Month: April 2021

Interest On Your Home Loan Could Be Tax-Deductible

Posted on by Adam_Admin

It’s a simple, step-by-step process used by many Australians to increase their income. Borrow money from a financial institution, invest in a second property and pay off the loan with the profit accrued from the investment property (ie. rent from tenants).

But did you know that the interest on a home loan for the purchase of an investment property can be claimed as tax-deductible?

To clarify – claiming a tax deduction on the interest of a loan can only be used on the loan that was used to purchase the investment property. It also must be used to earn income, because a property that is solely residential isn’t eligible for any tax deductions (except in certain situations where the residence may be used to produce income, like home business or office).

Here are a few examples of when tax deduction claims on your property are not allowed:

  • If the secured property is being used for living as a primary residence, and no income is made from it.
  • Refinancing your investment loan for some other purpose (like buying another property).
  • Using the loan for private purchase, other than the purchase of a home.
  • If the investment property is a holiday home that is not rented out, then deductions cannot be claimed as it doesn’t generate rental income.

As an example, if borrowing against your main residence for the purpose of purchasing an investment property, then the interest on that loan is tax-deductible. Conversely, if the loan was against the investment property to buy a car for your personal use, then the interest from that loan will not be tax-deductible.

The only way that a tax deduction on a home loan’s interest is possible, is if there is a direct, unbroken relationship between the money borrowed and the purpose the money was used for. Any money that resulted from a home loan, for instance, should have been invested into a property.

If you happen to redraw (make extra repayments into your loan that reduce the loan balance) against an investment loan for personal use, the tax-deductible interest is watered down. This is because the new drawdown (transfer of money from a lending institution to a borrower) is deemed to not be for investment purposes.

It is important that any investment loans are quarantined from your personal funds to maximise tax deductions on interest. Though it may be tempting to pull additional funds from the loan for additional finances, it’s shooting yourself in the foot.

A better strategy (if there is only investment debt that has been incurred, and you wish to pay it off), is to place funds in an offset account (a bank account that is linked to your home loan) and then redraw those funds for your personal use. It’s also important to ensure that the offset account is a proper offset – a redraw that is disguised as an offset account can be a major drawback for investors looking to capitalise on their tax threshold.

If you or someone you know has recently purchased an investment property with a home loan, speak to your accountant or financial advisor to see how your tax return can benefit from it.

How Do We Make The Office Work More Productively, Post-Covid?

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There have been critical changes to the workplace over the past year. With many office-based employees forced to work remotely or from home during the pandemic, the adaptation of new technologies, systems of work, and overall business models has changed the office’s approach. 

Many office businesses may need to reevaluate their structure and model as employees return to the office.

Here are a few ways that your office can update to help boost productivity and reassure employees during this process:

  • The physical workplace should prioritise collaboration with a communal, free-flowing workspace. This workspace allows employees to be transient and hybrid while still possessing the resources they need to work effectively in person.
  • Use remote work technologies for effective communication to facilitate and support teams collaborating and catalyse innovation. 
  • Place greater importance on portability, flexibility, ease-of-use integrated support for an entire ecosystem of software when it comes to IT.
  • Businesses should create more significant support for cloud software, data management and security measures.
  • Businesses should ensure that safety and sanitation measures are more visible, accountable and that the appropriate policies will be enacted.

Feedback from your employees can also be an invaluable resource in helping them readapt to working from the office productively. 

What You Can Negotiate For Your Employment Contract After 12 Months

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Before commencing employment at a business, organisation or under an individual, an employment contract must be agreed to by both employer and employee. This employment contract may have had additional revisions, agreements or negotiated terms set out in full at signing. Still, after the past year, there may be specific issues or conditions that you’d like to amend before continuing with your employment. 

One such condition that you can negotiate with your employer is working remotely. 

Under the Fair Work Act, if you have been in your current position for longer than 12 months (and it is feasible for you to carry out your work responsibilities), you can seek to negotiate flexible working conditions. The National Employment Standards set out additional conditions for employers and employees to negotiate contract conditions and agreement.

You can make this request if you:

  • Are the parent/responsible for the care of a child who is of school age or younger.
  • Have a disability
  • Are 55 or older
  • Are currently experiencing violence from a member of their family
  • Provide care or support to a member or their immediate family/household who requires care or support because they are experiencing violence from their family.

Other flexible working conditions that can be negotiated include:

  • Changes in the hours that you work (reduction in hours worked
  • Changes in the patterns of what you work (i.e. splitting shifts, job-sharing arrangements)
  • Changes to the locations from which you work (such as working from home/another location/remotely)

Employers are not obligated to agree to these requests if there is reasonable grounds to do so. An employer may refuse these requests for more flexible working arrangements if: 

  • It is too costly for the employer to accommodate them
  • There is no capacity to change the working arrangements of other employees to accommodate the new working arrangements requested by the employee
  • It is impractical to change working arrangements of other employees, recruit new employees or accommodate the new working arrangements requested by the employee.
  • It results in a significant reduction or loss of efficiency or productivity.
  • It would have a significantly negative impact on customer service.

Employers and employees should always discuss working arrangements and reach an agreement that balances both needs if possible. Always ensure that any agreements to conditions are noted in the amended contract and put in writing. Similarly, any refusals from employers must also be done in writing within 21 days of the proposed request. 

The Fair Work Commission is able to deal with disputes about reasonable grounds for denial but always discuss with your employer first whether there could be an alternative solution.

Simple Super Information For The Self-Employed

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If you’re self-employed, you aren’t required to pay yourself super guarantee payments. It is however a recommended way to save for your retirement, and making personal super contributions could be beneficial for you in the long run.

As a self-employed individual, you can make regular or lump-sum payments to your super, potentially claim a tax deduction on contributions, and may be able to save tax later on. 

If you’re looking to start paying contributions to a super fund you already have, always check that you can make those contributions to it if you are self-employed. Your fund will also need your tax file number (TFN) to accept those contributions. If you don’t provide your fund with your TFN: 

  • Your super contributions will be taxed an additional 34%
  • Any personal contributions that you try to include in your fund will not be accepted, which may mean you miss out on super co-contributions you’re eligible for.
  • It will be harder for you to keep track of your super. 

There are two ways to make contributions to your fund if you are self-employed, depending on how you pay yourself. If you receive a wage, you can set up a regular transfer into super from your before-tax income, or if you receive income from business revenue, you can transfer a lump sum when you have enough cash flow. 

Employers contribute at least 9.5% of their employee’s earnings to their super fund. As a self-employed person, bear in mind that there are limits to how much you can contribute each financial year. These are:

  • Up to $25, 000 in concessional contributions (from pre-tax income, which you can claim a deduction on).
  • Up to $100, 000 in non-concessional contributions (from your after-tax income or savings). 

You may also be eligible for co-contributions to your super from the government if you are considered low-income. Discussing your options for your super with an accountant or financial advisor is highly encouraged and will ensure that you don’t miss out on that potential capital growth.

Maximising Tax Returns On The “Side Hustle”

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If you or someone that you know began a side business (or “side hustle”) during the last financial year, you would have to meet the tax obligations that come with that business, along with the tax obligations of your primary business. 

All income earned through a side business is taxable income. That means that every sale you make will count towards your taxable turnover (the total business income from your sales) and will need to be declared on your income tax return. Additionally, suppose your turnover exceeds or looks like it will exceed $75, 000. In that case, you’ll have to register for GST and incur the 10% tax that’ll be added onto all of your taxable sales, payable to the ATO every quarter.

If you have to spend money on purchases or expenses that relate to the side business, that spending can be deducted from the profits that you make. Essentially, you only need to pay tax on the difference between your income and your deductions. Here are a few things to keep in mind when claiming a deduction for your business. 

  • The expense that you are claiming has to have been incurred by the business. 
  • The expense must relate to the business and can’t be something like your weekly groceries (domestic or private in nature expenses are generally not eligible for claiming).
  • If an expense has been incurred that is partly private/domestic, and partly for business, that expense will need to be appropriately divided. This is especially useful if you run your side business from home and claim home office costs.
  • Always ensure that your records are being kept and that there is evidence that it was the business that spent the money. An invoice or a receipt is sufficient evidence in this case, but a bank or credit card statement may also be used.

Other deductible expenses can happen during the initial startup and structuring of the business. These deductions can include costs that occurred when seeking professional advice on structuring the business, researching the business’s viability or when developing a business plan. 

A few items you might be eligible to claim for your side business include:

  • If the business is being run from home, the business portions of bills like utility, phone or internet can be claimed.
  • Skilling up for the business or reskilling may be tax-deductible when it comes to the cost of courses, training, seminars or conferences (as long as it links to business income). 
  • Any prep work that occurred during the business startup before the business’ official start can be claimed by the business.

Always ensure that you claim all business expenses that could apply to your business.

Good record keeping will help track all income and potential deductions that come through via the side business, and employing a bookkeeper could be a means of ensuring that this happens correctly. Remember that accountants are always here to help you during tax return time as well.