investment property unit. I
12:42
Speaker 1: had done load insurance al it, which people thought was
12:45
Speaker 1: a bit over the top, but probably because I am familiar,
12:47
Speaker 1: you know, as a financial journalist with the terrain, I
12:49
Speaker 1: went and got this standard insurance and as you say,
12:52
Speaker 1: it was terribly reasonable at the time, a couple hundred
12:54
Speaker 1: dollars a year. On New Year's Eve, at one o'clock
12:59
Speaker 1: in the morning, there was a fire in the unit
13:02
Speaker 1: in the apartment where somebody basically set the place on
13:06
Speaker 1: fire by accident, and they paid out. I was chocked.
13:10
Speaker 1: I couldn't believe it. I put in my form and
13:13
Speaker 1: they paid out everything. So there you are, folks. And
13:15
Speaker 1: if I hadn't had that, well, I mean, it would
13:18
Speaker 1: have been really bad. Because AA is slow, tortuous process
13:22
Speaker 1: of replacing everything and fixing it. But also you can't
13:25
Speaker 1: rent it during the time, and of course the person
13:28
Speaker 1: who set it on fire wanted to leave immediately afterwards
13:31
Speaker 1: didn't like the burnt kitchen. So there little anecdote just
13:35
Speaker 1: to back up what Adrian's saying that landlord insurance. I'm
13:39
Speaker 1: skeptical about some insurances by the way, particularly income protection
13:42
Speaker 1: insurance as people would know listening to the show, and
13:44
Speaker 1: life insurance if you're older, if you're over fifty five
13:47
Speaker 1: and you have lots of super what are you doing
13:48
Speaker 1: with life insurance? But landlord insurance makes a lot of sense. Okay,
13:52
Speaker 1: that's also deductible. Am I missing anything that you can
13:56
Speaker 1: deduct also as a in property invests? Sure, on an
14:00
Speaker 1: ongoing basis.
14:02
Speaker 3: Well, there's a whole range of things anything that but
14:04
Speaker 3: basically helps of the running costs to counsel rights.
14:07
Speaker 2: Water rights, strata labings, repairs.
14:10
Speaker 3: We might talk about that a little bit later on,
14:11
Speaker 3: but and of course yeah, the biggest one will be
14:13
Speaker 3: interest on the actual property as well.
14:16
Speaker 2: Don't you travel, don't.
14:17
Speaker 1: Tame your travel. You can't do that, folks. What's upon
14:19
Speaker 1: a time it must have been great, you could have
14:21
Speaker 1: an apartment up on the Gold Coast and you could
14:23
Speaker 1: go up and down forty times a year. Believe it
14:25
Speaker 1: or not, there was no limit on it. And Scott Morrison,
14:28
Speaker 1: I think it was stepped in and said no, no
14:31
Speaker 1: more of that. So it's gone. But there's still sort
14:34
Speaker 1: of what is there a myth out there that you
14:36
Speaker 1: can do it?
14:37
Speaker 2: Yeah, it's sounded to climb it.
14:39
Speaker 3: Oh Wi. So yeah, you can still climb in Traggle
14:41
Speaker 3: and you can climb you two trips a year, But
14:44
Speaker 3: now since July twenty seventy nine, not even if you've
14:47
Speaker 3: got a property in Hawaii like Diamond.
14:50
Speaker 1: There was a rumor, I think there was a rumor
14:52
Speaker 1: at the time that there was another politician he didn't
14:55
Speaker 1: like in his own party who was going up and
14:58
Speaker 1: down to the Gold Coaster the time to visit their
15:01
Speaker 1: property to do repairs, and he stamped it out. But hey,
15:04
Speaker 1: that's just that is scuttle but folks utterly scuttle butt,
15:07
Speaker 1: but entertaining scuttle But I'd like to think, all right,
15:10
Speaker 1: now we will look at one more thing before we
15:14
Speaker 1: go to the break, because I want to look at
15:15
Speaker 1: a couple of very interesting issues. And Agent just mentioned repairs.
15:20
Speaker 1: Repairs is a movable feast in the world of investment,
15:23
Speaker 1: property and maintenance, et cetera. So we will deal with
15:25
Speaker 1: that one moment. But one last thing before that break
15:28
Speaker 1: capital gains tax, which of course has been in the
15:31
Speaker 1: news all year. But capital gains tax. Your point is,
15:35
Speaker 1: whatever about capital gainst tax, however much you will you
15:38
Speaker 1: can minimize it. Is there something you could tell us
15:41
Speaker 1: briefly about how to do that?
15:43
Speaker 3: Yeah, if you've got to round them property we've all enjoyed. Yeah, yeah,
15:47
Speaker 3: it's sizeable bribes in terms of it. And I guess
15:50
Speaker 3: the thing is we can try and plan some tax
15:53
Speaker 3: planning around when we're going to incerd a couple of
15:55
Speaker 3: gains tax. Now we're now very needed now to year,
16:01
Speaker 3: it makes a lot of.
16:02
Speaker 2: Great sense to do the sale after the first of
16:06
Speaker 2: July rather than before the thirtieth of June. Now, what
16:09
Speaker 2: that does is it gives us a whole twelve months
16:13
Speaker 2: of tax planning of what we can do is when
16:15
Speaker 2: we can do it.
16:16
Speaker 1: It gives you an extra year to figure out how
16:19
Speaker 1: to deal with this.
16:20
Speaker 3: How and it could be putting extra money in super
16:23
Speaker 3: catching up and super contributions, you know, whatever the case
16:27
Speaker 3: may be, could be buying another rental property with negative gearing,
16:30
Speaker 3: could be free paying expenses, whatever the case may be.
16:34
Speaker 2: But we want to as much as possible if we
16:36
Speaker 2: can shift tax liabilities down the line a little bit.
16:39
Speaker 2: And you know, who knows, We all know that the
16:42
Speaker 2: economy is struggling at the moment. There's going to be redundancies,
16:45
Speaker 2: there's going to be stopping of bonuses and conditions and
16:48
Speaker 2: everything else. A lot of people are going to be
16:50
Speaker 2: earning less next year than what they are this year.
16:53
Speaker 2: So it'd be ideal to serve.
16:55
Speaker 3: And you know what, if you can defer capital gains
16:59
Speaker 3: tax until in retirement use as well I deal when
17:02
Speaker 3: you earn no other income whatsoever. If you can defer
17:05
Speaker 3: it when you're in the year after you retire, you've
17:08
Speaker 3: got that you're taking advantage of your lord's tax rates
17:11
Speaker 3: as well, rather than having to pay at forty seven
17:14
Speaker 3: percent on on the on the next capital gain.
17:18
Speaker 1: Yes, interesting and an interesting idea. Okay, keep that in mind, folks,
17:21
Speaker 1: let's six you a breack. Hello, Welcome back to The
17:33
Speaker 1: Australian's Money Puzzle podcast. James Kirby here with doctor Adrian Raftrie. Okay,
17:38
Speaker 1: Now in this final segment, I'm going to look at
17:40
Speaker 1: a couple of items that are really interesting. Once upon
17:44
Speaker 1: a time, it's fairly simple about properties and holiday properties
17:47
Speaker 1: because people just had a holiday property or they didn't,
17:50
Speaker 1: and they might have rented it out in some fashion
17:54
Speaker 1: because what they put an ad in the local you know,
17:57
Speaker 1: grocery in the town and said house of it for
18:00
Speaker 1: one month or whatever. Now, of course Airbnb has arrived,
18:04
Speaker 1: has changed everything, professionalized it in some ways and certainly
18:08
Speaker 1: made it more feasible and a completely different game. But
18:11
Speaker 1: the tax issues around that have changed as well. So, Adrian,
18:15
Speaker 1: what do we need to know about that area of
18:18
Speaker 1: holiday home tax as opposed to investment property text? And
18:22
Speaker 1: when I say investment property, I mean convention investment property.
18:25
Speaker 1: This is a leisure property.
18:28
Speaker 3: Yeah, So the ATO over the last few year has
18:31
Speaker 3: been really hovering about rental property owners with negative gearing
18:35
Speaker 3: losses and large negative gearing losses and it's probably been
18:38
Speaker 3: no larger one they've been able to identify it. And
18:40
Speaker 3: someone claiming three thousand dollars for rental income a year,
18:44
Speaker 3: but I was showing three thousand rental income a year
18:47
Speaker 3: by showed a fifty thousand dollars deduction on the other side.
18:50
Speaker 1: A gigantic glass on the back of it.
18:51
Speaker 3: Yeah, mgemmy glass at forty seven percent gain nicelyg tax
18:55
Speaker 3: ray funder over twenty thousand dollars.
18:57
Speaker 2: So the tweeting, you know, so tweaked a little bit
18:59
Speaker 2: that've been find you. But they've been gathering data over
19:02
Speaker 2: the years.
19:03
Speaker 3: They've been doing it as sharing arrangements, sharing data, sharing
19:05
Speaker 3: arrangements with airedmb and with Uber and other places as well,
19:09
Speaker 3: getting all this information and they're becoming a lot more precise.
19:13
Speaker 3: Sound so much so they released a draft tax ruling
19:16
Speaker 3: backuning back in November saying, hey, we're going to target
19:19
Speaker 3: your holiday homeowners because we know that you're not making
19:23
Speaker 3: it available for the whole twelve months.
19:24
Speaker 2: Of the year.
19:25
Speaker 3: So if you've got a beautiful beachside property, you're blocking
19:28
Speaker 3: it out for December, January, March with peak time for
19:32
Speaker 3: yourself your own purposes. And we know if you've got
19:34
Speaker 3: the place in the snowfields, you're blocking it out in July, August, September, October,
19:38
Speaker 3: so you're not maximizing your investment. So they've got in
19:42
Speaker 3: this draft tax ruling they call it genuine investments.
19:45
Speaker 2: Versus a leisure facility.
19:47
Speaker 3: And so what that means is they're not going to
19:49
Speaker 3: allow you if it's a leisure facility, they're not going
19:51
Speaker 3: to allow you claiming any of the interests on your loan,
19:56
Speaker 3: even for the portion of the period that you rented out.
19:58
Speaker 2: For the year you do rent it out, you're only.
20:01
Speaker 3: Going to let you cover the direct running class in
20:04
Speaker 3: terms of planning or h booking along the way. So
20:08
Speaker 3: it's going to be all of a sudden a positively
20:10
Speaker 3: gear property, not in a negative of the gear property,
20:13
Speaker 3: because you're generally not making it a viable So this
20:15
Speaker 3: is most is a drought text running on certain this
20:18
Speaker 3: one is going to get through.
20:19
Speaker 1: That is sharp, isn't it? Yeah? Of course right. I
20:23
Speaker 1: wonder what's upon a time This will so much easier
20:27
Speaker 1: for people to evade tax responsibilities because of the because
20:33
Speaker 1: everything wasn't networked as it is now. But I wonder
20:36
Speaker 1: the irony might be that Airbnb when it came in first,
20:39
Speaker 1: of course, it was like the Wild West, and people
20:41
Speaker 1: must have had a ball in that. It is much
20:43
Speaker 1: more lucrative to Airbnb in property. It's more work. But
20:48
Speaker 1: as I understand, Airbnb hand over all the data to
20:51
Speaker 1: the tax office, Isn't that right? And so in a
20:53
Speaker 1: way they've become a marvelous instrument for the tax office
20:58
Speaker 1: of LEZ.
21:00
Speaker 3: Yeah, you had a situation there where some people with
21:02
Speaker 3: its AIRBNBA or uber, they don't do it maybe one
21:05
Speaker 3: or two months a year.
21:06
Speaker 2: I ain't rent out part of the house or portion.
21:08
Speaker 3: I said, oh, we won't, Bob, we won't bother telling
21:10
Speaker 3: anyone at all, particularly not the tax office. Well, now
21:14
Speaker 3: there is the data is there, it's on your system,
21:17
Speaker 3: is reported. Hey, they have received money from us. There
21:21
Speaker 3: should be a rental property schedule in their tax return.
21:24
Speaker 3: If there is not, basically go hey, what got information?
21:27
Speaker 3: Do you been renting out getting some rental income? Where
21:29
Speaker 3: is it now? You know, I'm where are the deductions
21:32
Speaker 3: against it?
21:33
Speaker 2: Now?
21:33
Speaker 3: The key is as well, you know, Like again they
21:35
Speaker 3: will say, oh, they may not declare the whole of mouse.
21:38
Speaker 2: So we're trying to hide away from it. Really can't.
21:40
Speaker 2: So you've got to be bored on top of the game.
21:43
Speaker 3: And the other thing is like people may be renting
21:45
Speaker 3: out for part of the year as well with their
21:47
Speaker 3: homegrowning part of the year, but when trying the past
21:49
Speaker 3: claim the whole year's worth of loan interest or the
21:53
Speaker 3: holp is the whole house interest as well, and they
21:57
Speaker 3: shouldn't have been paying a Porsche claiming a portion of it. Well,
22:00
Speaker 3: so at I have been really cracking down on air
22:03
Speaker 3: dying days and now holiday homes as well.
22:05
Speaker 1: So interesting that draft ruling is that draft ruling came
22:08
Speaker 1: out in November twenty five, so as you say, it's
22:10
Speaker 1: highly likely to become law very soon. So just to
22:14
Speaker 1: turn it around for the person who plays and Airbnb,
22:17
Speaker 1: you know, we're just simply doing the right thing as
22:19
Speaker 1: a company reporting everything that they get to the tax office.
22:23
Speaker 1: Just so happens that in doing so, they sort of
22:25
Speaker 1: informed them about the entire so sub economy of Airbnb
22:30
Speaker 1: out there. But for the person who wants to still
22:35
Speaker 1: try and do it a holiday home as an de
22:39
Speaker 1: facto investment which they want to rent for most of
22:42
Speaker 1: the year, and they want to use it as well
22:44
Speaker 1: because the rent will in some way finance the holiday home.
22:47
Speaker 1: Is it still feasible and what's the best way to
22:49
Speaker 1: do it?
22:51
Speaker 2: I would make sure you make it available for the
22:54
Speaker 2: whole year at a.
22:56
Speaker 3: Genuine price, because what you don't want to lose is
22:59
Speaker 3: to tax duck forward, the interest and the depreciation and
23:03
Speaker 3: rate and insurance, all those annual costs.
23:07
Speaker 2: You don't want to lose that at all.
23:08
Speaker 3: And I think the government the whole reason why this
23:11
Speaker 3: rule has come about is housing affordability, and that could
23:15
Speaker 3: be rental affordability as well to making more stock available.
23:19
Speaker 3: So they're trying to find one way to make it
23:21
Speaker 3: more stock out there. And so why that is, well, okay,
23:26
Speaker 3: let's if you're going to make it available, make it
23:28
Speaker 3: generally available at a reasonable price at all times of
23:32
Speaker 3: the year, not just when it.
23:34
Speaker 2: Suits you and the like. So they're going to go
23:37
Speaker 2: they're going to go so hard on holiday homeowners. It's
23:40
Speaker 2: not funny. So I'll be conservative.
23:42
Speaker 3: Do not they with fire with the ATO, particularly with
23:45
Speaker 3: the way this draft brlling has been written.
23:48
Speaker 2: So you really want to say, well, in the boundaries.
23:51
Speaker 1: I want to see we're here legitimately to the legitimate
23:56
Speaker 1: issue of repairs. If someone had a holily helm and
23:58
Speaker 1: it was getting repaired, I suppose you couldn't grant it
24:02
Speaker 1: at the time. I just put that out there. But
24:04
Speaker 1: more to the point, on all investment properties, the issue
24:08
Speaker 1: of repairs, can you just clarify for people and explain
24:11
Speaker 1: to them that how you can claim maintenance repairs but
24:16
Speaker 1: you can't claim improvements. And I wonder is there a
24:21
Speaker 1: gray area between the two, But you might tell.
24:23
Speaker 3: Us there is a black and white portion. So if
24:27
Speaker 3: you spend more than three hundred dollars and as a
24:29
Speaker 3: separately identifiable asset, so it could be a hot order system,
24:33
Speaker 3: could be carpet, could be curtains and the like, there
24:36
Speaker 3: would be an improvement and you can claim the expense.
24:39
Speaker 2: But over the lifetime of the asset.
24:41
Speaker 3: It could be ten years, it could be five years,
24:44
Speaker 3: depending what the asset may be.
24:45
Speaker 2: Ideally people want to try and claim the whole amounts
24:48
Speaker 2: in one year if they can.
24:49
Speaker 3: So when the gray area may be if you just
24:52
Speaker 3: fix a leaking tap and that on the other side,
24:55
Speaker 3: it's definitely a repair.
24:56
Speaker 2: But if you were doing.
24:58
Speaker 3: A retaining war or a deck that may have been
25:01
Speaker 3: rotted or whatever, if you're only doing a portion of it,
25:05
Speaker 3: so only fixing up the affected little area rather than
25:10
Speaker 3: the whole replacing of the whole deck or the whole
25:14
Speaker 3: retaining wall, you could.
25:15
Speaker 2: Claim it as a repair rather than have it as
25:18
Speaker 2: an improvement.
25:18
Speaker 3: So in those particular instances, they will probably be depreciated
25:22
Speaker 3: over forty years, So you really want outing two and
25:25
Speaker 3: a half percent.
25:25
Speaker 2: You really want to try and get one hundred percent
25:27
Speaker 2: of a deduction.
25:28
Speaker 3: The other thing is if you buying an old, beat
25:32
Speaker 3: up property and you may buy it for a discount
25:34
Speaker 3: of price because there's this and that wrong and everything else.
25:37
Speaker 3: You buy it for fifty thousand dollars less than it
25:40
Speaker 3: was patched up, and you spend fifty thousand on repairing it,
25:43
Speaker 3: the ATO will consider those initial repairs as capital and nature.
25:48
Speaker 3: Even for fixing it that leky tap and fixing that
25:51
Speaker 3: down pipe and whatever the case may be.
25:54
Speaker 1: I can't claim it as a deduction that.
25:56
Speaker 3: Year in the first year, so you really need to
25:58
Speaker 3: wait for a period of time time as well of
26:01
Speaker 3: owning a rundown property before you can actually start making
26:04
Speaker 3: those repairs acclaim and as as a deduction in your
26:08
Speaker 3: actual same year tax returney if you like. And they've
26:11
Speaker 3: been really again, the eight have been trying to crack
26:14
Speaker 3: down big time on negative gearing and have been finding
26:19
Speaker 3: ways and initial repairs and just repairs in general is
26:22
Speaker 3: a big one. And because it's a separate item in
26:24
Speaker 3: the return, this stands out as well, So make sure
26:28
Speaker 3: you have your receipts, make sure you can justify that
26:30
Speaker 3: there was a repair, not a capital improvement along the way.
26:33
Speaker 3: And it was signifantly sick because it changed from year
26:37
Speaker 3: to year in terms of your negative gearing loss. If
26:41
Speaker 3: you go from a three thousand dollars loss to a
26:43
Speaker 3: twenty thousand dollars loss, and they know that five thousand
26:46
Speaker 3: dollars may be in relation to an increase in interest rates,
26:49
Speaker 3: what happened to the balance, you're giving them a red
26:52
Speaker 3: flag without doubt and so and they're more likely to
26:56
Speaker 3: ask questions, can you find information about it? You don't
26:58
Speaker 3: want to get it wrong because the penals is a
27:00
Speaker 3: huge as well, So you want to sign the right side.
27:03
Speaker 1: Right side of the low. Okay, folks, So there you are.
27:05
Speaker 1: So if you have a holiday home and you see
27:07
Speaker 1: someone sort of you know, if you see someone you
27:08
Speaker 1: know it seems to be sort of slooping around the deck,
27:11
Speaker 1: that's someone from the tax office and they're measuring. They're
27:14
Speaker 1: measuring the bit that was a repair and the bit
27:16
Speaker 1: that wasn't a repair, No kidding, if they could they
27:19
Speaker 1: would they probably don't, but if they could, they would.
27:22
Speaker 2: I just I make photos.
27:24
Speaker 1: That's why take photo. Yes, of course, yeah, you take
27:28
Speaker 1: photos because maybe they'll take photos. Maybe they have helicopters
27:31
Speaker 1: flying over the holiday resorts. Who knows. I wouldn't put
27:34
Speaker 1: it past them, all right, terrific. Hey, thank you very much,
27:36
Speaker 1: Adrian RAFTERI great to have you on the show.
27:39
Speaker 3: My pleasure, James and Bulato and listeners out there and
27:42
Speaker 3: having investing and make sure you keep on and joined
27:45
Speaker 3: that capital growth as well along the way.
27:46
Speaker 2: So good luck.
27:48
Speaker 1: Yes, because folks, there is actually a reason you go
27:51
Speaker 1: through all. They said it's for capital growth, but there
27:54
Speaker 1: are ways to optimize your tax as well. You just
27:56
Speaker 1: got to do it. And I think the way to
27:57
Speaker 1: deal with it is to actually a tackle it in
28:00
Speaker 1: a positive frame of mind, to optimize it rather than
28:03
Speaker 1: see it as a big fat headache. Okay, terrific. Let's
28:06
Speaker 1: have the emails and correspondents, complaints, observations, and I think
28:11
Speaker 1: at all, including finer points if you wish on anything
28:14
Speaker 1: we've covered today The Money Puzzle at the Australian dot
28:18
Speaker 1: com dot Au. Today's show was produced by Leah Samaglue.
28:22
Speaker 1: Talk to you soon,