Travel Deductions

Draft Legislation has been revealed

Housing Tax Integrity – Disallowing Travel Deductions and Limiting Depreciation Deductions | The Treasury

Some matters of clarity (subject to final laws being made and passed) include:

• Affects all taxpayers except the "excluded class" that only includes large institutional investors. No exception for disc trusts, family type unit trusts and SMSFs and small companies.
• Affects sublease arrangements and owners. So Airbnb etc is affected UNLESS its a business. A significant scale must be evident to satisfy that test.
• Travel to Strata meetings and the like are included in the non-deductible rule. ALL travel to the property regardless of meeting with agent, tenancy issues, repairs or even CGT activities (build a deck) are all prohibited.
• Travel cannot be added to the CGT costbase either - Either as a CGT cost base element for a improvement OR a non-deductible cost
• Reimbursement arrangements are caught too. Direct and indirect costs are non-deductible.
• Mixed use premises (ie flat + shop) requires apportioning and ONLY the buisness use element is deductible.

Exceptions

• Resi premises that produce income OTHER than rent. A example in the draft law is given of solar panels that produce income from electricity sale. The solar panels are damaged. Travel is made to repair that. This expenses will be deductible.
• Resi premises used in a business MAY have some limited deductions. Tax advice would be suggested.

 

Paul thanks for the update. Its curious that we are already post 1 July, and the legislation is not yet in place. With the 4 week public consultation period kicking off, I wonder how long before all is said and done, and the legislation finalised and given effect ?

Might it be worth holding off submitting returns if there is any clawback or further clarity on these positions ?

 

I wouldnt bother. Its a 100% certainty to be passed. It wont get watered down.
The consultation process is a given.

Its like something from the old TV show Yes Minister. The process is designed to confirm the law change. That how the Resource Rent Tax and Super Surcharge taxes got implemented. Both cost more to collect than they made. The process didnt consider cost. Never does

 

ok cheers Paul

 

Government ‘undermines’ tax system in new moves on property expenses
Interesting article here, and to be honest I completely agree regarding the travel expenses. Imagine the uproar if people were not allowed to claim motor vehicle deductions incurred in earning their salary. It's not exactly fair for the Government to single out a specific deduction like that. Surely the travel claims for rental properties would be small in the scheme of things.

The limiting of depreciation deductions does make sense to an extent though, it's really to stop assets being depreciated by multiple owners multiple times.

Having said all the, what is fair and what the Government come up with don't always necessarily correlate, and will will have to work with the rules we have in place.

 

Yes I had this same discussion with a well regarded tax lawyer. It could result in a High Court action in some instances since one of the fundamental principles well supported by common law for deductions is the nexus to income production. There are limits and all manner of other issues such as substantiation that can be engineered however. I dont think singling out rental travel is fair grounds to appeal however. The reasoning about fraud and misuse seems fair justification for the law change. But a blanket disallowance for all expenses (ie work related, travel etc) incurred in producing income for classes of taxpayers (ie individuals) may be problematic if a Government sought to do this.

eg It could be unfair on people who extensively use vehicles to perform work eg sales reps, sales people, performers etc and unfair to those who have above average deductions eg comparing a bank teller to say a nurse who must maintain professional development for example.

 

Paul, what about travel for other property related activities - to see a broker, accountant, lawyer, to check the po box, for property courses etc.

 

I would expect a ruling in due course after law is changed that elaborates on this issue. eg If I travel to Brisbane to meet with Rolf to access equity in my IP to use to buy shares is it a investment (non-property) cost that is deductible or a property issue that is non-deductible ?
Travel to meet a broker may be preliminary to income production however. You meet to get a loan to buy property. For refinance maybe ?? Provided its sole purpose of travel.Why meet face to face ?

Travel to meet a tax adviser (incl a lawyer who provides tax advice) is deductible under other provisions.

Check a PO Box = Not necessarily incurred in producing assessable income. If its local fair enough.

 

Yes, lots of little things to consider. Good point about the borrowing to buy shares.

I am going to open a PO box on the gold coast.

 

I will get one in Camden. And travel to meet you to get confiming tax advice on whether my views on travel are correct. Now thats deductible.

 

Do we have any new information on this yet? This month's Money magazine has an article that seems to indicate that travel allowances won't be claimable for properties exchanged after 9 May 2017 (unless I've read it wrong).

 

Still not law yet:
Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 – Parliament of Australia

 

So if this is legislated on 28 June 2018, will they backdate it back to 9 May 2017 to match up to their statement on budget night?

 

I don't agree. Travel claims on rental properties was a huge and well known rort. For example, I like in Perth and pick up an IP or 2 in Sydney (pre-2013 of course, I couldn't afford one now). Every year at Christmas time I take a nice holiday to Sydney and claim travels expenses against my I.P.s

 

Yes I believe that is the intent.

 

Business class too probably!

 

What about travel expenses to do your own renovations? We live in Sydney, renovated in Hobart. We went down for 2-4 days once per month for 4 months, now have the property on Airbnb. A property investment advisor suggested the travel should be tax deductible because were “working” for our own business. I was very dubious though.

 

Are you in the business of property? (unlikely) but if you were then travel would be deductible under the new proposed laws - I think.

 

If I am ashareholder/director of a company (which may be acting as trustee) - can the company arrange a company (directors) meeting in a location where that company/trust owns a property and still claim the travel expense?

It's not a meeting to inspect. It's a meeting of directors...

Blacky

 

Do all the same rules apply for commercial IP?