Tax implications of buying a holiday home

Buying a holiday house can seem appealing, whether it’s to rent out for income, for your own holidays or both. However, it is important to be aware of the different tax implications for how you choose to use your holiday house.

If you own a holiday house and do not rent it out, you cannot claim any expenses relating to the property. If you decide to sell the property, you will need to calculate your capital gain or loss. Even though you don’t need to include anything in your tax return while you own the property, it is still important to keep all records to determine the capital gains tax implications for when you sell it.

If you own a holiday house and rent it out to others, you have to include the income you receive from rent as part of your income in your tax return. Deductions can be claimed on expenses incurred for the purpose of producing rental income, such as cleaning, advertising costs, pest control, insurance, maintenance and repairs. The cost of repairs and renovations cannot be claimed immediately, but are deductible over a number of years.

You are only able to claim deductions for the periods the property is rented out or genuinely available for rent. A holiday house may not be considered genuinely available when:

  • It has none or limited advertising, e.g. when you only advertise by word of mouth or restricted social media pages.
  • It is rented out free or discounted to family and friends.
  • You use the property for yourself.
  • There are unreasonable conditions for renting, e.g. restricting children and pets and only being available during off-peak holiday seasons.

If a holiday house is shared between two owners, then the deductions need to be split accordingly. For example, if the house is owned 50-50, then the owners can claim equal shares of the expenses. If one partner owns 20% of the property, they can only claim 20% of the expenses.

Tax implications for workers with COVID-19 mobility restrictions

Employees who are not living or working in their regular location due to COVID-19 mobility restrictions need to be aware of the tax implications that apply to their situation.

Individuals who ordinarily work and live in Australia but are temporarily overseas due to COVID-19 restrictions will not experience any changes to their Australian tax obligations. If the employee is paying foreign income tax overseas, they will receive a foreign income tax offset to reduce their Australian tax payable.

Foreign residents working from Australia who are not able to leave as a result of COVID-19 restrictions will not experience Australian tax impacts if their stay in the country is under three months. However, non-residents working in Australia for longer than three months may need to lodge an Australian tax return if they earn any assessable income from an Australian source. Other than this, their Australian tax obligations will remain unchanged.

Employment income will not be taxable in Australia if the employee:

  • Is not an Australian resident;
  • Are intending to leave as soon as they are able to;
  • Has no employment connections to Australia other than the fact that they are performing remote work in the country.

Employees who typically reside in a country that Australia has a double tax agreement with may already qualify for an exemption in Australia.

Tax implications for landlords through COVID-19

Property investors may have a number of tenants that have temporarily paused their rent payments or are not paying the full amount of rent owed due to being impacted by COVID-19. Regardless of rental income changes, landlords are still entitled to claim deductions on rental property expenses if they are still incurring regular rental property expenses.

Landlords who receive a back-payment of rent, or an amount of insurance as a result of a decrease in rental income, will still need to include these amounts in their assessable income for the tax year that they receive the payment.

Additionally, landlords may be faced with deferred loan repayments as a result of COVID-19. In this case, if your loan accumulates interest it will be considered as an incurred expense, meaning that you will still be able to continue claiming a deduction on your loan interest.

It is likely that landlords of short-term rental properties have had their situation compromised by COVID-19 due to cancelled bookings and low demand. If your property is used both privately and for renting out short-term accommodation, you will be able to continue deducting property expenses in the same proportion as you were entitled to prior to COVID-19. If you had begun using the property differently in the period after your latest tax return and before COVID-19, the proportion of expenses you can claim may vary. This can include situations where:

  • You have increased the amount of private use of the property by you, your family, or your friends.
  • You have made the decision to permanently stop renting out your property once COVID-19 restrictions end.

Tax-deductible super contributions

Individuals may be able to claim tax deductions for personal superannuation contributions they make. Personal super contributions are made after-tax, not to be confused with the pre-tax contributions made by employers. This includes contributions made using inheritance money, savings, proceeds from the sale of assets, or from a bank account directly into a super fund. To be eligible, individuals must receive their income from:

  • salary and wages,
  • super,
  • personal businesses,
  • investments,
  • government pensions or allowances,
  • partnership or trust distributions,
  • a foreign source.

A valid notice of intent to claim or vary a deduction must be provided to and acknowledged by your super fund before being able to claim a deduction for personal super contributions.

A valid notice may be:

  • A Notice of intent to claim or vary a deduction for personal contributions form (NAT71121).
  • A form that your super fund provides.
  • A written statement to your fund explaining your wish to claim a deduction for your personal super contributions.

Deductions claimed for a super contribution will result in the contribution being subject to 15% tax in the fund. As well as this, after-tax contributions that have been successfully claimed will not be eligible for a super co-contribution from the government.

Individuals who are eligible to contribute to super will be able to claim a deduction, however, some age restrictions may apply. Those aged 65 or over must meet a work test before voluntary super contributions can be made, while those under 18 years of age may only be able to claim a deduction if they have earned income as an employee or business operator during the year.

Individuals claiming deductions for their personal contributions should also keep in mind that their contributions will count towards their concessional contributions cap of $25,000 a year. Penalties may apply if this amount is exceeded.

Tax contributions on your super

How much tax you pay on your super contributions and withdrawals depends on a variety of factors. The process takes into account your total super amount, your age, and the type of contribution or withdrawal you make. 

How are super contributions taxed?

The money that you contribute to your super account through your employer is taxed at 15%, and this is the same with salary sacrificed contributions. But there are exceptions to this:

  • If you earn $37,000 or less, then the tax will be paid back to the super account due to the low-income super tax offset (LISTO)
  • If your income and super contributions add up to more than $250,000, then you are also required to pay an additional 15% Division 293 tax. 

Any after-tax super contributions (non-concessional contributions) are not taxed further.

How are super withdrawals taxed?

How much tax you pay on withdrawals depends on whether you withdraw as a super income stream or a lump sum. Since this can be a convoluted process, it may be beneficial to approach an advisor and clarify any questions you may have before you withdraw money. 

What about beneficiaries?

If someone dies, then their super money will go to their beneficiary. This is known as a super death benefit. As a beneficiary, the tax you pay on the death benefit is dependent upon:

  • The tax-free and taxable components of the super
  • Whether you’re a dependant for tax purposes
  • Whether you take the benefit as an income stream or a lump sum. 

Tax bracket changes passed

In the 2019-20 Federal Budget, the Government announced their plans to change and build on the Personal Income Tax Plan. These changes affect the low and middle-income tax brackets and were passed on 5 July 2019.

The Budget proposed that from the 2018-19 income year:

  • There will be an increase to the low and middle-income tax offset from a maximum amount of $530 to $1,080 per annum and an increase in the base amount from $200 to $255 per annum.
  • Taxpayers with a taxable income which does not exceed $37,000 will receive a low and middle-income tax offset of up to $255.
  • Taxpayers with a taxable income which exceeds $37,000 but is not more than $48,000 will receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080.
  • Taxpayers with a taxable income which exceeds $48,000 but is not more than $90,000 will be eligible for the maximum low and middle-income tax offset of $1,080.
  • Taxpayers with a taxable income which exceeds $90,000 but is not more than $126,000 will be eligible for a low and middle-income tax offset of $1,080, less an amount equal to 3% of the excess.

Assessments for returns that have already been lodged are expected to be issued from 12 July and into the following week, which is in line with the normal processing of refunds for the end of financial year. Individuals and tax professionals will not need to request these assessments.

Amended notices of assessment can be accessed through the ATO website. For those individuals that have linked the ATO to their myGov account, they will be notified in their myGov Inbox.

Taking Advantage of Free Marketing With Blogging

To gain a foothold in the online community, it is becoming more and more important that small businesses take advantage of and develop a web presence that they can use to engage and communicate with their customers.

Blogs are among the primary three forms of media used in most content strategies today. By consistently using blogging as a tool for building your business’s online brand and raising awareness, you’re using a cost-effective method of content creation and directing more traffic towards your website. Doing so also enables you to provide your target audience with relevant content that they might find helpful and establish yourself in a niche as an authority.

Reportedly, 89% of content marketers used blog posts in their content creation strategy in 2020. It’s a marketing strategy that over 86% of companies are employing as their primary form of online marketing distribution.

Here are some reasons why you should consider employing blogging as your next marketing move.

Search Engine Optimisation Boost

Blogging allows you to provide search engines with fresh, relevant content straightforwardly and cost-effectively. When you create content through a blog post for your business, you’re providing major search engines with new content to refer back to in search results. You can also insert keywords that pertain to your business into your content that you know your customers use to search for what you’re offering them, and which will then flag your blog in their search results.

Strengthen Relationships With Customer Base (Old And New)

Engaging with your customers is an element of online marketing that you do not want to neglect, as they have the power to make or break your business. Blogging allows you to engage and connect with your customer base informally and builds up trust between you and them as a reliable source of high-quality and particularly relevant information.

Make Your Business The Industry Leader In Information

By providing your customer base with trusted, high-quality information that you know they’ll find relevant, you can establish credibility for your business and yourself as a “knowledge expert” in the field or niche you’ve carved out for yourself. Writing regularly about helpful and informative topics will make you the point of call within the industry, leading to more inquiries and higher conversion rates (clickthroughs, purchases, etc.).

Connect People To Your Brand

Blog posting allows you a more informal, conversational platform to create a dialogue with your customers and show them a more personal side to your business. You can establish a brand message and voice, engage existing and prospective customers, and show them a sense of your business’s corporate standard, character, vision, and personality.

Create Opportunities For Sharing

Sharing the link to your blog is something that your customers who engage with your content can do, which creates the potential for viral traffic and exponential growth in the market. It’s free and as easy as a simple click.

Blogging is essentially a must for any small business looking to increase its outreach into the digital landscape. Suppose you don’t have the time, resources or necessary expertise to write blog content. In that case, you can outsource the posts to a digital marketing agency and have them begin your company’s blogging journey.

Taking a super pension

Once you have met your preservation age (between 55 and 60 depending on when you were born), you can choose to take a super pension. There are six main types of super pension:

  • Account-based pension: this is the most common type of pension. It is a regular income stream bought with money from your super when you retire.
  • Transition to retirement pension (TTR): you can use this pension if you have reached your preservation age but are below 65 years old and still working,
  • Defined benefit fund: with this pension, you are paid a guaranteed income stream for life, however, it is not commonly used.
  • Annuities: this is a series of payments you receive at fixed intervals for a defined period or the remainder of your life. Annuity payments are purchased with a lump sum.
  • Reversionary pension: this is an income stream you set up with your superannuation that automatically reverts to someone else (generally your partner) when you die.
  • Death benefit pension: this is where your dependents receive your death benefits as a pension when you die. This is only available from some super funds.

The standard conditions of release for super pension withdrawals are:

  • Retirement.
  • Turning 65 years old.
  • Beginning a transition to a retirement income stream.
  • Ceasing an employment arrangement after you turn 60, regardless of if you get a different job.
  • Becoming permanently incapacitated.
  • Being diagnosed with a terminal medical condition.

The amount you withdraw can have an impact on any Age Pension entitlements you have, so be aware of these implications when deciding to withdraw an amount. You should also be aware of the transfer balance cap of $1.6 million that you’re allowed to move to an account-based pension. For super pension income streams, you generally need to transfer funds from your accumulation account to your retirement account for your pension.

Sustainable practices for your business

Adopting sustainable practices for your business is a great way to contribute positively to the environment. These changes won’t significantly impact business operations, but will effectively reduce the carbon footprint of your business.

  • Office location: This is relevant if you are moving to a new location or are newly starting your business. Choose a location which is convenient via public transport or accessible to bike lanes. This will help employees avoid driving to work which contributes significantly more to the carbon footprint than public transport.
  • Reduce the use of single-use products: There are lots of disposable products such as cups, spoons, and coffee pods regularly used in the office which cause excess waste that can be easily avoided. Instead, opt for reusable items and also put in recycling bins around the office so that if single-use products are used, they can be disposed of appropriately. 
  • Reduce water usage: Conserving water usage can be very simple. Install a dishwasher to efficiently wash the reusable utensils you have bought for the office. Ensuring that there are no leaking taps and the office uses low-flow toilets and faucets will also contribute to reducing waste. 
  • Recycle electronics: Whenever you are replacing your electronics (such as monitors, smartphones, printers, etc.) to update your technology and find that they are still working well, consider donating them to charities or schools who will be more than willing to put them to good use. If the electronics are not working, then there are technology recycling programs that you can use.
  • Sustainable partnerships: Building sustainable partnerships with like-minded businesses benefits the environment and makes it easier for businesses to make more environmentally conscious decisions. 

 

Making these changes isn’t particularly difficult for businesses but will significantly impact the carbon footprint businesses leave. 

Supporting mental health in the workplace

Business owners have a responsibility to look after their staff and ensure they have a healthy working environment. This extends to mental health as well as physical. With one in five people experiencing a mental health issue at some stage in their life, there is a greater need to have mental health support specifically within the workplace environment of small businesses.

While most workers can successfully manage their illness without it impacting on their work, some may require support for a short period of time and others may require ongoing workplace strategies. Employers should be aware of mental health issues they can encounter and how best to approach them. Research is key in helping to understand what your employee is going through, how to recognise the illness and ways to successfully manage it.

Employers need to recognise the role in which work can play in an individual’s mental health. An ‘unhealthy’ work environment or a workplace incident can cause considerable stress and possibly contribute to or worsen a mental illness. Under the Disability Discrimination Act 1992, employers must make changes to the workplace to enable someone with anxiety and/or depression to remain at or return to work, provided they can continue to meet the core requirements of their role. These changes can be temporary or permanent.

There are many ways to support individuals in the workplace who are experiencing a mental health condition. Listening and offering support can make a huge difference to an individual who is experiencing mental health problems. Whilst some conditions may require time off, others may feel better continuing to work. Developing a work plan is a great way to maintain a routine whilst helping ensure they are not pushing themselves. Continually check in on progress, both work and health-related, and make adjustments where necessary. Informing other team members of changes without disclosing details is a good practice so no one feels that certain staff are being given special privileges.

Further ways to promote mental health initiatives within your business include encouraging members of your workplace to seek help, reducing the stigma surrounding mental illness, and fostering connectivity and communication. Managing mental health within your business by avoiding conditions that lead to excessive stress and encouraging awareness and support can have many positive outcomes and cultivate a mentally safe and healthy workplace. Employers should also familiarise themselves with the work health and safety regulatory body in their state or territory.