Landlords, the ATO and deductions

landlordsOne in seven taxpayers in Australia are property investors. Each year we claim around $5 billion in rental losses so it is understandable that the Australian Tax Office (ATO) keeps a close eye on the deductions claimed by landlords. But a recent case before the Administrative Appeals Tribunal (AAT) demonstrates how far the ATO will go to test the boundaries of what is and isn’t deductible.

In this case the taxpayer owned a property in country NSW. The owner stated that the property was available for rent but she had been unable to find tenants. As a result, the property did not derive any income for a number of years. The owners incurred the cost of interest on the property loan, maintenance costs, and rates, which they claimed as a deduction.

The Tax Commissioner had a different view and denied the deductions. The issue was whether the property was genuinely available for rent. If it was not available for rent, then the expenses incurred by the taxpayer are not deductible. If the property was available for rent, then the expenses are deductible. This is because you must show that the expenses were incurred in gaining or producing income, even if no income was actually produced in that income year.

What’s interesting in this case is how far the ATO will go. The ATO used electricity and telephone records to argue that the taxpayer had been living in the property and that it was not genuinely available for rent. Fortunately for the taxpayer, the AAT accepted that she had only lived in the property while carrying out repairs and maintenance work. So, even if a property is not deriving rental income during the relevant income year, taxpayers may still be entitled to deductions for interest expenses, council and water rates and other holding costs. The key issue is whether the property is genuinely available for rent and whether continuing efforts are being made to improve the property to attract renters.

The AAT also accepted the taxpayer’s argument that she had genuinely tried to rent the property. She had evidence of some limited newspaper advertising but stated that the most effective way to find tenants for this particular property was through word of mouth.

But the case did not go the taxpayer’s way. The AAT upheld the Commissioner’s decision to disallow a number of deductions because of a lack of supporting documentation.

Broadly, there are two types of rental property expenses you can claim:

  • Expenses you can claim in the year that you paid for them – for example: council rates, repairs, preparation of lease agreements, insurance and loan interest.
  • Expenses that are deductible over a number of years. These are either:
  • Depreciating assets – where deductions are claimed against income over the life of that asset. For example, if you replaced an electric hot water system in your rental property, you can claim a deduction for the hot water system over its life, in this case 12 years.
  • Capital works – where deductions are claimed for cuilding construction and structural improvements. For example, remodelling a bathroom or building a pergola are considered to be capital works and written off at the rate of 2.5% per year.

If it’s new, bigger and brighter than what’s already there, it’s likely to be capital expenditure and depreciated. But to claim a deduction, the property must be genuinely available for rent.

Richard Munro


Administration of a deceased estate

Navigating the laws and efficiencies around administration of a deceased estate can be very tricky. Outlined below are some key points you need to consider when presented with this situation.

Who administers the estate where the deceased has died intestate?

It is not simple to determine who is the most eligible to apply for administration. The court has wide discretion as to who it will grant administration, but in most cases, whoever is entitled to the largest share in the estate is considered the most suitable.

Why is it important?

Administration is an important role because administrators are in charge of splitting and distributing assets. This can be done in many different ways, for example: distribution is done in the administrator’s own interests rather than the interests of all beneficiaries. While this situation can be disputed by contesting the estate, it can cause greater administration costs and will also increase the time required to distribute the estate.

Efficient and timely administration of the estate is important. This is because until an administrator is appointed, the beneficiaries of the estate will not have access to any estate assets, including cash in the deceased’s name. This may be a problem for single income households where members of that household have to wait until Letters of Administration are granted before they can access the deceased’s assets.

Taxation and other expenses

Tax is a major consideration in the estate planning process to ensure that the potential taxation impact of distributing particular assets is reduced to a minimum. Where a person dies intestate, it is much more difficult to plan for distributions in a tax-effective way.

Depending on the marginal tax rates of different beneficiaries, an intestacy could potentially lead to an overall imbalance in the distribution of an estate due to higher rates of tax payable by some beneficiaries.

In contrast, when preparing a will, the will-maker and their advisers can assess opportunities to manage and reduce tax implications of assets passing to the deceased’s beneficiaries.

Conclusion – make a will and make sure it is valid

Among the many benefits of making a valid will, a will-maker can:

  • Elect to transfer assets to relatives in greater or lesser proportions that would result from the default rules.
  • Elect to transfer assets to a close friend or a remote relative (or an organisation which is important to the will-maker) who would otherwise be excluded from any benefit under the default rules.
  • Limit the risk of access by third parties to the will-maker’s estate.
  • Save the beneficiaries a great deal of administrative word and expense and minimise the likelihood of disputes.
  • Better manage how the will-maker’s estate is distributed and taxed.

Richard Munro

You’re sick but your business needs you. Follow these steps for managing a business while under the weather.

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This can be a very stressful situation; you’re trying to deal with being sick with deadlines, urgent client requests and immediate tasks hanging over your head.

Here are six tips for managing a business and a heavy workload while you’re sick. By putting these into practice, the next time you’re sick won’t result in a horrendous business situation.

1. Revise your to-do list

When you’re unwell you don’t see things as clearly. You need to be ruthless with your to-do list so it only lists the most immediate, pressing tasks. If the task doesn’t result in a cost to your business if not complete, put it on a separate to-do list to tackle when you’re back to work.

2. Realise you won’t get everything done

The sooner you realise you won’t be able to accomplish everything when you’re sick the better. Unrealistic expectations about what you can achieve while sick will only lead to disappointment and cause you stress which won’t help with your recovery.

The key is to embark on one task at a time and not worry about others until the most important task is complete.

3. Renegotiate deadlines and reschedule meetings

Renegotiate deadlines and reschedule your meetings as soon as possible. Colleagues and clients understand that if you’re sick sometimes you just can’t complete a task by the set time or make it to a particular meeting.

If you contact the person as soon as possible, they will be more than happy to reschedule the meeting or deadline. If you communicate with them in a professional manner people will not be put-out by your absence.

4. Set a ‘catch-up’ plan

Don’t push yourself too hard when you aren’t well enough to complete your work. This will only lead to an extended recovery period.

Instead, write down any ideas or notes that will make tasks quicker to accomplish when back at work and create a plan of attack.

5. Ask for help

If you have urgent projects that can’t be rescheduled, ask for help. The more you can delegate the quicker you can recover.

6. Give yourself guilt-free rest time

You need to allow yourself time to rest and recover when sick. Don’t stress yourself out by worrying about work while trying to recover. This will make recovery time longer.

Take the necessary steps to get better so when you are ready to return to work, you are 100% better.

This article appeared on Smart Company

Change for the sake of it is stupid

ChangeWe’ve just come through a very long election campaign and finally it is over. For many it’s been a necessary change so we could put to an end the uncertainty of an unstable government. We now need to give it time to see if the change is going to prove fruitful for us as a country. For the sake of everyone involved, I sure hope it does.

So what do you do when you’re faced with the opportunity to make a change in your business or life, when you weren’t really expecting to do so, because everything seemed to be working just fine as is? The change is supposed to increase your efficiency and improve your bottom line. The change is supposed to bring you in line with how others are doing it. Are you feeling convinced enough to make the necessary change? Are you ready to move into the unknown and take that leap of faith? Or is it change for the sake of change?

These are some of the questions I had to ask myself recently when faced with the idea of changing accounting software for my business. I’ve always seen myself as a progressive person and ready to embrace change. However, my system wasn’t broken and I was getting great efficiencies from what I was doing. I’d considered changing a year ago but I wasn’t ready then because I didn’t think the software was ready for my business.

Sometimes we can make justifications to ourselves for not making good changes in our business. Some of the common excuses are lack of time and ‘it could be too hard’. How will the team embrace the change and what will the clients think? Will I really get the returns that the change promises?

So, let me share my experience in changing from the Quickbooks software we used to Xero cloud accounting software. Those who know me well would identify that I wasn’t an advocate for Xero in the beginning. I was simply not ready to change for the sake of it, and that was the easy excuse I used. My system wasn’t broken so there was no pressure point making me want to change.

However, I wanted to keep up with what others were doing and moving to the cloud was becoming less scary overall. Have I got more efficiency out of the new system since changing over? Yes I have. The most important question is though; am I enjoying the new software? The answer is yes. I can actually say I have no regrets and in fact, I am recommending the product on a daily basis.

I didn’t do this for the sake of change. However, the timing of when we changed software was dependent on a change made in the business structure, so sometimes a little push can be very helpful. Otherwise I could be still sitting here wondering if I would be better off.

If you’re contemplating changing your accounting software then by all means come and discuss this with us. A change could be good for all concerned. Just like a change in the season can make us all feel a little more alive, a change in your business can increase productivity and efficiency.

If you’re feeling at all apprehensive in changing to a cloud based solution then make sure you talk to us. We can see what the best option could be your business and help you make a change for the better.

Michelle Gargar

Buying time

Buying timeJohn Lennon once said, “When I was 5 years old, my mother always told me that happiness was the key to life. When I went to school, they asked me what I wanted to be when I grew up. I wrote down ‘happy’. They told me I didn’t understand the assignment, and I told them they didn’t understand life.”

This is as pertinent today as it was then. As we all strive to make our lives and businesses successful, often we forget to stop and take a step back and wonder what it’s all about. Or is it that we don’t seem to have the time for reflection?

It’s an inescapable fact that everyone gets 24 hours in a day and 168 hours in a week to get everything done, and achieve what they want to achieve and that’s it. But what if you could buy a little extra time? What would that mean to you? What would you do with say, an extra day a week if you could literally buy an extra 24 hours each week?

Well here’s the thing- if you own and run your own business you often have that option.

Business owners have the option to engage additional team members – to pay for someone else to do what they do. Or to invest some of their precious operational time to actually work on their business to identify process improvements or efficiency gains. Or to engage a trusted advisor to assist with identifying new opportunities that may result in increased profits for the same investment of effort.

All of those things can be seen as literally buying time.

A recent study by Deloitte highlighted that a lack of external guidance from a third party strategic board, divorced from day to day operations, was significantly impeding Australian small family businesses from realising their full potential. Family businesses are best placed if they have two layers of governance – the first at a family level that operates within the business, and an external board that reports to the family.

Implementing such a framework obviously has to involve an investment of hard dollars but the return on investment could well be realised not only in the financial terms to which Deloitte allude, but also in freeing up the business owners most valuable resource – time.

Peter Morgan
Manger, Special Projects & Xero Facilitator

Charging around like a wounded bull

BullThis is an expression I have heard countless times when business owners talk about their relationship with their accountant – particularly when it comes to explaining why they had reservations about picking up the phone to consult prior to making a big business decision.

In my experience, although many accountants do still charge for phone calls, most do not and very few would not agree to an invitation to just chat about your business for a while on a free of charge basis.

Try picking up the phone and asking your accountant whether he would be happy to do that. If he isn’t, it’s probably time to start asking around for a referral to one that will.

Clearly any commercial business is in existence to make a profit, and accounting businesses are no different, so don’t expect the free visit or call to be regular and a source of unending free advice. But the principle of just chewing the fat once in a while is one embraced by many forward thinking accountants. And here’s why.

Business owners are not always business experts. Sometimes they are just doing something they enjoy and don’t have that much experience. Accountants on the other hand have spent their entire careers working with businesses, have seen pretty much all the problems and pitfalls, and have helped clients through them. They also have an array of professional contacts to consult and refer clients to.

Your accountant also probably knows your business and its history far better than any other professional adviser. Here’s why that free of charge catch up meeting works for both parties.

You need help, but you probably don’t know all the questions to ask. A free ranging chat with your accountant is likely to uncover issues which will enable you to improve your business performance and profits – and your accountant is also going to be able to help you to do that. They secure additional work which they can charge for and agree those charges with you in advance where possible. Everybody wins. If the ‘everybody wins’ scenario doesn’t surface then what has been lost?

A little time and maybe the price of a coffee but both parties understanding of each other’s business will have improved, and the underlying business relationship will have been enhanced and that’s not bad as a fall back.

Peter Morgan
Phone: 5539 9777 or email

Keeping up without going insane

social-media-marketingYou could spend every waking moment following the latest blogs, tweets, Youtubes, etc to keep up with the latest trends in Social Media (SM). It’s enough to send you round the twist. At one stage last year I decided enough! I was not going to read anything new for a month.  No webinars, no newsletters, no posts-  nuffin!

OMG what a pile up of info I had to plough through to get back on top of the heap. Then came the Penguin update.  A tsunami of panic ridden news came rolling in drowning me yet again. Munro did get wiped out for a while. We lost our top Google spot and it made a difference to the number of enquiries. Ouch! I had to get my grappling gear on and climb that mountain of information yet again.

It seemed like Mt Everest  at the time but it was actually just a hump. That update was a genuine cleanout of lots of dodgy sites and backlinking scams. I learnt a lot about best practice and keyword optimisation so the climb was worth it.

Now I just enjoy one great information site-  Social Media Examiner-  plus the odd webinar at Hinge Media or Smart Company. With over 30% of our fees coming via the website our Social Media section called ‘The M Zone” (thanks MG)  is on its own path. I just steer it to keep it on course.

SM is not rocket science it’s Marketing 101 that I  learnt back in the dark ages.

Give the client what they want and they will buy.   Simple.

That’s how I have kept slightly sane in this crazy new world of Digital Marketing that has taken over my working life for the past 2 years.  I love it but I don’t lose sleep over trying keeping up with the latest news.

Goodnight zzzzzzzzzzzzzzzzz