Real Estate & Tax | Family Business Accountants | Westcourt

Real Estate & Tax
The Annual Acton Conference
Bali 2009
Presented by:
Craig Seddon

Contents
1. Main residence
2. Property developer
3. Rental properties
4. Real estate industry employees
5. National Rental Affordability Scheme

1. Main residence
On disposal of a property:
 An exemption from Capital Gain Tax (CGT) for any capital gain or
loss;
 In relation to a dwelling (or interest in a dwelling); and
 Is the person’s main residence.

1. Main residence (cont’d)
Conditions to be met:
1. Must be an individual;
2. Dwelling was their main residence throughout the ownership
period;
3. Must have an ownership interest; and
4. Interest not passed on from a deceased estate.

Factors to consider:
 Length of time lived;
 Place of residence of family;
 Address where mail is delivered;
 Address on Electoral Roll;
 Location of personal belongings; and
 Intention.

Full exemption categories:
1. 6 year rule;
2. 2 main residence;
3. Holding land to build; and
4. First practicable time to move into.

Example – 6 year rule
Gavin purchases his main residence in Mandurah in July 2007. Gavin
travels to Subiaco for work during the week. After 5 months, Gavin
becomes tired of travelling and purchases an investment property
(West Perth), to live in through his Trust.
Gavin charges himself rent (at market rates) from the Trust and
claims all related costs. Gavin rents the Mandurah property until it is
sold in March 2010.
The Mandurah property is sold tax free as it has been Gavin’s
declared main residence for the past 6 years.

Example – 2 main residence
Anita has a main residence in Peppermint Grove. Eventually, Anita
grows tired of her residence and makes an offer on a property in
Mosman Park in April 2007.
The offer is accepted and settlement occurs in September 2007.
Anita later sells her first residence in October 2007.
Anita is not liable for any capital gains tax on her first property as its
disposed within 6 months.

Partial exemption categories:
1. Adjacent land (separate disposal);
2. Different residences (individual and spouse); and
3. Income producing purposes.

Did you know?
 Exemption may not be applied where an individual is “in
the business” of moving into properties for short periods
of time while they renovate them for sale?
 Adjacent land may be fully exempt where:
 Its used for primarily for private purposes; and
 Maximum area is less than 2 hectares (inc. dwelling).

2. Property developer
An individual or entity is considered a property developer when the
property is held as past of the business.
If so, the following issues are considered: -
 Application of trading stock rules;
 Application of ordinary income rules on disposal; and
 Installment sales contracts or off-the-plan development sales.

2. Property developer (cont’d)
Trading stock
Property will be held as trading stock by property developers or traders
whose business involves dealing in land. For an item to be trading
stock:
 Property must be held for the purpose of resale; and
 Business activity that involves dealing with land should have
commenced.
[example]

2. Property developer (cont’d)
GST on development
When a developer builds a house on sub-divided land, the business
must be registered for GST.
For example:
Ben owns a property in Mount Lawley, which sits on 900 sqm. Ben
decides to bulldoze the existing house and build 3 houses on the
now triplex block. Ben will live in the front house.
Ben is considered to be in the business of dealing in land and must
be registered for GST. Therefore, the sale price will include GST.

3. Rental properties
What is rental income?
 Rental income earned;
 Bonds – when entitled to retain;
 Insurance payments;
 Letting fees; and
 Reimbursements and recoupment.

3. Rental properties (cont’d)
What are allowable deductions?
 Advertising;
 Body corporate fees;
 Insurances;
 Quantity surveyor’s fees;
 Rates and taxes [council, water, land];
 Repairs and maintenance;
 Travel – inspection;
 Etc, etc, etc.

Specific deductions.
 Capital allowances [depreciation]
Improvements to the property or asset replacements, such as:
 Hot water systems;
 Landscaping; and
 Renovations.
 Capital works [building write-off]
Claiming the cost of the construction of the building over a 25 year
period.

Common errors on claiming deductions.
 Claiming renovations costs as deductions for repairs;
 Claiming deductions for legal expenses which are capital in nature;
 Including the cost of land in the capital works deduction;
 Overstating interest deductions that relate to private borrowings
[generally on refinancing]; and
 Claiming private expenditure as deductions [i.e. Plasma TV].

Insulation installation.
The existing Low Emissions Plan for Renters Rebate (previously $500)
will be doubled to up to $1,000 for landlords with tenants and available
for insulation installation until 30 June 2011.
The previous cap on the number of rebates will also be removed.
Note:
Eligible owner occupiers receive rebates up to $1,600 from 3 February 2009 to 30 June
2009.

4. Real estate industry employees
Allowances – possible deduction.
The following allowances are generally received by real estate
employees and are in recognition that expenses may be incurred in
doing their jobs.
The allowances are assessable income and the expenses incurred
may
be deductible depending on the circumstance for:
 Motor vehicle allowance; and
 Telephone or mobile phone allowance.
Referenced – Tax Ruling TR 98/6

4. Real estate industry employees (cont’d)
Allowances – reasonable amount.
The Tax Commissioner publishes a tax ruling annually that indicates
amounts considered reasonable in relation to the following expenses:
 Overtime meal expenses covered by an allowance paid or payable
under the terms of an industrial law or award;
 Domestic travel expenses covered by a travel allowance; and
 Overseas travel expenses covered by a travel allowance.

Deductions.
A deduction is only allowable if an expense:
 Is actually occurred;
 Meets the deductibility tests; and
 Satisfies the substantiation rules.
[Examples]

Deductions - examples.
 Advertising;
 Gifts
 Home office – consumables & IT;
 Motor vehicle running costs;
 Registrations (i.e. REIWA);
 Subscriptions;
 Telephones, mobile phones & PDAs;
 Training, seminars & conferences; and
 Travel.

Did you know?
1. That you can claim a pair of sunglasses each year [no threshold] if
you drive your car for work; and
2. Ladies may claim or salary sacrifice a handbag each year as a
deemed briefcase [without any FBT implications].

Real Estate & Tax | Family Business Accountants | Westcourt

Questions.
Craig Seddon
Westcourt Consulting Chartered Accountants
Level 1, 45 Royal Street
East Perth WA 6004

Real Estate & Tax | Family Business Accountants | Westcourt

More Related Content

What's hot (20)

Similar to Real Estate & Tax | Family Business Accountants | Westcourt (20)

Recently uploaded (20)

Real Estate & Tax | Family Business Accountants | Westcourt