Holiday homes not genuinely available for rent

Grahame Allen • December 8, 2023

As the traditional holiday period approaches, many individuals may be heading to their holiday properties to celebrate with family or friends or letting their loved ones make use of the properties. Owners of holiday properties that claim deductions for property costs should be careful to ensure that their holiday property is genuinely available for rent, otherwise deduction for expenses may be denied. According to the ATO, factors that may indicate a property is not genuinely available for rent include: the way that it is advertised which may limit exposure to potential tenants (ie if it is only advertised by word of mouth, at a particular workplace, on restricted social media groups, outside of holiday periods/school holidays when the likelihood of it being rented out is very low). the location, condition, or accessibility of the property which may mean that it is unlikely that tenants will seek to rent it. unreasonable or stringent conditions placed on renting out the property (ie rent above the rate of comparable properties in the area, requiring prospective tenants to give references for short holiday stays, or conditions such as “no children” and “no pets”). Refusing to rent out the property to interested parties without adequate reasons. While some of these factors will be familiar with most owners of holiday properties such as having rent above the comparable properties in the area, other factors such as conditions of having no pets, or only having the property available outside of holiday periods may surprise. This could mean that if owners of properties near the beach in an area popular with summer holiday makers with little or no demand at other times reserve the property for their own use during the summer period, the property may be deemed to be not genuinely available for rent. In a scenario where a holiday property is deemed to be not genuinely available for rent (ie it is essentially for private use and not for earning rental income), no deductions can be claimed for the property for that period. However, records of expenses should still be kept, as property expenses such as insurance, interest on borrowing costs, repair, maintenance, and council rates can all be used to reduce any capital gain made when the property is sold. It should be noted not all private use is considered equal. In situations where a holiday property is available for rent during all holiday periods, including weekends, school holidays, Easter, and Christmas, and the owners only use the property during “off-peak” periods where they are unlikely to find tenants, the property would be considered to be genuinely available for rent. However, as the holiday home was used for private purposes during the year, the expenses must be apportioned. This apportionment applies any time an owner rents out their holiday home but also uses it for private purposes, including when the property is reserved for own use, or the use of family and friends. It also applies in instances where there is a short-term accommodation restriction by the State or Local government. In addition, where the holiday is rented out to family or friends at below market rates, the deductions for the period are limited to the amount of rent received. Example Jerry owns a holiday home in an area that is close to beaches and bushwalking tracks. The area is popular with beach goers in summer and hikers in winter. The local government has imposed a short stay restriction to combat the shortage of housing in the area, consequently, Jerry can only let out his holiday home for less than 180 days a year. To keep within this limit, Jerry only lets out the property for 169 days per year from 1 December to 28 February (90 days) then again from 14 June to 31 August (79 days). During the time the property isn’t advertised or rented out, Jerry uses the property himself or allows his family and friends to use it. For the 196 days the property isn’t rented or genuinely available for rent, Jerry cannot claim a deduction for expenses incurred during this period. Jerry makes $18,500 from renting out the holiday home over the 169 days and incur expenses of $35,000 over the entire year including $2,000 of agent and advertising fees. The property was also rented out for 2 weeks during the year at minimal rate of $100 per week to friends. Jerry can calculate his deduction for the property as follows: [(169 days/365 days)x$33,000] + $2,000 = $17,279.45 In addition, Jerry can only claim deductions for the 2 weeks that he rented out the property to his friends equal to the amount of rent during that period (ie $200). This is because the rent is less than the market rate and the expenses are more than the rent received during the period. Jerry’s rental income is therefore: $18,500 – ($17,279.45 + $200) = $1,020.55 As the area of holiday homes becomes more complicated with restrictions to short stays and interpretations of when a residence is genuinely available for rent, it is prudent to consult a registered tax professional when questions arise to avoid tax pain down the line.

Accessing super from age 60 to 65

By Grahame Allen • August 30, 2024
From 1 July 2024, the rules for accessing superannuation became somewhat simplified: the preservation age when you can begin to access your benefits is now effectively age 60. However, until you reach age 65, there are still potential restrictions on how you can access your super. You’ll need to “retire” before you can make lump sum withdrawals from your super account or move it into the favourable “retirement phase” when investment earnings within the fund become tax-free. If you’re aged between 60 and 65 and wish to access some of your super, now is a good time to re-examine the rules. 60 is the new threshold For anyone born after 30 June 1964, preservation age is simply age 60. You may recall that some members could previously begin to access their superannuation at various stages between 55 and 59 years. Those lower preservation ages applied for older Australians who are now all over 60 and who have already attained their preservation age. Therefore, those rules regarding ages 55 to 59 are no longer an active consideration. How much super can I access? If you are between 60 and 65 years old but haven’t yet retired, you can commence a transition to retirement income stream (TRIS). This allows you to receive a regular income of between 4% and 10% of your pension account balance each year. If you want to access more of your super, or withdraw it as a lump sum, you’ll need to satisfy a further condition of release. This includes: reaching age 65; or “retirement”. Meeting these conditions also becomes relevant for tax purposes. While TRIS payments to a person aged 60 or over are generally tax-free – regardless of whether they are retired or not – the TRIS itself does not move into the “retirement phase” until a further condition such as retirement (or reaching age 65) is met. This means that while you may start a TRIS, the TRIS will not qualify for the tax exemption on the investment earnings from fund assets that support the TRIS until you meet one of those further conditions. What does “retirement” mean? To satisfy the “retirement” condition, the first key requirement is that an arrangement under which you were gainfully employed must have come to an end. If you had already reached age 60 when that position of gainful employment ended, there are no further requirements, and your future work intentions are not relevant. However, if you had not yet reached aged 60 when that position ended, the trustee of your fund must be reasonably satisfied that you intend never to again become gainfully employed, either on a full-time or a part-time basis. For these purposes, “part-time” means working for at least 10 hours per week. This means you could intend to work for less than 10 hours per week and still meet the “retirement” condition. Planning is key Any withdrawal strategy should be carefully planned beforehand to ensure you understand the implications of accessing your super. There are many factors to consider, such as: the ongoing requirement to withdraw minimum pension amounts each year if you start a pension; implications for your transfer balance account; and interaction with the Age Pension. Contact our office if you need help understanding your eligibility for accessing your super, or to begin a discussion about your long-term retirement planning.

Super guarantee a focus area for ATO business debt collection

By Grahame Allen • August 16, 2024
The ATO has revealed its focus areas for this year, with business debt collection identified as a key strategic priority. In its Corporate Plan 2024–25, the ATO says that it will have “an increased focus on business debt including superannuation guarantee, pay as you go withholding and goods and services tax”. This is a timely reminder for all businesses to ensure they’re meeting their obligations. Superannuation guarantee (SG) remains an important compliance focus. The most recent ATO statistics show that although 94% of employers are meeting their SG obligations without ATO intervention, the ATO still raised over $1 billion in SG charge liabilities in the 2022–23 financial year. That figure reflects a lot of extra super liability for Australian businesses that could have been avoided if they had paid the required SG contributions on time. To ensure your business doesn’t incur these extra liabilities, you must pay SG contributions for your employees and eligible contractors on time and to the correct fund. The quarterly due dates are as follows: Q1 (1 July – 30 September): 28 October; Q2 (1 October – 31 December): 28 January; Q3 (1 January – 31 March): 28 April; and Q4 (1 April – 30 June): 28 July. Some important things to remember include: Some contracts and awards may require you to pay contributions more regularly than quarterly. If you make contributions to a commercial “clearing house”, the contribution is considered to be paid when it’s received by the employee’s fund, not by the clearing house. However, if you use the ATO’s Small Business Superannuation Clearing House, the contribution is “paid” when received by that clearing house. From 1 July 2026, employers will need to pay SG at the same time as salary and wages (commonly known as “payday super”). What if my business misses an SG payment? Taking action promptly is essential to accessing the ATO’s support services and minimising your exposure to penalties. The ATO says that it’s willing to work with employers who want to put things right. When you miss a payment, you must lodge an SG charge statement with the ATO within one month of the missed quarterly due date. Lodging on time is important, as failing to do so will incur a further penalty known as a “part 7 penalty”, which can be up to 200% of your SG charge liabilities. Also, when you lodge on time, you may then be able to set up a payment plan to pay your liabilities in instalments. You can ask the ATO for an extension to the lodgement date, but you must do this before the due date. You’ll also need to pay the SG charge. This charge is more than the amount of contributions you would have paid if you had paid them on time, and it’s not deductible. The charge comprises: the amount of the missed contributions (but calculated on salary and wages, including overtime, which is more than the usual “ordinary time earnings” basis for on-time SG contributions); interest of 10% pa (which accrues from the start of the relevant quarter); and an administration fee of $20 per employee, per quarter. This is paid to the ATO, not your employee’s fund. General interest charge will accrue on any outstanding SG charge, and the ATO may also issue a director penalty notice if it remains unpaid. We’re here to help Mistakes happen, but getting on top of problems early will lead to a better outcome for your business. Contact our office for expert assistance in addressing your business’s SG obligations.

Claiming the tax-free threshold: getting it right

By Grahame Allen • August 9, 2024
If you’re an Australian resident for tax purposes, you don’t have to pay income tax on the first $18,200 you earn each year, from any source. This is called the “tax-free threshold”. If you have multiple income sources, it’s important to consider which one you’ll claim it for. The ATO advises claiming the tax-free threshold once from your “main” payer – typically the job, gig or payment that pays you the most during the year. That payer will not withhold income tax from the first $18,200 they pay you but will withhold tax from payments once your earnings go over the threshold. At the end of the financial year, the ATO calculates your total income and tax withheld. If not enough tax has been withheld, you can expect a tax bill. If more tax has been withheld than you owe for your total earnings, you can expect a refund. Claim the tax-free threshold When starting a new job, your employer should ask you to complete a withholding declaration. To claim the tax-free threshold, you must be an Australian resident for tax purposes on the declaration and answer “yes” to the question “Do you want to claim the tax-free threshold from this payer?”. Where you answer “no”, tax will be withheld from all income from that payer. Avoid claiming the threshold from multiple payers simultaneously unless you’re sure you’ll earn less than $18,200 total for the year. Overclaiming might make your take-home pay higher each pay cycle but will likely mean a tax debt later. Changing jobs When changing jobs you can claim the threshold from your new payer even if you have claimed it from your previous one. If you add a job or side gig that will provide more income than your existing main payer, you can change your claim at any time. Altering your tax-free threshold claim Change your claim using ATO online services, via your myGov account: Sign in to myGov and access ATO online services Select Employment from the menu Choose either New employment (for a new job) or Employment details (for an existing employer) Update your tax and super details as needed. Don’t forget your side gig If you’re earning income outside of employment (eg as a sole trader) you’ll need to pay tax yourself on that income. Consider setting aside a percentage for tax or using pay as you go (PAYG) instalments each time you are paid.
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