Taxing times for property owners

It’s no secret tax deductions, in addition to capital gains, remain a carrot for property investors. But tax rules have tightened, and the landscape is always shifting, making it hard for the average person to keep up with what’s claimable, and what’s not.With June 30 creeping up, Haven looks at tax impacts for property owners and how to maximise returns.

 

Property purchase costs

Expenses you incur when buying an investment property – i.e. the actual property cost, stamp duty, legal fees and inspections – can’t be claimed immediately as tax deductions1. But they can be added to the purchase price when you eventually sell to reduce your capital gains tax (CGT). If, for example, you pay $400,000 for a property, plus $16,000 in stamp duty2?and $1,500 for conveyancing, your cost base increases to $417,500, reducing the profits that attracts CGT3. Similarly, you can deduct from your sale price any costs associated with the property’s disposal, including agent and advertising?fees.

 

Borrowing expenses

To many investors’ surprise you also can’t claim borrowing costs straight up in that income year, unless they are under $100, which is unusual. Borrowing expenses include loan establishment fees, title search fees, lender valuation fees and mortgage fees. Instead, these costs must be claimed over five?years.

 

Depreciation

When you spend more than $300 on a permanent fixture or fitting for your investment property, such as a dishwasher, air-conditioning or carpet, the ATO requires you to spread the cost of the capital item across the item’s ‘effective life’. In other words, the length of time it is considered usable. As the value of the item diminishes over time, this type of claim is known as depreciation. Rules around depreciation have tightened recently. Previously you could claim some items that came with the property. Now, you can only claim on capital items you buy?yourself.

 

Capital gains

When you make more than $30,000 profit on an investment property you must pay capital gains tax. CGT is applied at the same rate as your income tax rate, so if your personal tax rate is 25 per cent, so too is your CGT rate. However, if you hold a property for more than 12 months, the ATO will give you a 50 per cent discount on?CGT.

Some investors will aim to sell a property at the beginning of the financial year, so they have as long as possible until they have to pay CGT come tax time. Other investors may try to avoid paying CGT by purchasing a property through their self-managed super fund, paying the loan off through super contributions and selling once they have retired4. Make sure you speak with your financial advisor or tax specialist to understand the implications of this strategy for your?situation.

Capital gains tax also doesn’t apply to the sale of your own home, unless you have rented part of it out, or used it for a home business and claimed deductions against it5. Property purchased before 20 September 1985 is also exempt from CGT6.

 

Property inspections

Up until 30 June 2017, investors could claim travel costs associated with maintaining their property, including two inspections a year. The ATO has now closed that window, denying travel deductions for maintenance, inspections, attending body corporate meetings or collecting rent. If your investment property is far afield, you might come up shorter on your tax return this financial?year.

 

Working from home

With nearly a third of us now working regularly from home7, chances are you can claim some deductions on your place of residence, even if you don’t run a home-based business. The ATO will allow you to claim equipment, such as printers and computers, and a portion of energy and internet costs if you work at home8. If you have a separate, dedicated home office you may also be able to claim depreciation on fixed fittings, such as flooring and lights. Just note, working from home does not entitle you to claim any part of your rent, mortgage or home insurance, unless you operate a home?business.

 

Expert advice

With tax rules changing year on year, it’s important you speak with your accountant or financial adviser to find out what you can and can’t claim in your?situation.

 

Tax:?the information in this article does not constitute advice. As taxation legislation is complex we recommend you speak with your financial advisor, tax advisor or contact the ATO for further details and expert advice regarding your personal circumstances.

1 www.yourmortgage.com.au/home-loan-guide/what-tax-deductions-are-available-for-property-owners/246761/
2 Fictitious figure only due to state/territory stamp duty variances
3 https://propertyupdate.com.au/understanding-capital-gains-tax/
4 www.finder.com.au/capital-gains-tax-selling-property
5 https://propertyupdate.com.au/understanding-capital-gains-tax/
6 www.finder.com.au/capital-gains-tax-selling-property
7 www.smh.com.au/business/careers/one-in-three-australian-workers-now-regularly-work-from-home-20160921-grl3a1.html
8 www.yourmortgage.com.au/home-loan-guide/what-tax-deductions-are-available-for-property-owners/246761/

Why you can bank on a broker

One in two Australian home buyers1?now borrow via a broker. A dip in sentiment towards traditional banks, tighter lending criteria for investors and better-educated consumers have all helped boost mortgage brokers’ popularity over the past decade. There are, indeed, a raft of reasons to turn to a broker for your next home loan. Here are eight to get you started.

 

01 Freedom of choice

Brokers generally give you access to multiple loans from multiple lenders. Compare that with the loan options you might be presented with by a single lender. At the end of the day, competition and choice are the most powerful benefits a broker brings to the table and it’s the reason so many Australians have one?onside.

 

02 You don’t pay a fee

Most brokers don’t charge their clients an up-front fee to use their services (and if they do, they need to give you a Credit Quote for your agreement). Brokers receive payment from lenders in the form of a commission and are required by law to disclose the details of these payments under the National Consumer Credit Protection Act to ensure transparency and to give you the peace of mind you’re after. Ask your broker to provide an overview of his or her commissions when you?meet.

 

03 Save time

Why spend your valuable time researching home loans when a broker can do it for you? It’s the broker’s job to do the hard yards when it comes to your homework. A broker will make the most of your appointment time to get the necessary information to narrow down and present you with easy-to-understand options, saving you hours of online research and hard-to-translate?comparisons.

 

04 It’s all about you

A mortgage broker aims to find a loan that’s right for you. Brokers are not salaried bank staff, and that means they focus on finding a loan that is right for your unique circumstances. Brokers also take the time to understand your financial situation and goals. Such as if you are planning to start a family, take a study break or save for an overseas trip.

A mortgage broker can recommend a loan that makes financial sense for you.

 

05 More accessible finance

Stricter credit rules have prompted some traditional lenders to avoid borrowers with poor track records or less predictable incomes. While no magic wands are waved, and higher interest rates might apply, a broker may be able to suggest an alternative option that’s right for?you.

 

06 Smooth sailing

Buying a home and taking out a loan is an exciting and momentous milestone, but also a stressful process. Brokers ease many of the pain points by dealing with the lender and managing your application process through to approval. Brokers can also arrange after-hours appointments to fit your schedule, rather than the schedule of just one bank or?lender.

 

07 The latest legislation

It’s also a broker’s job to stay up to date with legislation so they can make the right recommendations for customers and ensure they meet lending requirements, which have tightened in recent years to reduce the risk of loan defaults and help maintain a stable economy. Brokers stay across industry, economic and regulatory shifts to avoid unexpected roadblocks for?borrowers.

 

08 Home loan health checks

Just like you get a check-up with your GP, your broker can run a regular health check on your home loan to see if it’s still right for you. Competition remains high in the mortgage market so it’s always worth asking your broker to reconsider your options. You could be paying off your loan sooner and saving thousands on interest repayments with a product that is better suited to your?needs.

 

1 www.canstar.com.au/home-loans/should-you-use-a-mortgage-broker

Keeping it personal

With corporate giants Facebook and Uber in hot water over privacy breaches, how can SMEs with fewer resources make sure they don’t run foul of Australia’s costly new data breach laws?

Fast-growing companies and successful SMEs could be the hardest hit when it comes to new data breach laws, according to cyber security expert Sorin Toma.

Mr Toma, who heads up cyber advisory firm Xpotentia and is the University of NSW’s principal adviser on cyber security, says thousands of small businesses have failed to keep pace with growing security demands.

The expansion of online business and resulting changes to workplace practices, including online data storage, integrated cloud accounting software, and multiple connected devices in the workplace has created a perfect storm of heightened risk for SMEs.

At the same time, hackers are growing more sophisticated, with identity theft and ransomware attacks more prevalent.

Mr Toma says this leaves many SMEs exposed under the government’s new Notifiable Data Breach scheme, which requires businesses with a turnover of more than $3 million to report data breaches to both the individual affected and the Office of the Australian Information Commissioner (OAIC). Failure to do so can result in fines of up to $1.7 million.

“Our research has found that businesses are not prepared for the new regulations, or indeed, the new wave of highly-skilled cyber criminals operating within the Australian market,” Mr Toma says.

Businesses in the danger zone are those just above the $3 million turnover threshold that do not have the resources to employ dedicated cyber security staff.

“They are the ones that are going to get hit the hardest because they just don’t have the tools; they don’t have the expertise and they don’t have the people to deal with this.

“A lot of the time, a small business might not know a breach has happened. It could send you bankrupt,” he warns.

And while the reputational cost of reporting data breaches to clients could be damaging, failure to report could equally result in crippling fines.

“Data breaches are surprisingly common, with a Telstra survey finding 59 per cent of Australian companies detected breaches on a monthly basis1 in 2016,” he said. This figure in itself makes me wonder whether the government has allocated sufficient resources to process and assess a wave of data breach reports.”

After the Notifiable Data Breach scheme came into effect on February 22, more than 30 reports were made to the OAIC in the first three weeks, with the regulator tasked with assessing all reports to decide whether further action is needed.

Mr Toma says grey areas in the scheme may also cause confusion, with legislation stating data breaches likely to result in “serious harm” must be reported. “This places the onus on SME owners to make an assessment they may not feel qualified to make”, he says.

Ransomware attacks, for instance, may not necessarily be reportable because data may simply have been locked but not copied.

Mr Toma says he does not expect there will not be any prosecutions under the new scheme until it has had time to bed down.

“I expect it will be tested somehow, but probably not for a year or so,” he said.

Right now, it is imperative SMEs implement best-practice cybersecurity measures.

 

Four basic cyber security steps Mr Toma advises SME owners to undertake immediately are:

 

Know where your key data is held

Look at where you store sensitive data – client details and financial information. Using cloud-based systems is not necessarily risky, but businesses must be aware where companies handling their data are based and what security provisions are in place.

“I’ll give you an example,” he says. “I got called in by a small business. They were worried that the off-shore manufacturers might steal their secrets or IP.” When he examined their processes, Mr Toma found they were using an online data storage company headquartered in Shanghai. “Without their knowledge, all their data was being held off-shore already.” He says business should be aware some companies may try to make it appear they are based in Australia or the US when they are not.

 

Secure it

Look at what controls you can put in place around sensitive client information. “So if it’s on
the cloud, it’s not such a bad thing because you can go to the cloud providers and you can purchase extra security and it’s just a matter of cost,” Mr Toma says. Paying for additional security could save you in the long run.

 

Consolidate and secure your base network

How many devices are connected to your business network? How is the network and each device secured? Mr Toma warns that the base network is the most common entry point for hackers chasing more valuable data. Once criminals breach your network, it can be relatively easy to find passwords to access sensitive cloud data, he says. Invest in a good antivirus package and network firewall.

 

Run regular system security checks

Cyber security is never a ‘set and forget’ issue. For SMEs without experts on staff, hiring a contractor is advisable. Mr Toma says businesses should begin with a full audit of systems and practices, followed by regular system scans every few months.

 

Notifiable Data Breach scheme

  • Applies to businesses with turnover above $3m, or that trade in personal information.
  • Effective from 22 February 2018.
  • Stipulates data breaches that may cause “serious harm” must be reported to the individual(s) concerned and the Office of the Australian Privacy Commissioner.
  • A data breach may include the loss or theft of a device containing personal information; hackers (or unauthorised personnel) accessing personal information; or when personal details are mistakenly provided to the wrong person.

 

More information is available at the Office of the Australian Information Commissioner

1 Telstra Cyber Security Report 2017 – managing risk in a digital world, https://www.telstra.com.au/content/dam/tcom/business-enterprise/campaigns/pdf/cyber-security-whitepaper.pdf

Competition heats up. Competition Index – June 2018

The AFG Competition Index released today shows further evidence of a structural shift in the Australian lending market as non-major lenders again seize market share from the majors. Non-major lenders have seen their overall market share of new loans hit a record 40.97% in May 2018.

AFG General Manager – Broker & Residential, Mark Hewitt explained the results: “The major lenders’ share of new business is declining, with their overall market share continuing a five-month slide to be sitting at 59% at the end of last month.

Among the majors Westpac and its subsidiaries Bank of Melbourne, Bank SA and St George have been hardest hit, with each of their brands recording a drop in market share.

“Mortgage brokers are drivers of competition in the Australian home lending market. A consumer walking into a bank branch has a choice of a handful of products that may meet their needs. Consumers talking to an AFG mortgage broker have access to thousands of alternatives depending upon their individual circumstances. Many of those products are from the non-major lenders, and many of those lenders do not have a branch presence,” he said.

The borrowers turning to non-major lenders in greatest numbers are those seeking to fix their interest rates, with market share for the non-majors in this category steadily increasing to finish the quarter at 32.57%.? “ING and Suncorp are the non-major lenders of choice for fixed products, with their share of the fixed rate market sitting at 6.08% and 5.39% respectively.

“The major lenders have been pulling back from the investor market to meet regulatory caps and as a result the non-majors are filling the gap in the market,” said Mr Hewitt. “Non-major market share among investors rose from 33.52% in February to 42.35% at the end of the quarter – an increase of 26%.

“Macquarie is proving popular with those looking to refinance, recording a market share overall of 5.63% but 8.33% in the refinancing category. Virgin Money has made rapid inroads in the short time they have been on AFG’s panel, with their share of the market in the same category rising from 0.1% to 0.86% in three months.

“First home buyers looking for a simple, low cost mortgage product have found it in AFG Home Loans with market share for AFG’s white label products rising across the quarter for this category from 4.76% in February to finish at 6.3% by the end of May.

Teachers’ Mutual Bank also recorded an increase in market share among first home buyers, lifting from 2.8% to 3.14% for the quarter.

These figures show that competition is alive and well in the Australian lending market.? The continued preference by consumers for mortgage brokers and the choice they deliver over major bank branches, demonstrates that brokers are delivering the right consumer outcomes,” he concluded.

 

Download full report

Official cash rate unchanged at 1.5% as decided by the RBA

The Reserve Bank of Australia decided to once again leave the official cash rate unchanged at 1.5% with the last rate move back in August 2016.

With a combination of job growth slowing from last year’s frenetic pace and stagnant wage growth, the Reserve Bank have signalled that we can expect to see rates remain where they are for now. Many however still expect the next rate move to be an increase with signs of improvement in the economy in the shape of strong internal trade results and improving GDP numbers.

Even when rates are unchanged, the role of your broker remains the same. There may be different rates available from our lenders, so your broker is always on hand to ensure you have the right financial solution for your current circumstances.

If you’d like to have a chat about what today’s news means for you and your finances, please don’t hesitate to?get in touch with an AFG broker.