Vargiu Accountants | Spring 2024 Newsletter 

Spring has sprung! 

Good riddance, winter, hello, Spring! Like us, I’m sure you’re glad to see the back of another Melbourne winter. We want to ensure these newsletters are valuable to our clients who read them, so this Spring, we’re covering some of the issues that have affected our clients and providing tips to help you navigate the current financial landscape. 

Managing Cost of Living Pressures 

The cost of living is going up and up and up. Stay on top of your cash flow. A straightforward way to do this is to invoice clients promptly and get them to pay on your terms. While easier said than done, vigilance is critical. Diversify your client base so you’re not too reliant on a few clients, especially if they’re cash flow-challenged. 

ATO Enforcement: A Growing Problem 

We’re seeing the Australian Tax Office (ATO) go after clients for outstanding tax debts and, in some cases, issuing Director Penalty Notices. These notices make directors personally liable for company tax debts. The ATO also liquidates taxpayers in some instances. If you have tax concerns, get in touch with us. 

Client Case Study: Capital Gains Tax 

We recently helped a client who sold their former family home, now an investment property, which triggered a Capital Gains Tax (CGT) event. The property was purchased in 2017 and rented out in 2019. When calculating the CGT, we used the 2019 property valuation, which had increased by nearly 10% since the purchase. This reduced the client’s taxable capital gain. Note that only expenses and depreciation incurred after the property was rented can be added to the cost base. 

If you are considering selling an investment property, make sure you talk to us about your situation so that we can work out the most tax-effective strategy for you, 

Residential Investment Tips 

Here are some tips for managing your residential rental investments: 

Claiming Interest on Construction Loans 

If you borrowed funds to construct a residential rental property, note you can only claim interest and holding costs from when the property is legally ready for occupation and available for rent. For example, Ren, who bought a block of land for $700,000 and took a $550,000 construction loan, can only start claiming these costs from 30 November 2023, when the property was listed for rent. 

Depreciation Claims 

Investors can claim depreciation on new assets and properties that haven’t been used before. This includes assets purchased for new properties or added to a rental property, such as furniture and window coverings. Items under $300 can be fully deducted in the year they are used, while assets over $300 must be depreciated over their practical life. Note depreciation on second-hand assets installed in existing properties or private residences after 1 July 2017 is not deductible. 

Claimable Rental Property Expenses 

Here is a list of rental property expenses you can claim immediately: 

• Advertising for tenants 

• Body corporate fees 

• Council rates and land tax 

• Water charges 

• Cleaning, gardening and lawn mowing 

• Pest control 

• Insurance (building, contents, public liability, loss of rent) 

• Interest expenses 

• Property agent’s fees and commissions 

• Repairs and maintenance 

• Legal expenses 

Managing Tax Debts with the ATO 

The ATO is cracking down on outstanding tax debts, including GST, PAYG withholding, income tax instalments and superannuation entitlements. The best way to manage this is to negotiate a payment plan which typically requires a 25% upfront payment with the balance paid over three years. Any new tax debt must be paid in full during the arrangement. 

The ATO also imposes penalties for late BAS and tax returns and general interest charges on debts being paid off. Superannuation debt has become a higher priority with escalations such as reporting to credit bureaus and recovery agencies and issuing Director Penalty Notices, which can affect directors personally. 

Contact us and the ATO to sort out any outstanding tax debts. 

Important Dates 

• 21st August – July Instalment Activity Statements due and payable 

• 28th August – June Quarter Activity Statements (BAS) due 

• 28th August – Taxable Payment Annual Report due