Tax Tip 180: 10 Tax Myths

Discussion in 'Accounting & Tax' started by Terry_w, 27th Jul, 2018.

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  1. Rentvester

    Rentvester Well-Known Member

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    Great stuff Terry!

    14. Deductions dont mean spending $1 = $1 refund
    Tax deductions are regressive. The taxpayer will have a marginal tax rate. This is the rate of tax that applies to the next dollar or income OR the next dollar of deductions. Its often between 34-40%. So for every $100 of extra deductions the refund MAY increase by $34-$40.. Leaving the taxpayer 66% to 60% out of pocket.

    Thats the one that changed my mind re: tax deductions, it doesnt mean I get the money back usually its work portion + tax rate so sometimes a $1,000 spend would result in $238 refund. Not worth spending unnecessary money with the mindset of " i will get it back tax time anyway".

    24. My tax agent got my return all wrong.

    The onus is on the taxpayer to lodge a correct return. That means checking and and questioning anything you feel unsure about. Dont sign a thing until you are comfortable the return is correct. Penalties can be applied to the TAXPAYER for the acts of the agent. So when you think that the very ambitious claims made by a tax agent are questionable but their responsibility you should rethink that view. Self assessment applies to tax returns lodgements.


    That too, I try to make it easy for my accountant in an excel sheet, but sometimes deductions still get missed, and I needed to remind him to add in a certain deduction :rolleyes: I blame it on my messy excel sheet, work in progress.
     
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  2. Webb

    Webb Active Member

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    This year my wife claimed the $0.45c/hour work from home deduction. No problem there all genuine with evidence etc.

    I am worried this will affect the cgt exemption for my PPOR. can someone confirm?
     
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    No. Home is NOT a place of business. Its a place where she worked. Home study assuming is a dedicated area set aside. Sitting on the bed doing work is not eligible - Must be a area set aside not working in front of TV. Also consider % of data, phone etc. ATO website is a good guide : Home office expenses

    Difference is see with two dentists who are married to each other.
    One has a office and clinic in the garage. % of ownership costs deduction based on area + some other direct costs (eg separate elec and water meters) and this does impact on main residence.
    Other is spouse and they work in another suburb. However spends 2.5hrs each and every day doing books, clinical records etc at home. Claim based on say 575hrs a year x 45c = $259. (note adjutstment made for 6 weeks annual leave and holidays) No impact on CGT.
     
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  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Terry you make me blush :oops: Good skin tones I hardly noticed.
     
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  5. Webb

    Webb Active Member

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    Thank you. Yes it's a office. And fully legit. computer is provided.

    Thank you for the info, I can relax now!
     
  6. James Baker

    James Baker Well-Known Member

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    Confused in 21

    Is an out of state lawyer or accountant a bad idea as he may be unfamiliar with issues of the state ?

    Are VIC and NSW laws different ?
    From what I can see Sydney is where the majority of the ones are

    Have to seriously search around and engage one in the next few months

    Cheers
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Thats an important factor. A out of state lawyer may not be familiar with the practices in that state and this could pose concern. Yes each state has different Acts eg Duties Act, Land Tax Act, Surcharges, Conveyancing systems and issues.

    My view is :
    1. Use one that is within the state for the property or issue of concern until otherwise advised
    2. Can still be in another city or town etc.

    If I was in NSW and buying a QLD property I would definitely use a QLD solicitor. Not a Sydney lawyer.

    With respect to income tax it doesnt matter at all. Clients are across the country and even o/seas and it makes no difference. Sitting face to face isnt a productive use of time when doing a tax return. Takes me longer and you get the unpleasant task of watching. Its often more productive to complete it then discuss issues etc
     
  8. James Baker

    James Baker Well-Known Member

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    I am buying in VIC
    I am looking to engage a consultant who can advise me the most tax efficient method to buy the properties given my circumstances

    Is it immaterial if I buy in NSW or VIC strictly from this point of view ?
    Are there state specific tax breaks also ?
    Would the advice remain the same ?

    Cheers
     
    Last edited: 14th Aug, 2018
  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You mean you are after tax advice ?
    Tax breaks ? First home buyer or IP ?

    The income tax system doesnt assist anyone to buy a property. Some states have duty concessions for first HOME buyers.

    Depends on many factors. Positive / neg geared ?, Is it being financed and if so how ? Land taxes depend on entity choices and state and so much......

    What has your mortgage broker suggested ? Its often wise to start with a broker.
     
  10. James Baker

    James Baker Well-Known Member

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    I am not looking for advice on stamp duty
    I am looking for the best structure under which I should buy my next property which I intend to develop which balances the capital safety and taxes

    I am probably using the wrong terms and hence confusing you
    Cheers
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    generally lawyers only advise on state laws of the state they are in, but they can advise on the laws of other states too.
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You should engage a lawyer who is familiar with the duties acts and land tax acts in both states as only lawyers can advise on state taxes.
    Ownership structure is also something that requires legal advice.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Another one
    the relevant CGT time is settlement

    Generally it is the date the contract is entered into that counts for the timing of the CGT event.
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If you buy $50,000 worth of shares and they jump to $70,000 you can sell $50,000 worth and not pay any CGT.

    Wrong, because you must look at the cost base of each share.
     
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Dividend reinvestments arent taxable cause I didnt receive any income

    Wrong. A DRP has two events. The company pays a dividend. And then sells you more shares from the proceeds. Not paying tax is avoidance. Not keeping records for the DRP will create a CGT nightmare later.

    My ETF or Trust didnt pay any income in the 2018 year so I will ignore the tax statement they sent me.

    Wrong. Very common one for the ATO to ask about later. ETFs and Trusts make you presently entitled to income and the cash basis DOES NOT apply. Common for a year end distribution in August which relates to 30 June. So the tax statement they send really is correct.

    My ETF or Trust pays me tax free income. Its called tax deferred income and is shown on the year end tax statement. I dont have to declare it.

    Its called tax deferred because this part of the income distribution repays the capital you invested in. This lowers the cost base. Eventually when you sell you pay MORE CGT. Its called tax deferred because the income tax impact is deferred until the units are sold. Then it can bite you and sometimes its quite nasty. And if you dont maintain records the calculation for the CGT later on can be quite complex and costly.

    I inherited shares. I dont have to pay tax.

    Wrong. Inherited assets have a CGT impact when disposed. Quite often its the original owners original cost and sometimes its the value on the date they died.

    I inherited from my Mum and dad. My inheritance is tax free.
    Often incorrect. Sometimes it is and sometimes its not. Superannuation death benefits can have a tax impact even if the executor collects the super and passes it through to the beneficiaries. CGT assets can have a tax impact.

    I'm in a divorce and concerned about the tax issues with our IPs
    Dont be. Get tax advice. Family Court settlements can avoid CGT if its done properly. The concessions treat the assets transferred between spouses as if the other person always owned it. They "unwind" the tax concerns as if they never existed. The partner that ends up with the property is treated as if they always owned it. But selling the property and cashing up means BOTH former owners will each face tax issues.
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  17. neK

    neK Well-Known Member

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    When does the 6 months start? From date of sale or date of settlement?
     
  18. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Acquiring a property is a strange one. There are two CGT assets.

    Firstly a CGT right to acquire when a contract is made. This is typically ended when the actual asset title passes. The former right has a costbase of the price paid so no gain or loss occurs and its virtually ignored by 99.999% of taxpayers. But failed settlements, defaults etc can cause this issue to be more relevant.

    On the settlement date the new asset comes into existence. Thats the property. So you then must own it for another year PLUS ONE DAY to access a CGT discount.

    On that date or after if you signed to sell it would then be at a CGT discount.

    A disposal without a contract (ie not subject to the contract date rule) could also occur eg 2 spouses own a joint tenancy IP. Mary dies. Marys 50% passes to Fred on that date of death. 6 months later Fred sells. He has TWO CGT assets. to consider. One the original interest and the other the new interest arising from death. Each must be considered.
     
  19. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I failed to settle on a property - I cant claim a CGT loss

    Incorrect. Tax Ruling TR 19991/19 para 133 specifically says otherwise. However if you incur costs BEFORE making a contract and a contract does not occur then those costs cannot be recognised as a CGT loss. eg P&B costs for a IP which then appears to have whiteants so you dont enter into a contract.
     
  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I can claim stockings as a deduction because my friend claimed them

    Not work related.