The rent received from an overseas property is treated the same way as an Australian property; however, it is classified as a “Foreign Income”. The foreign tax already paid by the investor on the income from such an investment is treated as a “Foreign Income Tax offset”.

The deductions against the income from overseas property that can be claimed are similar to the deductions that can be claimed on an Australian property i.e. (rates, interest, insurance and depreciation). Also, if the investor incurs a foreign income loss on the overseas investment, then that loss can be offset against any other Australian income earned.

If you sell the overseas property, then you may be liable for a Capital Gains Tax (CGT). The ATO mandates the inclusion of the gain or loss derived from the overseas property in the tax return. A “Foreign Income Tax offset” can be claimed if the tax has already been paid overseas on the sale. Alternatively, the foreign income loss can be offset against the capital gains you make on any other assets in Australia.

To begin with, the cost of the purchase of land is not deductible. The cost of construction and claiming capital improvements cannot be claimed as an immediate deduction, but can be depreciated over time. Also, the conveyancing costs which are treated as legal expenses, are not an allowable expense for the taxation of rental properties. Most legal costs are of a capital nature, and so must only be applied to the cost base of the asset purchased.

A common mistake taxpayers often make is to claim all the borrowing expenses in the beginning year and forgetting to split the expenses between partners co-owning a rental property.

Barring this, most of the expenses can be claimed but the taxpayer has to maintain correct and adequate records in order to claim a deduction against their rental properties. The tax office requires you to keep records of rental income and expenses for five years from the date of lodgement. Furthermore, records for the proof of ownership and cost associated with purchasing and selling of the property needs to be retained for the same period of time.

If you used a computer to monitor your investments on a regular basis, then you may be able to claim a portion of the decline in value of that computer. Additionally, if the interest is earned by a joint account, the tax office mandates that the interest must be split between the joint accounts and allocated accordingly for tax purposes.

However, it is strictly mentioned that no account keeping fees can be claimed against a first home saver account. Moreover, certain expenses related to overseas investments or foreign residents are subject to complex legislation. It must be noted that a registered tax agent can be extremely handy to receive specialist advice on such matters.

Keeping good business record is a legal requirement and can lead to severe penalties if the records are not held for a period of five years. There is also a requirement that they must be prepared in English and in a form that is easy to understand. Other reasons include but are not limited to assistance in annual tax preparation; monitoring the financial health of the business; managing cash flows; save time and money; and requesting amendments.

If you believe the record keeping process is time demanding and expensive to sustain, then ask for help before things get out of control. You may want to engage a bookkeeper to set up your books or set up a specialsed software program. Remember, these costs are generally a tax deduction for your business.

As per law, there are certain items of goods that are exempt from GST credits which meas that no GST can be claimed on such items. The differentiation amongst such items is important and is often complex.

There is ample regulation behind the record keeping and invoices that should be available to make valid claims for GST. For example, if the price of a purchase is less than $82.5, no invoices are required to be retained to claim GST credits.

The GST is lodged through a Business Activity Statement governed by a separate legislation to the Income Tax. Therefore, It is advisable that you contact a registered tax agent to deal with your GST dealings, as the entire process can get a lot cumbersome.

• The Low-income tax offset (LITO) reduces the tax liability for people who fall under the low income tax bracket has been reduced from a maximum of $1500 to $445. This offset is not available for taxpayers earning more than $66,667. It is expected that the maximum LITO that can be claimed will fall from $445 to $300 from 2015-16 income year.
• Mature aged worker tax offset has been phased out from 1 July 2012, however, taxpayers who remain over the age of 55 as of 30 June 2012 would be able to claim a maximum of $500.

For more information on tax offsets contact Sammy at My Mother Hen on (02) 9415 7600.

It is worth noting that an employee might also receive Life Benefit ETP or Death Benefit ETP as part of his termination of the employment. These types of employee termination payments may be taxed separately and differently to the standard employee termination payments.

What constitutes an ETP?

• Amounts for unused rostered days off or sick leave
• A gratuity or ‘golden handshake’
• Compensation for loss of job
• Compensation for wrongful dismissal (if paid within 12 months of the termination)
• A redundancy payment which exceeds the tax-free limit
• Payment under an early retirement scheme which exceeds the tax-free limit
• An invalidity payment (for permanent disability, other than compensation for personal injury), and
• Certain payments after the death of an employee

These new changes have been enforced to target high value employee termination payments and ease the tax burden on the ETP recipients that are suffering due to a genuine unfortunate event.

It might be a relief to hear that the tax office expects every taxpayer to keep possession of all the invoices claimed for deductions but allows a certain degree of flexibility in terms of record keeping for such overseas expenses. It is imperative for us to understand the concept of “reasonable allowance amount” for this purpose.

“Reasonable allowance amount” is not a single amount but is a set of dollar amounts attributable to various destinations in the world as cost groups. These cost groups have an allocated dollar amount for meals, accommodation and incidentals which the tax department deems reasonable.

As a general rule, as long as the amount does not exceed the “reasonable allowance amount”, a taxpayer can claim deductions by using a travel diary.

The amounts that exceed the “reasonable allowance amount” should only be claimed when the taxpayer has appropriate invoices to validate the claim. Such invoices should at least contain the following set of information.

•  The business name of the seller
•  The amount of expenditure
•  The day and date of the expenditure and documentation
•  The nature of goods and services provided

Furthermore, the residential premises will not be considered new, if it was rented for a period of five years immediately following the period it was considered as new. However, if it was not rented out, then it may still be considered new after the period of five years. The new residential premises will allow GST credits for any purchase made upon the sale of the premises and GST outlay on the sale.

Existing residential premises are not eligible for GST credits and it is recommended that the tax payer consults a tax specialist prior to their claim for rebate.

If a taxpayer invests in shares and incurs a set of expenditure to earn dividends from such investments, then that expenditure can be claimed as a deduction. The ATO has categorized a list of expenses that are acceptable for deduction claims.

The list of deduction includes management fees, interest expenses, travel expenses, cost of journals and publications, internet access and computers, borrowing expenses and other deductions. However, it should be noted that such deductions cannot be claimed if the taxpayer is in the business of share trading.